Eye of the Storm : Inside a Gas/Fuel Depot in the Middle of a Fuel Supply Crisis
My work as a technology services provider to gas businesses occasionally takes me to a few interesting places.
Approximately two weeks after a shipment of what is believed to be methanol-blended fuel/PMS/petrol landed in Lagos Nigeria, I had a site visit to a client’s petrol and Liquefied Petroleum Gas(LPG supply depot). I will refer to this as The Depot(TD) for the purpose of this write-up. I will attempt to summarize my visit, and shed some light on a small fraction of the value chain dynamics of the petrol and LPG/cooking gas in Nigeria.
In the days leading up to the visit, I was aware trouble was looming in the petrol supply chain as fuel lines had already started to form, but didn’t quite understand the scale of the problem until I had conversations with several suppliers, all of whom seemed to know two things in common:
- They could not buy or transport any petrol from the depots, because no depots were selling.
- They had no idea when the issue would be resolved.
A huge chunk of the engine that powers Nigeria’s economy is cocooned in machine-heavy areas that are not within residential and/commercial districts. This chunk includes ports, heavy duty plants, processing plants and other manufacturing activities that produce inputs high up in the value chain for several essential goods and services, and their successes and failures are key to the country’s import/export flows. During my visit, it occurred to me just how tightly coupled these underlying systems that power our day to day survival are, and how important it is to optimize towards fault-tolerance in the Oil & Gas value chain.
Arriving at The Depot, there was clearly something afoot. There were 400 trucks parked and waiting to be processed within the loading yard, but no supplies were available. There was a huge operations blocker because off-spec petroleum(product that is outside of local industry standard) had been shipped in, and sold to off-takers (depots and filling stations).
The vessel carrying the off-spec product had offloaded, and departed. This meant that there was no other vessel immediately available to remove the off-spec petrol to, and that two waiting periods now had to be worked into plans :
- A waiting period for an empty ship to remove the off-spec product
- A waiting period within which another importer ship carrying petrol would dock
The loading process for petroleum within first-step depots like TD’s is usually optimized for speed(enabling as many trucks to come into the loading docks, buy petrol, and leave as fast as possible). It is also optimized for basic sub-process integrity. This means that there is an attempt to remove the need for any steps in the process to be repeated, and this to a significant extent makes certain steps in the process irreversible.
The key sub-process relevant to this article is the tanker filling process : once a tanker is filled, the driver exits the filling area, signs out his docket, and leaves the loading yard. Once he exits, any issues with the product he has loaded becomes his responsibility. This means that the onus is on TD’s off-takers to carry out all observations/tests while within the premises to ensure the product he is getting is what he has paid for.
This background is important to help understand why till date, the issue of liability for off-spec products is still very hazy, regardless of how widespread the problem is. The sight of several suppliers and off-takers huddled together, complaining about lack of access to product and showing uncertainty about what to do next gave my spine a chill because it was immediately clear how the shortage could spiral out of control if the blocker was not well managed.
The Nigerian economy is very dependent on oil internally : we use an estimated 587,000 barrels per day (bpd), and while there are plans to transfer some of this dependence to gas, petrol powers most of the transport industry, small businesses and hospitals, and other essential services.
Where Your Fuel Comes From :
Retail fuel is sourced by filling station operators from large storage facilities, sometimes located near receiving ports, called depots : the filling station in your neighborhood is a customer who buys fuel from depots, and then transports it via long-haul trucks to his/her station.
Why does any of this matter?
It is difficult to overstate the importance of access to harnessable energy to societal cohesion : as MIT Press stated in its review of Vaclav Smil’s Energy and Civilizations : A History, “Energy is the only universal currency; it is necessary for getting anything done”.
The political and economic importance of access to energy is shown throughout history : from power tussles in Nigeria to keep control of oil fields firmly within governmental control (the 1967 separation of 3 Nigerian regions into 12 states in order to check secessionist threats and ease central control of access to then under-explored oil fields is a good example here), to the influence Russia wields over several European off-takers of it’s Natural Gas(an example being the 100% supply cut of Natural gas to Belarus, which depends on Russia for 70% of its energy mix in 2004 by Russia in order to get control of Beltransgaz, the main natural gas transit route through Belarus ), to the United States continued exertion of influence on politics in the Middle East( the extent of this is shown by Jimmy Carter’s proclamation after the Iranian Revolution and Soviet invasion of Afghanistan in 1980 that “any attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States”).
Access to energy sources will usually determine an economy’s ability to function, and the parties who are in control of these sources wield a large influence.
Conclusion
While the reality of supply chain fragility is not unique to petrol and cooking gas in Nigeria, it is important that corrective measures are taken by players in the space :
- Depots, haulers and filling stations need to increasingly reduce avoidable inefficiencies, keep a healthy cash flow(with a built in safety reserve) to avoid instances where product throttle threatens administrative operations.
- End users with means need to de-risk their current sources of energy by building in redundancy : expect that your current sources of power will one day fail, and have an alternative ready.
Keep up with me on Twitter @nkemarukwe. I currently work in tech-driven energy, healthcare supply chains and operations management. I am interested in these topics, as well as economic history and industrialization. Cheers.
