‘Why airlines may not get cheaper jet fuel despite local production’

By Dickson Omobola

Aviation fuel marketer, CITA Energies, has said jet fuel marketers may not be able to significantly reduce the price of Jet A1 supplied to the country’s airlines due to the single-source supply arrangement, pricing disparities and rising operational costs.

This comes amid recent complaints by the country’s airlines over the high cost of aviation fuel, which accounts for at least 40 per cent of their operational expenses.

The company said the reliance on a single supplier had limited competition among marketers, leaving little room for notable price differences despite efforts to offer airlines cheaper fuel.

CITA Energies’ representatives spoke to newsmen on the sidelines of the company’s 20th anniversary celebration in Lagos.

Chairman of CITA, Dr Thomas Ogungbagbe, said the pricing structure for locally supplied aviation fuel had created difficulties for marketers, particularly because of the mismatch between the global pricing formula and the pricing arrangement adopted by Dangote Refinery.

Ogungbagbe said marketers operating under the global pricing formula used the average benchmark price for the preceding month, while Dangote’s pricing arrangement followed a different formula.

He said: “We still have issues with pricing because we are priced on the global formula pricing, and the global formula pricing does not recognise individual countries. The contracts are signed, for example, on a month minus one basis, using the average of prices published daily during the preceding month.

“This means that in October, we use the September average as our benchmark for selling. Meanwhile, in Dangote, it is BL plus five. So, you have a lot of mismatches, which means that once you load, five days may pass before you know the price. You can even be selling in Lagos without knowing the price at which you bought the product. That is the major gap.

“Second, we have a premium that was introduced sometime around March by Dangote, which has not been removed. It is not in line with the global pricing formula. What that means is that we can only pass it on to customers, and that is why the airlines are making noise.”

CITA chairman said Dangote Refinery had helped address aviation fuel scarcity in Nigeria, but maintained that pricing remained a major challenge for marketers.

He said: “You can’t even get N1,900 per litre. Nigeria had never produced jet fuel. Even the refineries we had before never produced jet fuel. Basically, Dangote is the first one. Dangote, being the first, has also brought a lot of opportunities and challenges. The opportunity is that the problem of scarcity has been eradicate d. Availability is assured.

“But the challenge is also in the pricing because, as I told you earlier, there is a nebulous premium that you pay on top of the average, which should not be there. That is why some people prefer to import, where they can get the real formula. We are still pleading with Dangote to help us remove this.”

Also speaking, Acting Managing Director of CITA Energy, Titilayo Olaore, said marketers reviewed their costs weekly to determine how competitive they could be and how much relief they could offer airlines.

She, however, said the current supply arrangement meant marketers were working with the same price, leaving little room for significant differences in the prices charged to airlines.

Olaore said: “It is a dynamic industry, and we have a one-source justification hazard now, which has led us and every other stakeholder that supplies aviation fuel to the airlines to rely on one price.

“With that price, we then build up whatever other costs come up along the way before we get to the airside. Every week, we look at our numbers. We try to work on how competitive we can be and how beneficial we can be to the airlines in terms of pricing, but we are working with one price.

“The times when we could work with multiple options, maybe there would be a bit more flexibility. But the fact is that we all get from one source now, and our prices vary within a N5 differential between us and the next person. So, the flexibility is not there.”

Meanwhile, CITA’s National Operations Manager, Dr Jeffrey Egbadon, lamented the international conflicts that had disrupted global supply chains, saying these were some factors responsible for the pressure on aviation fuel prices.

Egbadon fingered tensions involving Iran, Israel and the United States, disruptions around the Strait of Hormuz and the Russia-Ukraine war as factors affecting the availability and movement of petroleum products.

He said: “It has been challenging with aviation fuel, especially in terms of pricing. The war currently happening between Iran and Israel, as well as the tensions involving Israel and the United States, have also been a challenge because of the closure of the Strait of Hormuz.

“Recently, the war involving Yemen and Saudi Arabia has also shown that there have been a lot of blockages in the movement of products into Africa and through African waters. You can also see what is happening between Russia and Ukraine. That is another major factor. What we see today is that many of the countries that produce these products are engaged in one conflict or another.”

The post ‘Why airlines may not get cheaper jet fuel despite local production’ appeared first on Vanguard News.