Benefits of Cooperation in Oil Marketing and Distribution among ECOWAS Nations

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Prospects for economic growth are driven by energy consumption, which is dependent on availability, accessibility and affordability of the energy sources/resources. Statistics have shown that Sub-Saharan Africa countries are projected to grow in number at an average rate of 1.2%, leading to a population of about 500 million in 2035. This population growth will require enormous energy supply to meet up with the energy demand of the increasing population and the projected GDP growth rate of about 4.4% per annum.

Figure 1: Evolution and Forecast of West African Population (million)

Source: United Nations (2006)

Interestingly, sub-Saharan African countries, and the West African sub-region is endowed with vast energy resources, both renewable and non-renewable. Unfortunately, the non-renewable energy resources, especially oil and gas is not evenly distributed among member states in the region.

Furthermore, the geography of petroleum supply options does not only correspond to political boundaries, as the cheapest energy source may lie across national borders. More so, national markets for petroleum products in some member countries are often too small to justify the investments needed in particular energy supply options. Consequently, cross-border petroleum and products supply networks provide diversification of petroleum supply options. This, in itself, is a key component of energy supply security.

In recognition of this, several regional energy markets have been growing, with significant benefits such as inter-linking of national petroleum and products supply, market expansion which is aided by mobilization of both private and public investments, and greater access to products.

Figure 2: Refinery Nameplate Capacity in some ECOWAS Countries, 2015

Furthermore, for countries with comparative advantage, interconnecting into a regional market create avenues for export opportunities, while for the importing nations there is availability of cheaper energy supply options.

Unfortunately, most of the petro-rich West-African countries’ economies are focused on exports of crude oil. Regrettably, some of these countries domestic petroleum products market is under-satisfied (Figure 4), and hence, they depend more on import of finished petroleum products, e.g. Nigeria. These portend grave consequences for such economies in terms of balance of trade, especially, when the price of the resource becomes unfavorable.

Figure 3: Average Refinery Capacity Utilization, 2015

Additionally, this challenge is further exacerbated by the poor efficiency rate at which the existing refineries in the region operate (figure 3). Ultimately therefore, to meet their demand, member states resort to importation or smuggling by their oil traders.

Figure 4: Gasoline Import by ECOWAS Countries, Excluding Nigeria

Consequently, it is imperative for ECOWAS member states to invest in refining capacity in order to grow and sustain regional products consumption, and hence promote trade amongst member states. This will ultimately reduce import cost, export charges and the attendant subsidy issues.

In recognition of the above, the quest for greater cooperation, economic growth and development was therefore the basis for the formation of the Economic Community of West African States (ECOWAS). Since inception of the 15-member organization in 1975, the body has recognized promoting economic and regional integration as a tool for rapid and sustainable development of the region’s economy, as has been enshrined in its trade treaties.

ECOWAS TREATY ON TRADE

Consistent with the objectives for the creation of the ECOWAS, one of the aspects of provisions for trade amongst member states is the article 28 of the ECOWAS trade treaty, which detailed specifications on energy trade related issues.

Article 28: ECOWAS Energy Trade Treaty

  1. Member States shall co-ordinate and harmonize their policies and programmes in the field of energy.
  2. To this end, they shall:
  3. a) ensure the effective development of the energy resources of the region;
  4. b) establish appropriate co-operation mechanisms with a view to ensuring a regular supply of hydrocarbons;
  5. c) promote the development of new and renewable energy particularly solar energy in the framework of the policy of diversification of sources of energy;
  6. d) harmonize their national energy development plans by ensuring particularly, the inter-connection of electricity distribution networks;
  7. e) articulate a common energy policy, particularly, in the field of research, exploitation, production and distribution;
  8. f) establish an adequate mechanism for the collective solution of the energy development problems within the Community, particularly those relating to energy transmission, the shortage of skilled technicians and financial resources for the implementation of energy projects of Member States.

