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OIL MARKET: HIGH CRUDE PRICES SHOOT AVIATION FUEL BY 121.4% TO N620 PER LITRE

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THE price of aviation fuel has increased by 121.4 per cent to N620 per litre in June 2022, from N280 per litre in the corresponding period of 2021, due mainly to the rising price of crude oil in the international market.

The price of crude, currently hovering at $128 per barrel, had stood at about $70 per barrel then, thus costing refiners less to process it into aviation fuel, a deregulated product, that is imported from the global market.

But an investigation by Vanguard, weekend, showed that the current rise in crude oil prices, which is also fuelled by the Ukraine-Russian war, sanction on Russian oil, market instability and speculation, has increased their cost of operations.

Consequently, oil refining companies now incur additional cost in the process of buying and processing crude into aviation fuel, which they pass in form of high prices to airline operators.

Checks by Vanguard, weekend, showed that airline operators have also increased their flight rates to cover the rising cost of operations and make profit.

For instance, Ibom Air charged N50,000 for its economy class from Lagos to Uyo before now, but last Monday, the airline charged N86,000 from Uyo to Lagos.

Commenting on the development, a Lagos-based transport analyst, who pleaded anonymity, said: “Many air passengers have shifted to road transportation, which operators charge lower rates. For instance, it cost only N12,000 to travel to Uyo from Lagos by road.

“On the other hand, there are no fixed rates at the moment. Airlines charge different rates, depending on the demand and supply of passengers. They slash the rates in times of low patronage, but increase when there is a surge in demand.”

Aviation fuel driven by high demand— MOMAN

In an interview with Vanguard, chairman, Major Oil Marketers Association of Nigeria, MOMAN, Mr. Olumide Adeosun, who confirmed the rise in the price of aviation fuel, said: “There is a higher demand for aviation fuel and other middle distillates due to increased air travel.

“With supplies (about 40 per cent of global supply) out of Russia down due to sanctions, the middle distillates prices are rising at a much steeper rate than other products such as petrol.”

 Similarly, former Chairman of MOMAN and Chairman, 11 Plc, Tunji Oyebanji, said lack of foreign exchange remained another major challenge facing the industry.

He said: “As you know, Nigeria is foreign exchange-challenged. So, getting enough foreign exchange is a big problem. We struggle to get the amount of foreign exchange we need to import, and for us, when we want to import either aviation fuel (AGO) or raw materials, we use in blending our lubricants, it requires a huge amount of foreign exchange.”

Oyebanji added that he had offered to help by bringing down the cost, selling to airlines at N480/litre. However, prices soon shot up after his six million litres’ stock got exhausted.

Lack of refineries — Expert

Commenting on the development, an Energy Partner at Bloomfield Law Practice, Ayodele Oni, stated that rising crude oil prices had positive and negative implications for Nigeria as a country.

He said: “The positive aspect is that our revenue increases. Looking at the crude oil benchmark in Nigeria’s budget, it is obvious that we will earn much more than we expected but the setback is that we are not refining crude in the country at the moment, as the four refineries are still under rehabilitation.

“With this situation, we will spend more on importation of refined products and the subsidy payment will also increase substantially, which is a big problem for us. This development will affect our income, revenue and also increase our expenditure.”

Market forecast

Investigation showed that the price of aviation fuel would continue to rise in the coming months due mainly to the prolonged crisis in Ukraine, currently fuelling instability in the market.

It also showed that oil prices would not drop significantly, due to the efforts of the Organisation of Petroleum Exporting Countries, OPEC, to achieve stability.

Intervention

Airlines, under the aegis of Airline Operators of Nigeria, AON; Nigerian National Petroleum Company Limited, NNPC, the Central Bank of Nigeria, CBN, and relevant regulators had reached an agreement to end volatility in the price of Jet A1 fuel.

The agreement was brokered by the leadership of the House of Representatives in May, 2022.

The parties had agreed that the airline operators should get trusted marketers that will distribute the over six million liters of fuel guaranteed by the government. This arrangement is the short-term solution for the next three months.

Airlines react

Ibom Air had recently disclosed in a statement: “We have encountered a situation today where aviation fuel is scarce and, therefore, unavailable at almost all our flight destinations. This has significantly impacted our flight schedule today and may do the same tomorrow.

“We sincerely apologize to all our passengers affected by the current situation. At this time, we have no indication when the issue will be resolved. However, we are working with our fellow airlines and fuel suppliers to find a solution.”

Arik Air had also said: “Nigeria airlines are currently experiencing an acute scarcity of Jet A1 and this situation is having a serious impact on our operations.

VANGUARD

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WHY DANA AIR REMAINS GROUNDED, BY NCAA

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Dana Air.
PHOTO: Nigerian Flight Deck

The Nigerian Civil Aviation Authority (NCAA), yesterday, reaffirmed its commitment to a safe and secure air transport sector despite the operating challenges.

The apex regulatory body said notwithstanding the backlash it received for shutting down one of the domestic carriers, it remains focused on its statutory safety responsibility to the flying public and the industry.

Director-General of the NCAA, Capt. Musa Nuhu, told journalists that investigations were still ongoing into the operations of the suspended Dana Air and the airline would remain grounded until all the identified issues are resolved in compliance with Nigerian Civil Aviation Regulations (Nig.CARs).

Nuhu explained that the NCAA had carried out a Financial and Economic Health Audit in addition to the Technical Safety Audit of the airline.

The outcome of the two audits revealed a weak financial position and grave violations of Nig.CARs, which prompted the immediate suspension of the airline’s Air Transport License (ATL) and Air Operators Certificate (AOC).

He expressed dismay at some negative comments in some social media platforms against the regulatory body, based on an interview he granted on a television network.

He said almost all the comments during the interview were direct quotes from the NCAA’s findings from the two audits.

“The details of these investigations and proactive action showed the professionalism of the apex regulatory agency,” he said.

The DG urged industry experts to seek clarification from the Authority in order to make informed and balanced comments, adding that the NCAA was open to informed criticisms geared towards improving the industry.

The NCAA had in July suspended the operations of Dana Air’s Transport License (ATL) and Air Operator Certificate (AOC) indefinitely because of the outcome of a Financial and Economic Health Audit and a Technical Safety Audit carried out on the airline’s flight operations.

According to NCAA, the airline was no longer in a position to meet its financial obligations and to conduct safe flight operations, adding that its action was made pursuant to Section 35(2), 3(b) and (4) of the Civil Aviation Act, 2006 and Part 1.3.3.3(a)(1) of the Nigeria Civil Aviation Regulations (Nig.CARs), 2015.

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NIGERIA LOSES N101BN WORTH OF OIL, SAYS OPEC

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Organisation of Petroleum Exporting Countries

Nigeria’s crude oil production plunged by 2.3 million barrels in July 2022 when compared to what the country produced in the preceding month of June, data from the Organisation of Petroleum Exporting Countries showed on Thursday.

In its latest Monthly Oil Market Report for August 2022, OPEC stated that crude oil production figures based on direct communication indicated that Nigeria’s output dropped by an average of 74,000 barrels per day in July.

This implies that for the 31 days in July, the country lost about 2.3 million barrels of crude oil. The organisation further stated that the average cost of Brent crude, the global benchmark for oil, during the month under review was $105.12/barrel.

By losing 2.3 million barrels in July this year, it means Nigeria’s oil earnings fell by about $241.1m or N101.13bn (at the official exchange rate of N419.37/$) in the month under review.

Data from OPEC showed that Nigeria’s oil production in June 2022 was 1.158 million barrels per day, but this dropped to 1.084 million barrels per day in July.

The country had produced 1.024 million barrels per day in May this year, according to figures released by OPEC on Thursday.

The Federal Government, operators and experts have consistently fingered crude oil theft in the Niger Delta as the major reason for Nigeria’s poor output and its continued failure to meet the monthly oil production quota approved by OPEC.

The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, blamed the challenges in the oil sector on the high level of insecurity across the country.

This, he said, had continued to discourage investors in the sector, leading to lower production of crude oil and lower earnings for Nigeria despite the increased cost of crude.

