Oil and Gas Downstream Industry Synopsis
The Nigerian Oil and Gas Downstream Industry (“the Downstream Industry” or “the Industry”) is one of Nigeria’s strategic economic sectors given the continued reliance on petroleum products as a major source of energy in the country. However, the performance of the Industry has been severely constrained by poor refining capacity, pipeline vandalism, non-cost reflective product pricing, supply and logistics challenges, insecurity, government impositions and lack of adequate infrastructure and investments.
In the 2021 fiscal year, we estimate that the total volume of white fuels stood at circa 29 billion litres which were all imported due to insufficient domestic supply. With the exception of petrol, all other petroleum products are imported by the Nigerian National Petroleum Corporation (NNPC) and private (independent) marketers. The NNPC is the sole importer of petrol (PMS). Typically, petroleum product usage in Nigeria is biased towards petrol, which we estimate represented over 76% of all sold petroleum products in 2021.
In the near term, we expect the financial performance of the Industry to improve largely due to increasing business activities and rising oil prices. However, we anticipate that persisting FX illiquidity and low consumer purchasing power amidst rising oil prices will persist and temper demand. In the medium to long term, we anticipate a substantial increase in the level of local supply of refined petroleum products which would lower local pump prices. Similarly, domestic supply will minimise the use of already low official foreign exchange earnings, lowering pressure on the exchange rate. We also believe that the postponement of the Petroleum Act 2021 will continue to deter investments in the Industry.
The 2022 Oil and Gas Downstream Industry report captures the following: