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AfrElec FUELS AfrElec

Nigeria moves towards fuel

market reform: FBNQuest

NIGERIA NIGERIA’S downstream sector is moving will be a key competitive advantage,” Osadiaye
towards badly needed reform, African asset said. “As such, Total and Ardova are presently in
manager FBNQuest said in a research note on the best position to capture growth.”
July 23, noting that “constraining” policies had The industry has taken a significant hit from
sapped investment over the last decade. the coronavirus (COVID-19) pandemic and the
“The downstream oil & gas business is typi- resulting plunge in fuel demand. FBNQuest said
cally low-margin. However, other factors, mainly that Nigerian households were spending 20%
constraining policies, have led to historically low less on transportation than a year ago, excluding
investments in the sector over the last decade,” aviation.
FBNQuest analyst Uwadiae Osadiaye said. “In “Given relatively softer petroleum products
our view, the fortunes of the sector could change demand in H1 2020, the near-term outlook
with the growing possibility of full pricing for the sector is certainly subdued,” Osadiaye
deregulation.” said. “However, long-term prospects appear
Nigeria’s government recently introduced a promising.”
more market-based template for gasoline pric- FBNQuest estimates that gasoline consump-
ing, and the central bank is working to unify tion contracted by 40-45% in the second quarter.
foreign exchange rates. FBNQuest said these It expects the sales and earnings of Total Nigeria
steps raised prospects that gasoline price ceilings to fall by 6% and 70% year on year in 2020.
would be ended completely. “Our projections are driven by both rela-
The new pricing template for gasoline factors tively lower petroleum product demand and
in petroleum product costs and the foreign cur- a double-digit decline in product pricing year-
rency exchange rate at which oil marketing firms to-date,” Osadiaye said. “Our forecasts assume a
import fuels. mild rebound in COVID-19 cases and that eco-
Competition among fuel marketers is also nomic activities are allowed to continue under
growing, the asset manager said, adding that such circumstances.”
Ardova and 11 Plc were “leading the charge.” Despite its status as Africa’s biggest oil pro-
The pair became the top distributors of gaso- ducer, Nigeria still imports most of its fuel,
line in the first quarter, with a combined 23.8% undermining its trade balance. Its main state-
share of the market, and of jet kerosene, with a owned refineries are too outdated to operate
27.2% share. Previously the Nigerian subsidiary properly and compete with imports. What fuel it
of France’s Total held this position. does produce domestically comes mainly from
If the new pricing template is kept, effectively illegal refineries in the Niger Delta region. How-
deregulating the sector, FBNQuest expects com- ever, it is hoped that fuel market deregulation
petition to intensify. will help spur the development of new domestic
“Under this scenario, reach and distribution refineries.™

Week 30 30•July•2020 www. NEWSBASE .com P7