Benefits of Cooperation in Petroleum Marketing and Distribution

  1. Regional cooperation provides an opportunity to enhance sustainable growth through development and sharing of resources as a region. This will maximize development of these resources confined to national boundaries in an optimal manner.
  2. Such cooperation in petroleum products marketing and distribution will help to strengthen both national and regional energy security, reduce the costs of energy supplies, and minimize negative impacts from energy price volatility.
  3. ECOWAS cooperation in crude oil, gas and products marketing will enable member states to pursue benefits from developing new energy market opportunities, receiving transit revenues as well as achieve least-cost development solutions resulting from rational sharing of resources.
  4. Oil and gas reserves are concentrated in some member countries within the ECOWAS community. These resources have for decades been monetized through their trade with external markets. For example, the Nigerian LNG project is export oriented and the LNG shipped to countries outside the region. The West African Gas Pipeline Project (WAGP), is a step in the right direction in the bid to create a cooperative platform for marketing and distribution of gas in the sub-region. However, there is need to expand the reach of the project beyond its current status. This of course requires huge financial commitment from the member states.
  5. In the longer term, member countries looking forward to evolving medium-to long-term interrelationships especially, States with sufficient petroleum reserves for export can secure access to markets for export and revenues; and transit nations could earn ample revenues from transit fees.
  6. Part of the benefits of cooperation would include: improved security of supply, better economic efficiency, enhanced environmental quality and a wider deployment of petroleum resources.

 

Challenges to cooperation in petroleum Supplies within ECOWAS States

Achievement of regional cooperation in petroleum supply, marketing and distribution would involve a wide range of actions including establishing cross-border infrastructure and promoting regional forums for sharing knowledge and experience widely available within the region. Such challenges would include:

  1. Abuse of inter-state road transit for goods (member countries having differing standards, weights, etc): This loophole may be exploited by unscrupulous traders to smuggle goods into ECOWAS region and evade duties and taxes. This trend will, until it is curtailed, detract from the industrialization plight of the region and an attendant loss of job opportunities.
  2. Inadequate Supply, Storage and Distribution infrastructure: The inadequacy of crude oil and petroleum products storage and transportation infrastructure in the region portends a great challenge to achievement of the benefits of regional cooperation in petroleum marketing and distribution. At present, there are no adequate storage facilities, pipeline networks and rail ways to facilitate crude oil and products movement within the region. Even the West African gas pipeline project, had series of issues based on the absence of enabling infrastructure. This ultimately will impede the essence of cooperation in marketing of petroleum within the region.
  3. Issue of Arbitrage – arbitrage opportunities in the creation and distribution of petroleum among member states may undermine the efficiency of the cooperation.
  4. Smuggling and potentials for government-to-government anti- cooperative behavior can also undermine the potential benefits of integration and cooperation.
  5. Requirement for huge capital investment in petroleum supply and distribution infrastructure development will involve public- private partnership (PPP). However, the enabling environment that will encourage such investment is yet to be establishment. Given that much of such financing will be sourced from oversees financial institutions, there will be a need for a stable and appreciating business environment, devoid of high levels of corruption and government interference, as well as strong institutional frameworks.
  6. The issue of incessant vandalism of oil and gas infrastructure, especially as is the case in the Niger Delta region of Nigeria, is a disincentive for private sectors to invest in supply and distribution infrastructure. Therefore, member states have to advance adequate measures for securing such assets from vandalism.
  7. Harmonization of policies within member states. It is important to acknowledge that the ECOWAS member states are at different levels of development, and extends to their institutions and structures. To accommodate this variation without compromising investment, there is need for harmonization of policies regarding trade in petroleum and gas marketing and distribution within the region.

 

To conclude, the achievement of the long-term vision for petroleum marketing and distribution in the region must be pursued through economically and financially sound investment measures for regional cooperation, taking into account the interests of all States in the region.

To enable the identification and implementation of such projects, capacity building and knowledge sharing measures must be pursued assiduously in order to guarantee sustainability of such investments. A synergized, sound and appropriate policy environment would be a necessary compliment to achieving progress in these regard.

Contributed by Prof Chijioke Nwaozuzu, Former British Chevening Scholar and Deputy-Director at Emerald Energy Institute for Energy & Petroleum Economics, Policy, & Strategic Studies, University of Port Harcourt. Email: cnwaozuzu@gmail.com. Tel: 070 6874 3617 (SMS Only)

 

  • Philip Kevin

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