Nigeria’s downstream sector diminishing operational operations have sparked concerns as stakeholders, notably the Major Oil Marketers Association of Nigeria (MOMAN), urge the Nigerian government to promulgate and converse with the people on the need for deregulation to minimize unsustainable subsidies. MOMAN stressed the importance of deregulation in preventing subsequent worldwide economic catastrophes from having an even more significant impact on the country in 2019. Any hiccup in the supply chain is said to have knock-on consequences that lead to more extended queue occasions at filling stations.
During a webinar program, MOMAN Chairman Olumide Adeosun said that the government must commence implementation to rebuild the downstream sector, which has been in deterioration freefall owing to a lack of investment in maintaining, renewing, and developing assets and infrastructure, including refineries, pipelines, depots, trucks, and modern filling stations. He added that particular sectors, such as agriculture and transportation, must be focused on throughout the implementation phase. This should have a beneficial knock-on effect by lowering food price inflation and generating new employment opportunities across the nation.
Underinvestment impacts fuel delivery and causes price increases.
Consequently, Adeosun argues that the government should prioritize transparency and competition in the supply channel to guarantee a more reliable supply at best possible costs. There has to be a balance between the requirement for local refining and competitively cheap but cost-recovered pricing for Nigerians if sustainability is to be ensured. In addition, he emphasized the consequences of underinvestment, saying that it impacts fuel delivery and causes price increases. Refining profits at current pump prices will not support new or rebuilt refineries.
Argus Media’s Vice President of Crude and African Markets, James Gooder, noted that although freight and other constraints remain essential to address mainly because prices are not static, low oil prices have made deregulation more attainable. He reaffirmed MOMAN’s stance on the need to prep the public for the impact of deregulation and said that, despite current low prices, the oil market’s unpredictability cannot be predicted. All probable emphasis should also be put towards bolstering the market’s inherent self-correcting mechanism.
Deregulated market diminishes the motivation to smuggle items.
Gooder cautioned that freight volatility might begin in January ahead of the February ban on Russian long-term diesel as diesel contracts expire in December owing to the EU’s embargoes on Russian sea-borne crude oil (which comes into force on December 5) and refined oil products (which go into effect in February). He said that European demand for diesel will reduce fuel into West Africa and that high freight, especially on long- and medium-range tankers, will probably continue through the first half of 2023. Freight market volatility has raised gasoline and diesel costs as the cost of transporting a ton increases from $10 to $80.
Considering oil prices are not the sole factor in retail product pricing, freight costs must be considered as Nigeria advances toward a deregulated market while retaining transparency. Gooder said a deregulated market diminishes the motivation to smuggle items out of the nation and improves product influx. Bello Rabiu, former Chief Operating Officer (Upstream) of the Nigerian National Petroleum Corporation and Chairman of Dankiri Farms & Commodities explained that complete deregulation would discard government subsidies and create a fair, competitive market that allows product supply and pricing transparency.
Delivery of petroleum by trucks is no longer feasible.
Yusuf Lawal, the National President of the Nigerian Association of Road Transport Owners (NARTO), observed that the delivery of petroleum by trucks was no longer a feasible or practical option owing to the poor investment in trucking vehicles and the depletion of trucks. He claims that after investing N70 million in a vehicle, the operating expenditures of the firm are at a point where it is unsustainable to keep it running. Due to the poor return on investment, truck sales have been going down.
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