The production of premium motor spirit (PMS) or petrol is expected to register a CAGR of less than 1% during the forecast period. Over the past decade, Nigeria tried and failed several times to crank up its aging and unprofitable crude-processing plants. The absence of a predictive and clear fiscal environment slowed down aggressive private sector participation in the downstream sector. The decline in the refining capacity utilization can also be attributed to the infrastructural decay. As a result, Nigeria’s four refineries, which include the northern Kaduna refinery, Warri refinery, and the two plants located in Port Harcourt, operated below capacity due to years of negligence, leading to the importation of majority of the country’s consumption demand in petrol from other countries. In terms of the downstream sector, Africa is one of the few regions whose demand for oil and petroleum products is expected to grow significantly over the next two decades. In recent years, the region’s downstream sector has witnessed a surge in investments of over USD 30 billion. Nigeria, one of the biggest oil producers, is now making significant progress in developing its mid- and downstream sectors.
- Factors, such as rehabilitation and upgradation of existing refineries, the government’s efforts to reduce reliance on refined products imports by adding new refining capacities (using modular and large refinery complexes), and the curbing of crude oil and refined products smuggling in and along the borders of the country, are expected to drive the market studied.
- Despite the efforts by the government and the aforementioned drivers, the COVID-19 outbreak led to the shutdown of schools and businesses in several states of Nigeria. This, in turn, is expected to have a negative impact on the refined petroleum products consumption, such as diesel, as most of the commercial and residential spaces in the country rely on diesel generators for power supply.
- The price deregulation is expected to offer petrol station operators a huge opportunity to operate at the current fuel prices like that in the international market. This may allow for some level of autonomy for the operators.
Key Market Trends
Smuggling of Crude Oil and Refined Products is Likely to Restraint the Market
- Smuggling of goods has multiple ill-effects on a country's economy. The adverse effect is the preference for smuggled goods in the market rather than the goods sold at retail price. Smuggling of petrol from Nigeria is one of the major factors that impacts the country’s economy. As per the Nigerian National Petroleum Corporation (NNPC), Nigeria loses NGN 2 billion daily due to the smuggling of petrol from Nigeria to the bordering countries, like Benin, Niger, and Cameroon.
- As the petrol in Nigeria is subsidized, it gets smuggled to the neighboring countries. To impose a ban on the ongoing smuggling, the federal government took an initiative to shut down the border and indefinitely banned the delivery of petroleum products to the petrol stations in the country’s border towns.
- Closure of the borders and restriction to deliver fuel to the border area led to the scarcity of fuel in the towns, due to which prices in the border areas increased. During November 2019, lawmakers in Nigeria’s House of Representatives asked to suspend the ban due to the adverse effects on the area.
- Also, one of the main reasons behind the smuggling is the high unemployment rate. The oil price decline may increase the unemployment rate further, thereby, creating an unsafe environment for the petroleum business.
Fuel Price Deregulation to Offer Huge Opportunity
- Historically, fuel prices in Nigeria were strictly regulated by the central government, with little or no variation in the fuel prices cost, based on various factors, like geography and ease of transportation.
- The debate for fuel price deregulation had been going on in the country for quite some time, and the final blow supposedly came from the downfall of crude and refined fuels prices in the global market, due to excess supply and low demand.
- In mid-March 2020, petrol prices were reduced by the Petroleum Products Pricing Regulatory Agency (PPPRA) to NGN 125, from the average price of NGN 145. The prices are expected to remain the same till they are reviewed, and new prices are to be announced on April 1, 2020. The PPPRA will be modulating monthly fuel prices based on market fundamentals like the expected open market price (EOMP) of refined fuels, such as petrol and diesel.
- The Ministry of Petroleum Resources stated that Nigerians are going to benefit from falling fuel costs, which were a direct effect of the crash in global crude oil prices. The government officials have also stated that price cut action is taken to reduce the economic impact of COVID-19 on the Nigerians.
- As a result, the price deregulation is expected to offer petrol station operators a huge opportunity to operate at the current fuel prices like that in the international market. This may allow for some level of autonomy for the operators.
The petrol station market in Nigeria is highly fragmented. The petrol/filling stations in the country are operated by independent petroleum marketers, major oil marketers, and NNPC (NNPC franchise and NNPC Mega). Some of the key players involved in the market include Total SA, National Nigerian Petroleum Corporation (NNPC), Almoner Petroleum and Gas Limited, Sharon Group Nigeria, Oando PLC, and MRS Holdings Ltd.
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