Fuel subsidy removal to trigger consolidation in Nigeria oil, gas downstream sector - PwC

Oredola Adeola

PricewaterhouseCoopers (PwC) Nigeria has predicted that the oil and gas downstream sector in Nigeria will undergo significant changes following the removal of fuel subsidy, adding that emerging issues in the sector will lead to the consolidation of players in the sector due to the importance of size and economics of scale in shaping competition in the market.

The leading professional services firms in Nigeria made this assertion at a press conference held on Wednesday in Lagos and monitored by EnergyDay, to discuss the outlook for the downstream sector post subsidy era.

PwC further emphasized that larger players in the market will have an advantage over smaller ones, leading to further consolidation and new forms of collaboration.

Pedro Omontuemhen, Partner &Africa Oil and Gas Leader, PwC Nigeria, represented by Cypril Azobu, Partner & Mining Leader in his opening comment noted that “As the subsidy era comes to an end, Nigeria’s oil and gas downstream sector faces a transformative opportunity.

He said that the subsidy shielded companies from the reality of their profits adding that companies will confront the true market dynamics.

PwC urged the marketers and other players in the petroleum downstream sector to embrace operational excellence to stay competitive, in addition to navigating risks from global economic shifts, fluctuating energy prices, Nigeria’s macroeconomic conditions and forex regime.

While discussing the opportunity the subsidy removal policy presented, the PwC also made a number of recommendations which players in the sector should consider, especially around reviewing their strategies.

Akingbade Akinyemi , Partner Energy Utilities & Resources , PwC Nigeria, who gave the lead presentation at the session said the downstream sector will evolve rapidly post subsidy removal.

Akingbade said, “We anticipate a consolidation of players in the sector as size and economics of scale will play a major role in shaping competition in the market.

“As the sector becomes more competitive, companies would need to review their supply chain management, leverage digital technology and have a sound risk management system to manage cost and deliver value to their stakeholders.

“For growth and sustainability, the marketers should also invest in other energy options e.g Compressed Natural Gas(CNG) and auto Liquified Petroleum Gas (LPG) as the world embrace low carbon energy.” Akingbade said.

Cypril Azobu, Partner & Mining Leader, stated that a properly deregulated petroleum industry would allow for easy entry and exit of every player in the market.

He added that a coordinated and focused midstream and downstream regulatory authority could influence a market framework that would promote competition and encourage private sector players with sufficient financial muscle to participate effectively in the market.

Azobu urged regulatory agencies to encourage collaborations between all players and continuously engage with market participants to address issues that may emerge in the new market.

To prevent possible price fixing by some marketers who may want to manipulate the market and fix prices, Azobu urged regulatory agencies to ensure that they checkmate anything that exceeds the market affordability.

He also suggested that regulators should have minimum standards in terms of the quality of the product so that no particular player puts the public in a crisis.

Azobu recommended that a price monitoring mechanism should be implemented to ensure that the interests of marketers and customers are protected, and the larger interest in the downstream sector of the petroleum industry is not unusually higher.

Azobu noted that there are existing data, even with NNPC, to ascertain the loading of volume, and marketers can build data through various associations to ensure data accuracy and transparency in the downstream sector.