The Global Oil and Gas Downstream Industry experienced a tough year in 2020 because of the COVID-19 pandemic and the crash in crude oil prices. The consumption of petroleum products and other liquids declined by 9% from 100.9 million barrels per day (mb/d) in 2019 to 92.3 mb/d in 2020 due to the economic and mobility impacts of the COVID-19 pandemic.
In Nigeria, the restricted movement and shutdown of business activities for a significant period in Q2 and Q3, 2020 due to the COVID-19 pandemic resulted in a drop in fuel consumption for transportation and power purposes. In addition, the weaker purchasing power of consumers fueled by high unemployment and inflation also impacted the demand for white fuels. Overall, the revenue of the Oil and Gas Downstream Industry (‘the Downstream Industry’) in 2020 stood at ₦3.80 trillion, representing a 20% decline from the prior year while consumption of petroleum products stood at 25 billion litres.
Consumption across white fuels including premium motor spirit (PMS or petrol), automotive gas oil (AGO or diesel), household kerosene (HHK), dual-purpose kerosene (DPK), aviation turbine kerosene (ATK or aviation fuel), liquefied petroleum gas (LPG) was negatively impacted by the COVID-19 pandemic with none of the products witnessing an increase in volumes demanded. In particular, consumption of ATK was gravely impacted because air flights within the country were restricted for most part of the year. Nonetheless, PMS which is sold at a subsidized rate remains the largest consumed white fuel accounting for 77% of the product mix, while other white fuels such as AGO, HHK, ATK and LPG accounted for 18%, 1%, 2% and 2% respectively in 2020. Going forward, the Industry’s revenue and consumption are projected to rise by 15% to ₦4.4 trillion and by 8% to 27 billion litres respectively by the end of 2021. The key driver of the growth will be the gradual recovery in economic activities as restrictions in movement are lifted and businesses resume operations.
Although the Industry has grown at a CAGR of 12% over the past five years, it is yet to attain its full potential. The Downstream Industry remains import-dependent given the dismal domestic refinery production, inappropriate product pricing, supply and logistic challenges and insecurity. While demand has been relatively stable over the years, there are high operational costs that thin out the margins earned in the Industry. The regulatory environment and policies also stifle growth of downstream players. While these constraints exist, the Federal Government of Nigeria has encouraged the development of privately owned refineries in the country to support local production of petroleum products and make Nigeria a net exporter of petroleum products in the long run. We believe there is an urgent need to reduce the fiscal burden of the Nigerian government from PMS subsidies to a fully deregulated market to attract investments. With the enactment of the Petroleum Industry Act (PIA), we expect the regulatory environment and competitive landscape of the Industry to improve in the medium term.
This report provides information on the Nigerian Oil & Gas Downstream Industry including: