Lack of refining capacity in Nigeria for basic fuels and other petroleum products has left the nation dependent on the importation of lubricants, with yearly expenditure likely to exceed the $500 million benchmark going by the rally in oil prices.
Similarly, the calls for energy transition leading to a gradual switch from base oils to synthetic oils, currency devaluation and shutdown of many foreign refineries due to the COVID-19 pandemic, have impacted the importation of base oils for blending. These have led to at least 300 per cent rise in the price of lubricants from about N850 per litre to N2000 per litre.
At almost $2 a litre, Nigeria’s yearly base oil demand of 300 million litres puts the nation’s foreign exchange consumption at about $500 million or N205 billion ($1: N410).
In the first quarter of 2021, Nigeria spent N71.6 billion on the importation of lubricants that would be blended locally, according to the latest trade data published by the National Bureau of Statistics (NBS).
According to data from the Lubricants Producers Association of Nigeria (LUPAN), the country’s lubricant market demand volume totalled 600,000 metric tonnes in 2019, accounting for about 20 per cent of Africa’s total lubricants demand. The impact of the COVID-19 pandemic has, however, affected demand volumes by at least 50 per cent.
With the cost of locally blended products higher than that of imported lubricants due to prevailing macro-economic challenges, many businesses with large storage capacities have resorted to raising Letters of Credit (LCs) for importation rather than buying locally.
Data from the Department of Petroleum Resources (DPR) showed that the 34 lube blending plants in the country have 120.57 million litres of base oil storage capacity.
While the Kaduna Refining and Petrochemical Company (KRPC) was the only refinery designed for the production of Base Oils, Asphalt (Bitumen) and Waxes, the non-performance of the refinery has left the nation largely dependent on the importation, as upcoming refinery from Dangote and modular refineries focus on fuels like the Premium Motor Spirit (PMS), Automotive Gas Oil (AGO) or Diesel oil, Kerosene, Fuel Oil, among others.
Presently, the local blending plants depend solely on importation for their feedstock and recycling of base oils to meet market demand.
Latest base oil price report showed that though Nigeria and other export markets are delaying large purchases while waiting for markets to soften over the summer, prices appear to be held at the higher levels with no real downward pressure.
With the Nigerian market becoming a little softer, many buyers are sitting on the fence waiting for prices to fall, despite the fact that availability from sources in Europe and the U.S. are tight. Some traders are offering lower numbers in hopes of firming up on cargoes out of the Baltic and Mediterranean.
Already, a number of other traders are starting to offer material into Nigeria, and these offers have contained lower prices than had been seen up until now.
Offer levels for Group I base oils already sold firm and landing into Apapa next month reflect the latest Free On Board (FOB) levels from the Baltic and Mediterranean plus freight and margins. Prices are confirmed at $1,895/t for Solvent Neutral 150 (SN150), around $1950/t for SN500, around $1965/t for higher grade SN500 and around $1,995/t for SN900 with a viscosity index of at least 95, all on a CIF/CFR basis. Bright stock remains generally unavailable. One seller has consistently been offering prices in excess of $2,000/t for all grades, but generally without finalising any deals so far.
Speaking with The Guardian, a consultant to the International Lubricant Conference, Dapo Keshinro, explained that scarcity of base oil has continued to prevail, even though importation of the oil remains.
According to him, scarcity of base oil has led to price increment from N850 to about N2000 per litre and the trend is likely to remain till the end of 2021.
This also means a rise in the cost of servicing vehicles as well as plant and machinery. He noted that local blenders have been really hit by the pandemic, poor patronage and competitiveness.
“The big firms who have the storage capacity for vessels are the ones having the advantage over the small size blenders. The smaller independents, who buy from the local market deal with competitiveness challenges, especially in terms of pricing. Bigger blenders can sell cheaper than the independents,” he said.
On how market trends may affect the industry, Keshinro said: “The dynamics of the oil market keep changing with new trends and we need to prepare for this to enable us benefit from the market potentials. With the technological shift from fossil fuels to clean energy, electric vehicles being promoted in Asia, U.S. and Europe means lower demand for oil. Production of battery parts will increase.
“Base oils that are being used are being refined for lesser emissions. We are a couple of years behind. We do not even have the regulations to check emissions as a way to control it like the western world is doing. Nigeria is dependent on old technologies and that might be a blessing in disguise. The industry might not fall apart. We need a shift in electricity supply to embrace transition.
“Automotive and other forms of transportation dominate the volume of oil demand in Nigeria and other African countries. There is a need for a local refinery for base oil. It makes sense to refine locally. Nigeria supplies Sub-Saharan Africa (SSA) most of its inputs and having a refinery would help to address importation and improve export. Our policies need to encourage people to consume locally produced goods.”
The Lagos Chamber of Commerce and Industry (LCCI) had said accelerated domestic refining and processing of petroleum products would end the unstable petroleum pricing in the country. Director-General of the Chamber, Dr Muda Yusuf, noted that the country continues to pay huge price for non-existent local refineries in the form of inefficiency, corruption and wastage.
The Managing Director, LUBCON Limited, Taiye Williams, at the recent lubricants conference, stated that the sophistication of the market-determined the introduction of synthetics into the market, adding that COVID-19 has impacted the importation of lubricants into the country, especially the synthetics. He equally lamented the lack of infrastructure in the local market to drive production.