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Let’s talk some numbers.....

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THE PROBLEM: Our local refineries cannot produce enough petrol to meet our local demand put at 35million litres/day Ok, now let’s define some terms: barrel = bbl; gallon = gal; litre = L; bbl/day = bbl/d; million = m. Next, 445,000bbl/d have been allocated for local refining If 1bbl = 42gal = 168L, then 445,000bbl/d will give: 445,000 x 168 = 74.76mL/d (mL = million litres). Please keep this in mind as you go to the subsequent slides. 2

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3 Rig Development & Transportation costs from reservoir to refinery gate - $5/bbl Reservoir Processing & Transportation Refining and transportation to Depot - $12.6/bbl Refinery Depot Pipeline and Distribution Costs - $1.5/bbl Add Distribution Margins (Retailers, Transporters, Dealers, Bridging Funds, Admin Charges etc - $16.58/bbl 1234 Final Cost of a barrel of PMS = $(5+12.6+1.5+16.58) = $35.7/bbl At an exchange rate of N157/$1, This comes to N33.6/L

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The government says refineries are operating at 38.2% of refining capacity of 445,000bbl/d Now, 38.2% of 445,000bbl/d = 170,000bbl/d. Let’s digress a bit: A barrel (42gal) of crude oil yields the following: 4 LPG – 4 gal PMS – 19.5 gal AGO – 10 gal DPK – 4 gal LPFO – 2.5 gal RESIDUALS – 5 gal As we already know 1bbl of crude contains 78L From the diagram, local production (of 170,000bbl/d) will give 13.26mL/d of PMS (19.5*170,000*4) The government says that national demand is 35mL/d. So.....

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...so the government exports 275,000bbl/d in a refine-swap deal to make up the gap. The breakdown is as follows: 5 Duke Oil (UK) – 90,000bbl/d Societe Ivorienne de Raffinage (Cote D’Ivoire) – 60,000bbl/d Trafigura – 60,000bbl/d Unknown – 60,000bbl/d Landing costs (refining & transporting) – N123.32/L Add Distribution Margins (Retailers, Transporters, Dealers, Bridging Funds, Admin Charges etc – N15.49/L This comes to $3.54/gal or $148.54/bbl Again, please keep this in mind as you go to the subsequent slides.

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Volume-wise, upon refining, 1bbl of Nigerian crude yields: 6 Fuel Oils/Residuals – 32.6% LPG – 6.6% PMS – 20.7% AGO – 30.6% DPK – 9.5% Now, using a netback calculation, we calculate the true cost of 1L of imported PMS for swapped oil: Let’s define Gross Product Revenue (GPR) of a refined barrel of crude oil: i.e. GPR = Sum of volumes of each product (P) multiplied by the respective prices of the product ($) Now, domestic prices are as follows: Fuel Oils/Residuals – $129.68/bbl LPG – $174.48/bbl PMS – $69.55/bbl AGO – $172.22/bbl DPK – $53.3/bbl

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$142.32/bbl 7 Fuel Oils/Residuals – 32.6% LPG – 6.6% PMS – 20.7% AGO – 30.6% DPK – 9.5% Fuel Oils/Residuals – $129.68/bbl LPG – $174.48/bbl PMS – $69.55/bbl AGO – $172.22/bbl DPK – $53.3/bbl Since the swap crude is produced locally (and has been allocated for local consumption); to get its real landing cost: We need to remove the International cost of the allocated crude; this is $107/bbl And we get: $(142.32 – 107) = $35.32/bbl Just hang on......

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Since the international cost of PMS is $148.54/bbl And the net-cost of swap crude is $35.32/bbl 8 This comes to $0.219/bbl or N34.45/bbl This is the REAL cost fo 1L of PMS and not even the N65/L that we currently pay! Then the net-cost PMS is:

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Government claims a landing cost of N138/L for PMS but assume that the swap oil (275,000bbl/d) is sold for FREE! While the resulting refine/imported PMS costs N148.54/bbl (Talk about creating something out of nothing ) They argue that they subsidise each litre of PMS by N73 (N138.91-N65). But if the (‘international’) landing cost is at $148.54/bbl, then naturally, the take-off of swapped crude oil should be at ‘international’ price ($107/bbl). The traders/marketers and the Govt are charging us FULL PRICE for the swapped crude while they are getting it for FREE! 9

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If the true price of 38.2% of our PMS supply from our local refining is N33.6/L and the remaining 61.8% has a true (‘international’) price of N34.45/L, then the average (and TRUE) price of a litre of PMS is: N(38.2%*33.36+61.8%*34.45) = N34.03/L However, we have been paying N65/L 10 We have the experts and professionals to prove this. Let the Govt come up with a counter-analysis. We cannot pay for refined product in the domestic market at ‘international’ prices while the swapped-oil is taken for FREE. Simply put that is stealing....... ** This presenation is based on an article by Dr. Izilien Agbon, a former HOD, Petroleum Engineering Department, former ASUU Chairman, University of Ibadan, trained many operators in nation ’ s energy industry with practical experience on our practices and policy focus in the last 20 years, writes from Dallas, Texas. izielenagbon@yahoo.com. The article can be viewed at: http://thewillnigeria.com/opinion/11340-THE-REAL- COST-NIGERIA-PETROL.html izielenagbon@yahoo.com In short we have been paying a PMS tax of 91%!

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