Fuel supply: Tackling demurrage, losses with jetty investment

Infrastructure deficit at the Lagos Port’s  fuel jetties is causing delay in petroleum products’ discharge and huge losses in form of demurrage.  Experts, however, say  new investments will reverse this trend, DAYO OKETOLA writes

With a daily consumption of over 31 million litres of Premium Motor Spirit (petrol) in Nigeria, about 12 trillion litres of PMS is imported into the country annually. Fuel jetties at the Apapa, Lagos Wharf serve as the major entry points for vessels bearing PMS, Automotive Gas Oil (diesel), Dual Purpose Kerosene, and Aviation Turbine Kerosene, among other products.

For instance, the Nigerian Ports Authority, on Tuesday, said about 18 vessels laden with PMS, AGO and DPK are among some other vessels expected to berth at the Lagos pilotage district soon.

But experts said the infrastructure constraint faced by these vessels was huge; adding that the inability of the fuel jetties at Apapa Wharf to accommodate large volumes of fuel imports hindered vessels’ effort to discharge at the port. Due to this, some major fuel importers have over the years developed a preference for discharging their products outside Nigerian waters, specifically at the ports in Cotonou, Niger Republic and Lome, Togo.

Besides, over N18.6bn ($120m) is said to be lost annually to demurrage, thus increasing operational expenses for marketers and causing serious inefficiency in petroleum products distribution.

The Chief Operating Officer, Oando Terminals & Logistics, Mr. Rabiu Umar, who lent credence to this, said, “Currently, there are several challenges with the existing Apapa jetties. These include: excessive lightering fees. The draft of the existing Apapa jetties is approximately 7.5m. The implication of this is that the maximum vessel size that can be received by the jetties is between 18,000Metric Tonnes and 20,000MT. Thus, 30,000MT vessels cannot be received at once at the jetties.”

He explained that every 30,000MT vessel that berthed at the Apapa jetty must be lightered into a daughter vessel and the marketers incurring the costs of approximately $245,000 per lightering operation. This, he said, might involve one or two lightering operations depending on the size of the daughter vessel and thus increasing the cost.

Umar further said excessive demurrage fees remained one of the main challenges facing marketers at the Apapa port. Currently, the Apapa jetties are not extremely congested and the operations of the jetties can be managed better, according to him.

He, however, said, “On the average, every vessel that berth at the Apapa jetties has a waiting time of between 14 and 21 days. Thus, incurring a demurrage of between $280,000 and $420,000 per operation.”

In view of this, experts have generally said investing in infrastructure upgrade at the Apapa wharf is essential in order to provide a more efficient platform to deliver petroleum products to oil marketers.

Oando had in November 2013 announced that it was building a new jetty that would have a half-kilometre sub-sea pipeline and a 16-inch three-kilometre onshore pipe to deliver more than three million tonnes of petroleum products a year.

Oando, in a statement, said the jetty would allow 45,000 DWT vessels to berth and discharge their products without littering and demurrage.

According to the statement, the cost saving across the industry will be in excess of $120m (about N18.6bn) per annum.

The completion of the jetty, the statement said, would vastly improve distribution efficiency and lead to higher margin volumes with an estimated $36m (about N5.58bn) expected revenue annually.

Umar said, “The Lagos Oando jetty was designed to increase the delivery capacity and offloading efficiency of petroleum products at major petroleum marketers’ storage facilities at Apapa Lagos.

“It was conceived to bypass the infrastructure bottlenecks at Apapa Lagos, which in most cases results in excessive demurrage and other costs to the importers. It is a mid-stream jetty with a draft of 13.5m and the capacity to receive 45,000MT vessels (dead weight in one lot). This eliminates the need for lightering into smaller vessels and eliminates demurrage through improved efficiency.”

He explained that the flow rate of the jetty is ~800 cubic meters/hour thereby, resulting in a discharge time of 37 minutes per vessel.

According to Umar, Oando Marketing Plc currently incurs a significant third party storage cost in several third party locations. He stressed that these costs would be eliminated with the jetty.

He, however, said the jetty would be available for use by all marketers within the Apapa area.

The Executive Secretary, Major Oil Marketers Association of Nigeria, Mr. Obafemi Olawore, who spoke with our correspondent on the sidelines of a press conference in Lagos, on Monday, emphasised the importance of such a new jetty.

He said, “Once the facility is ready, the first thing that will die is demurrage and this means huge savings for the economy. Apapa will be free to take vessels rather than waiting for space for the big ones.”

He explained that MOMAN supplies 60 per cent of national PMS demand and about 37 per cent of this is trucked out of Apapa every day, hence, the importance of the jetty is incontrovertible.

According to him, the new jetty will ensure an increase in the utilisation of the existing storage space, and a significant reduction of constant delays caused by infrastructure constraints in the Lagos area.

According to him, the Lagos Oando jetty offers several unique opportunities. He stressed that tie-ins would be linked directly from the jetty into the marketers’ terminals. As such, the marketers will have the added advantage of loading the product directly out of their own terminals as against loading out of a third party facility.

This, he said, would increase the efficiency of their loading, places the control of their products in their own hands and eliminate the fees currently being incurred by storing products in third party facilities.

Underscoring the economic implications of the new jetty investment, the Executive Secretary, Petroleum Products Pricing Regulatory Agency of Nigeria, Mr. Reginald Stanley, and Managing Director, Total Nigeria PLC, Alexis Vovk, who visited the jetty recently, attested to its ability to berth larger vessels of between 30,00OMT and 45,000MT cargo capacity. They expect the investment to have a far-reaching impact on product discharge at the port.

Abayomi Awobokun, the Oando Downstream Chief Executive Officer, was quoted as stressing that the jetty would help the company and other marketers to eliminate lightering, demurrage, third party storage costs and reduce the overall OPEX currently incurred due to these inefficiencies.

Also, the overall capacity to receive more products at the Lagos port, according to experts, will be enhanced.

Oando said the jetty operations were structured and hinged on efficiency, stressing that a vessel receipt schedule would be pre-determined and published monthly and this schedule would be strictly adhered to.

Awobokun said, “Also, a rule of engagement document would be developed to ensure that all parties comply with the jetty operations. Agreed sanctions may also be applied to violators whose operations hamper those of other marketers. All these measures are to ensure that the efficiency level of the jetty is maintained in a bid to cope with the rising needs of our customers.”

The President, Nigerian Liquefied Petroleum Gas Association, Mr. Dayo Adeshina, said the jetty investment was critical and expected to help in reducing the bottlenecks experienced by LPG vessels.

He said, “It will be a welcome development if the jetty is extended to LPG. Currently, NOJ and NIPCO are the only two jetties that have LPG storage facilities. If the Oando jetty will be extended to LPG, it will ease congestion and save all the demurrage incurred when LPG vessels are delayed. Normally, PMS and ATK are given priority at the jetties.”