He said, “Investors in the oil and gas sector continue to lament the challenges posed by insecurity, oil theft, unstable policies and inappropriate fiscal regimes.

“The downstream sector has continued to be weighed down by the pricing regimes and the regulatory environments which have continued to dim the growth prospects in the sector.”

Meanwhile OPEC stated that crude oil prices dipped in July, as against their costs in June, adding that crude in OPEC Reference Basket fell by $9.17 or 7.8 per cent month-on-month in July to average $108.55/barrel.

“Oil futures prices remained highly volatile in July, amid a sharp drop in liquidity. The ICE Brent front month declined $12.38 or 10.5 per cent in July to average $105.12/barrel and NYMEX WTI declined by $14.96 or 13.1 per cent to average $99.38/barrel,” the global oil cartel stated.

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IMF STUDY SEES CHANGING FERTILITY PATTERNS AMID CONCERN OVER NIGERIA’S RISING POPULATION

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Overpopulation Scene in Lagos, Nigeria

Coming on the heels of a growing concern about Nigeria’s rising population, a new study by the International Monetary Fund (IMF) highlights “new fertility facts” that are challenging old theories on the relationship between childbearing, years of education and income level.

It points out low-income countries, such as Nigeria and other African countries, as the only places where the negative relationship between income and fertility rate still holds sway.

The Population Division of the United Nations Department of Economics and Social Affairs said Nigeria would become the world’s fourth most populous country in the next 28 years with a population of 375 million.

The projection comes with a foreboding of escalation of the social ills of overpopulation including unemployment, food crisis and crime rates.

Nigeria’s growth had buckled under a fast-growing population in recent times until last year when the gross domestic product (GDP) got an upper hand at 3.6 per cent compared with the average population growth of 2.6 per cent in the past decade. Except the country acts fast, experts are worried about the dire consequence of overpopulation even as the country is estimated to have hit 216 million.

While Nigeria is worried about bloated size, the IMF study entitled, ‘The New Economics of Fertility’ raises concern about emerging ultralow fertility in high-income countries like Germany, Italy, Japan and Spain where the fertility rate is about 1.5 in the past two decades.

The rate, the researchers are worried, is below the average of “just over two children per woman needed to maintain a stable population size.”

The study published as an analytical series, yesterday, reviews established labour economics theories such as the quantity-quality trade-off, which suggests that as parents get richer, they incur costly investments in their children.

“This investment is costly, so parents choose to have fewer children as incomes rise. Historically, fertility and GDP per capita are strongly negatively related, both across countries and over time,” it observes.

It also recalls another theoretical explanation for low fertility among high-income individuals, saying: “As wages increase, devoting time to childcare – time that could otherwise be spent working – becomes more costly for parents, and especially for mothers. The result is a decline in fertility and greater female labour force participation. There is historically a strong negative association between female labour force participation and fertility over time and across countries.”

The report, however, argues that new data have proved that the theories are losing universal appeal. It contends, notwithstanding, that the negative income-fertility relationship is still predominantly true in low-income countries such as sub-Saharan Africa (SSA).

“It has largely disappeared both within and across high-income countries. The same is true for the relationship between fertility and female labor force participation. In a recent survey, we outline these new empirical regularities and discuss the key factors that explain fertility outcomes in recent decades.

“For a long time, high per capita income in a country reliably indicated low fertility. In 1980, fertility was still well above two children per woman in poorer countries, such as Portugal and Spain, but just 20 years later, fertility in the same set of countries had changed substantially. In fact, in 2000 the United States, the second-richest country in the sample, exhibited the highest fertility rate,” the research discloses.

It also reports changing fertility patterns across families in high-income countries (such as France, Germany and the United States). In those countries, it states, the negative relationship between female education and fertility, which is consistent with higher wages increasing the opportunity cost of raising children, is becoming weaker.

“This negative relationship is weaker for US women of recent birth cohorts. Although highly educated women with more than 16 years of schooling had the lowest fertility rate in 1980, this no longer holds true in 2019,” it reveals.

THE GUARDIAN

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