Downstream Oil Sub-sector: Is total deregulation on the next level?,
In 2018, downstream players struggled with the challenges of a fixed price regime (N145/litre) amid rising crude prices at the global space. A sustained uptick in oil prices drove NNPC’s under-recovery to N487.9bn between Jan-18 to Aug-18. This kept private marketers on the sidelines while the NNPC carried the burden as the sole importer of petrol.
Clearly, a further adjustment of petrol prices is imminent in the short to medium term. By the Vice President reckoning in the build-up to the presidential election, petrol (PMS) prices could go as high as N220/litre if adjusted to reflect its landing cost. However, considering the administration’s stance on social welfare, price adjustment might not be a priority in the “Next Level”, given its soft inclination for radical reform.
The above notwithstanding, a very bright spot for the industry remains the private refinery being built by the Dangote Group – expected to roll out completely by 2020. We see this project to alter the total dynamics of the industry through lower cost burdens and reduced exposures to external shocks, amongst others.
Furthermore, the NNPC is also involved in negotiations to improve the existing refining capacity. If these plans materialize, it would support domestic supply and underscore a reduction in imports.
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