There are expectations that operators in Nigerian downstream oil and gas sector can grow revenue earnings from the sale of white fuels by 8 percent in 2020, from the N4.5 trillion recorded in 2018, latest Oil and Gas Downstream report released by Agusto & Co., has stated.
According to the report, this segment’s revenue is expected to remain within same level in 2019 owning to tepid growth of the economy in the first half of 2019 as a result of electioneering activities.
Presenting the report in Lagos recently to newsmen, Yomi Akinola, analyst with Agusto & Co. said operators in this segment of the market has been experiencing weak cash flow owing to soaring trade receivables, alongside constrained access to credit.
She however noted that issuance of promissory notes by the Federal Government to operators has been a positive development.
“We expect that operating profit margins will average about 2 percent in the near term driven by how efficient an operator’s distribution network is, while profitability in the industry will be upheld by multiple cycle nature of the downstream business vis-a-vis a conservative equity base,” Akinola said.
Akinola, who noted that opportunities exist in the industry while leveraging on improving distribution networks and product diversification, said growth of about 8 percent are expected for 2020, while north of 15 percent may be recorded should the premium motor spirit (PMS) market be deregulated.
She however said that pricing of products remains a top subject, not just in Nigeria, but globally, largely driven by demand pressures vis-à-vis the ability to refine crude oil, supply dynamics of refined products and regulatory peculiarities.
She further said that the Nigerian Downstream segment of the Oil & Gas industry has witnessed a lull in recent years due to import constraints and cost un-reflective pump prices- particularly for PMS, which accounts for over two-thirds of white fuel consumption.
Akinola said that the report identified access to credit from financial institutions given the weak financial condition of operators (particularly independent marketers), who are burdened by soaring receivables from the Federal Government of Nigeria under the Petroleum Support Fund programme, as another major constrain to growth.
In terms of distribution and consumption, the Agusto report stated that Lagos leads in PMS, AGO, LPG, Aviation fuel consumption given the strong population in the state as well as the fact that a good number of airlines prefer to refuel in Lagos.
“Rivers leads in consumption of household kerosene (HHK). This has seen significant reduction because of the increase in the use of cooking gas by people. Lagos has the largest retail outlet. Research shows that ability for operators to compete is hinged on location, geopolitical zone, city or interstate road. These are some of the things driving consumption,” Agusto report added.
In summary, the 2019 report, which would be needed by policy makers, investors and industry players deals on overview of the global oil & gas downstream segment; insights into the size and structure of the segment including recent developments and the impact of the macroeconomic environment on the segment.
It further deals on demand and supply trends across various states of the country; insights into the segment’s regulatory environment and opinions on anticipated policy changes as well as assessment of the segment’s financial condition and select operators based on recent performance indicators.
