‘Nigeria may experience significant growth in downstream sector’

PwC Nigeria, has predicted that fuel subsidy removal in Nigeria may lead to significant growth and transformative opportunity in the downstream segment of the oil and gas industry.

The firm asserted during a press conference in Lagos to discuss the outlook for the downstream sector in a post-subsidy era.

It insisted that the policy remains a transformative opportunity for Nigeria’s oil and gas downstream sector.

It, however, warned that operators must begin to look at how to optimise their costs.

Partner and Africa Oil and Gas Lead, PwC Nigeria, Pedro Omontuemhen, represented by Partner and Mining Lead, Cyril Azobu, said with the subsidy era coming to an end, the oil and gas downstream sector was on the verge of transformative opportunity.

He stressed that the subsidy regime shielded companies from the reality of their profits but that they would now confront the true market dynamics, in addition to navigating risks from global economic shocks, fluctuating energy prices, Nigeria’s macroeconomic conditions and forex regime.

“I think there will be a lot of opportunities for players in the industry, to look deeply into their costs, identify those areas where they’re accessing cost, and find opportunities to bring in efficiencies, such that they can be at least as competitive as possible from the customer perspective,” he said.

The firm also predicted that the post-subsidy era would see the downstream sector witness mergers and acquisitions in a bid that would drive asset optimisation.

“Over time, we are going to see bigger players emerge that will command larger market size influenced by the mergers or acquisitions we see coming into play to make pricing better.

“The era of fixed margins is gone; the market right now is in a situation where your cost must be very low to be competitive,” Ozobu said.

The expert asserted that there would be a lot of investment in digital assets to reduce costs, and noted that they foresee a situation where a lot of players in the industry would adopt the technology.

Partner, Energy, Utilities and Resources, PwC Nigeria, Akinyemi Akingbade, who gave the lead presentation at the session, said the downstream sector would evolve rapidly.

He stressed that the gas market is not deepened enough but with the removal of subsidy, it presents an opportunity to tap the potential of the sector as it remains the key alternative in the market.

He urged the government to enact policies that will aid alternative options to achieve its energy transition plan.

“Government should ensure the interventions are not multiple, they should get a system that works with transition to gas-powered vehicles for a complete economy.

“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, they should invest in other energy options such as Compressed Natural Gas (CNG) and auto Liquefied Petroleum Gas (LPG) as the world embraces low carbon energy,” he said.

Experts in the industry further urged the government to ensure the proposed palliative is focused on the most vulnerable in society who finds it difficult to adjust, adding that palliative will potentially make demand valuable.

They stressed that the removal of subsidy is to unlock significant revenue consumed on petroleum products, noting that since the removal of subsidy and harmonisation of rates, the amount available to be shared as seen in July was at a record high of N1.9 trillion.

The experts noted that harmonisation of rates and removal of subsidies unlocked Nigerian National Petroleum Company Limited (NNPCL) to be more profit-oriented for the benefit of Nigerians with a significant amount of revenue unlocked from government that can be shared and invested into infrastructure which is a long-term strategy.

“Government needs to look at a robust physical strategy around the downstream sector and not look at it in isolation but with various stakeholders in the industry,” Ozobu said.

He further charged the government to allow local refineries to thrive as it remains the best option in the long-term view.

“If your refineries are not working it means that you are subsidising production in another country, local production must come on stream and this means there must be strategic policies around the downstream sector,” he said.