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Experts predicts growths in downstream sector

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By Usman Oladimeji

Post-subsidy era presents a transformative opportunity for the sector.

The end of fuel subsidy in Nigeria is expected to usher in a period of rapid growth and new opportunities in the country’s Oil and Gas Industry. PricewaterhouseCoopers (PwC) Nigeria speculated that the downstream sector could experience tremendous growth and transformative possibilities in the post-subsidy period. PwC made this known during a press conference held in Lagos to explore the viewpoint of the downstream sector in a post-subsidy era, maintaining that the policy represents a transformative opportunity for Nigeria’s oil and gas downstream sector.

However, it warned that actors should start thinking about cost optimization swiftly. PwC Nigeria Partner and Africa Oil and Gas Lead Pedro Omontuemhen, who was represented by PwC Nigeria Partner and Mining Lead Cyril Azobu, stated that the oil and gas downstream sector was on the brink of transformative opportunity as the subsidy period came to an end. He emphasized that during the era of Subsidies, companies were unable to comprehend their true profitability. Now, they would have to deal with the real market dynamics while also balancing risks associated with global economic shocks, Volatility of energy prices, Nigeria’s macroeconomic conditions, and the country’s foreign exchange regime.

Companies must keep their expenses low to remain competitive.

In his view, actors in the sector will have numerous opportunities to become more competitive from the customer perspective by investigating their costs, pinpointing the places where they are accessing cost, and implementing cost-cutting measures. Additionally, PwC Nigeria predicted that the downstream sector would experience mergers and acquisitions in the post-subsidy era in an effort to promote asset optimisation. There will eventually be a handful of major businesses who control the majority of the industry as a result of mergers and acquisitions that drive down prices, it added.

Ozobu claimed that the days of stable profit margins are over, and that to be competitive in today’s market, companies must keep their expenses extremely low. The expert predicted that many actors would invest in digital assets in order to cut expenses, and many of them would begin to leverage the new Technology. Akinyemi Akingbade, Partner, Energy, Utilities, and Resources, PwC Nigeria, delivered the keynote address, predicting rapid transformation in the downstream sector. He said the elimination of Subsidies opens up new possibilities for maximizing the gas market’s potential, which remains a major alternative.

Elimination of fuel subsidy is meant to free up substantial funds.

He also urged the government to implement measures that will aid Alternative Energy sources to achieve the energy transition plan. Government was further urged to ensure the initiatives are not repetitive by implementing a system compatible with the switch to gas-powered vehicles. Companies in this increasingly competitive industry will need to re-evaluate their supply chain management practices, adopt digital tools, and implement a rigorous risk-management strategy in order to manage costs and satisfy stockholders. As the globe embraces low carbon energy, companies should invest in Alternative Energy sources including Compressed Natural Gas (CNG) and auto Liquefied Petroleum Gas (LPG) as the world embraces low carbon energy, he said.

Industry experts have also tasked the government to prioritize those in society who are most vulnerable and have the most trouble adjusting, in the allocation of the proposed palliative, adding that the palliative has a great potential to create valuable demand. They emphasized that the elimination of fuel subsidy is meant to free up substantial funds consumed by Petroleum products. Also, the experts also pointed out that since the subsidy was removed and rates were standardized, a record-breaking N1.9 trillion in Revenue has been generated as shown in July.

Government should facilitate the development of local refineries.

Harmonization of rates and removal of Subsidies, according to experts, has enabled the Nigerian National Petroleum Company Limited (NNPCL) to become more profit-oriented for the benefit of Nigerians by freeing up a large sum of Revenue for the government to share and invest in Infrastructure. Ozobu argued that the government should consider a comprehensive physical strategy for the downstream sector in collaboration with industry players. The greatest long-term alternative, he argued, is for the government to facilitate the development of local refineries.

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