Special Purpose Report

By

Fatdeo & Associate

The downstream sector of the oil and gas industry comprises two groups of companies
These are:
The major oil marketing companies who dominate the industry as they account for
over 50 % of total petroleum products sold, and have been in the business for much
longer than the independent marketers. The companies in this group belong to a trade
association called the Major Oil Marketers Association of Nigeria (MOMAN). Six major
marketers are listed on the Nigerian Stock Exchange. They are:

Forte Plc
Conoil Plc
Mobil Oil Nigeria Plc
Oando Plc
Total Nigeria Plc
MRS Plc

The independent marketers, which comprises over 3,000 largely indigenous petroleum
marketing companies. The trade group of these companies is referred to as the
Independent marketers association of Nigeria (IPMAN). The group also has two
companies quoted on the first tier segment of the Nigerian Stock Exchange (Afroil Plc
and Eternal Oil Plc).

THE MAJOR OIL MARKETERS

The Companies in this group had the starters advantage and sited their retail outlets at
strategic locations in major commercial centres across the country. The good capital
base, good management and long experience in the industry helped them to consolidate
their position and dominate the market.
The major marketers also have some exclusive markets e.g. aviation turbine kerosene
for the aviation industry and bunkering of vessels and other products for industrial
customers due to their perceived expertise in that sub-sector.

CHARACTERISTICS OF THE MAJOR MARKETERS

Strong Brand Names
The foreign partners of the major marketers provide them assistance in product
research & development, inventory control, and product storage & handling. Most of the
major marketers use brand names of the foreign partners making their products readily
identifiable and fostering customer loyalty. At least two of the lubricants produced by
the major petroleum products marketers have attained ISO 9000 manufacturing
standards, which imply that products meet internationally accepted standards and thus
have strong export potential
Brand recognition enhances product sales and helps the major petroleum marketing
companies to maintain and increase their market share. Since the prices of Premium
Motor Spirit - PMS and Dual Purpose Kerosene - DPK are regulated, thus customer
perception of the marketers products as unadulterated is important. The good
reputation of the major petroleum products marketers gives them market advantage in
this regard.

Strong Technical Support

Each major marketer has exclusive technical partnership with overseas associates.
Product license agreements provide them with technical information relating to
blending, distribution and marketing of industrial lubricants. In addition, the
agreements grant them access to modern technology and manufacturing processes that
meet international standards. The foreign partners provide technical knowledge to

support research & development and also provide operational back up as may be
necessary for the products. This allows the Nigerian companies to focus on marketing
and reduces the lead-time for introducing new products to the market.
With a wide range of products that are identical to the products of the technical partners
elsewhere around the world, the major marketers have a competitive advantage over the
independent marketers. In many cases, independent marketers cannot afford research
costs for their products considering that their total volumes cannot support such
expenditures. The technical partners also provide top management staff for most of the
Nigerian companies.

Strong Financial Support

Most of the major marketers have good credit standing on account of the credit position
of their major shareholding companies. Their relationships with related companies in
the upstream sector also improve their market perception and so it is relatively easy to
obtain credit when necessary. In addition, being quoted on the stock market (six of them
are) provides them ready access to the capital market.
The major marketers are able to implement sound management, operational and
marketing strategies to improve their performance and compete efficiently in the
market. A strong financial base is important in conducting their business and enables
them make

COMPANY No of retail outlets

(depot)
MOBIL

22
8 (4)

OANDO

485 (6)

TOTAL

500 (5)

CHEVRON

381

AP

50
0

CONOIL

26
6

Source:
Industry

Basic
information on major
player
COMP
ANY

MAJOR SHAREHOLDER
Total Societe Anonyme 45.24%

TOTAL

Elf Aquitaine S.A. 16.48%

NO OF
EMPLOYEE RELATED PARTIES
S
Total Outr Mer
483

Total International
Elf Petroleum

Enifor Limited 8.12%

Total Lubrifiants

Oando Supply and

Trading
Limited
Oando Trading Limited
Oando Energy Services
Limited
OANDO

Ocean and Oil Investment Limited

432

Oando Gas and Power

219

Gaslink
Oando Lekki Refinery
Company
Oando Properties
Oando Exploration &
Production
Exxon Mobil
Corporation USA

24.45%

MOBIL

Mobil Oil Corporation USA 60%

Conoil Producing
Limited
Equitorial Trust Bank
Limited
CONOIL

Conpetro Limited 74.40%

341

Globacom Mobile
Limited
Vixen Enterprises

CHEVRON Chevron Corporation 60%

258

Limited
Southern Air Limited
Chevron Nigeria
Holdings
Limited
Texaco Overseas
Holdings Inc.

Chevron Texaco Global

Trading

AP

Asset Management Nominees Limited

16.19%

346

Zenon Petroleum & Gas Limited 30.34%

ZSL A/C FOZ 11.71%

IPMAN PROFILE
IPMAN is an acronym for Independent Petroleum Marketers Association of Nigeria.
Brief History of IPMAN .
Even with the introduction of these major marketers who have retailing
outlets spread all over the country, Nigeria still faced the ugly situation of
scarcity. It prompted the government in 1979 to look inwards and
promulgate a decree, introducing indigenous (independent marketers)
companies so as to break the monopoly enjoyed by the major marketers and
meet up the marketing and distribution of petroleum products. As a result of
the importance of the oil industry to the national economy, the government
has over the years promulgated decrees and laws regulating the exploration,
exploitation, refining, marketing and distribution of petroleum and its
products. These decrees and laws also state the social responsibilities of oil
producing and servicing companies, penalties and sanctions in the event of
sabotage, hoarding, illegal bunkering and smuggling of crude oil and its

products by companies, group of persons and individuals

It is estimated that there are about 3,800 independent marketers operating in the
industry varying in size from the small ones with one or two retail outlets to the larger
ones owning more than twenty retail outlets.
The independent marketers include:

Petrol station owners

Gas plant operators
Kerosene peddlers
Owners of lubricant blending plants

The independent marketers focus on capturing the market share of products with
deregulated prices e.g. Gas oil ( Diesel) , LPG, lubricants, etc. to improve their
profitability. The market for LPG and lubricant provides high margins and thus good
investment opportunities. So part of their business strategy is to aggressively penetrate
this market and gain market share. They are also poised to become market leaders.
Industrial supply of petroleum products is also attractive to the independent marketers
since they have fewer retail outlets and it helps to boost volume of sales

PRESENT STATUS:
IPMAN has in its fold 3,800 (Three Thousand, Eight Hundred) members and
8,671 (Eight Thousand, Six Hundred and Seventy One) service outlets
Nationwide. Our investments in the downstream are well
over N25,000,000,000.00(Twenty Five Billion Naira). There are about 220,000
Nigerians employed by IPMAN members service outlets.

STORAGE AND RETAIL OUTLETS

(a)Retail outlet storage capacity = IPMAN 82%

= Major 18%
(b) Retail outlets nationwide

= IPMAN 86%
= Major 14%

GAS OIL ( DIESEL ) MARKET REVIEW

DEMAND
The Minister of Petroleum stated that local consumption of refined petroleum products
in Nigeria is expected to grow from the current 30 million litres per day to 40 million
litres per day by 2015. Domestic consumption is expected to grow alongside the
economy. There is therefore a need to increase the refining capacity of Nigeria. By 2015
the nation will need a significant addition to the number of refineries if the products
supply capacity must rise with demand. This should be supported by investment in
supply and distribution network. The aforementioned expansion however needs
massive funding by the government , Currently the current daily demand of AGO is put
at 18,000,000 ltrs /Day or 500,000 tonnes /month
Users of AGO ( Diesel) and Their Characteristics :
The customers of the petroleum marketing industry are varied and include government,
manufacturing companies, the transportation sector (marine and road), social service
organizations(power generation, water supply, hospitals and schools), agricultural
sector and households. This products is required for most endeavours, but industry
players find it convenient to classify their customers as being either:

Industrial or

Retail

Industrial sales are bulk supply of products to large consumers and generally the
products are not provided through the retail outlets also called filling stations.
Industrial sales accounted for about 31% of the turnover of the industry in 2011 as
compared to 26% in the previous year.
Retail sales take place at the filling stations and sales flow is mainly to low volume
consumers. In 2011 Retail sales accounted for 69% of aggregate sales of petroleum
products in terms of volume as compared Demand from industrial users is also affected
by reliance on Power Holding Company of Nigeria (PHCN) to provide electricity since
most factories in the country operate industrial machinery. When power supply from
PHCN is unavailable, plant and equipment must be run by power generating plants .
Bulk supply can be profitable to marketers because it enables large volumes of products
to be supplied conveniently. Market forces usually determine prices of products. Credit
sales are sometimes allowed to industrial customers especially when products supply is
readily available

Success in selling to industrial users is largely dependent upon aggressive marketing

management, capacity to extend competitive credit facilities, good customer
relationship and reliability of supply of products.
Terms of trade
The terms of trade with the industrial customers depend on the balance of supply and
demand for Diesel in the market. During periods of high demand or scarcity, the
customers must deposit the full value of the products they order to expect delivery.
Credit is usually extended to the industrial customers. However the number of days for
which credit is extended is subject to the number of days the marketers receive from
their suppliers. Hence credit allowed is competitive strategy among marketers.
Retail Customers
DIESEL distributed through retail channels are mostly for transportation and
household consumption. Retail outlets are the major channels for selling DIESEL
Retail outlets are located across the country and their accessibility makes them the last
resort for industrial users also. Presently, there are about 6,605 retail outlets
nationwide, popularly called petrol or filling stations. They are multi-purpose centres

where petroleum products and auto-related services are sold to the public. A typical
retail outlet offers opportunity for buying all the white fuels, lubricants and auto-care
products, servicing automobiles, greasing pit, inflating of tyres and other services that
promote petroleum products demand.
Market Share of AGO (Diesel)
Oando Plc is leading the major marketers in the industry with its sale of diesel with a
market share of 12 %. , Total 8%, MRS had 10% , MOBIL had 7% , FORTE &
CONOIL with 4% respectively , while the independents marketers as a group is the
largest with 55 %,

Oando Plc
Total Plc
MRS Plc
Mobil Plc
Forte Plc
conoil Plc
independents

Summary & Facts About Diesel Market in Nigeria

Nigerian petroleum product prices are not entirely dependent on world

market for crude oil and petroleum products
Diesel prices in Nigeria like other commodities are determined by
Supply/Demand forces not Production cost
The international prices for diesel is affected by the demand for other
petroleum product, This is because diesel is one of the middle distillates,
which also includes kerosene , Jet Fuel and heating oil ,If refiners produce
more kerosene or jet fuel as a result of increased demand , they would
produce less diesel and that has impact on supply availability and price
There is a seasonal shift of refining production from petrol in summer
toward distillates (Black oil) In the winter thats affect relative prices of
these products.
Diesel prices are also affected by parallel market from the activities of
local illegal refiners in the Niger Delta
Diesel from local refinery is relatively cheaper than that of imported ones
The Nigeria retail price for diesel can be significantly higher or lower than
that of the international platts price , due to the internal impact of
different supply and demand pressures
Nigerian diesel market is fully De-regulated

Diesel is one of the dominant fuel in Nigeria and in recent years they have
significantly increase in demand , particularly as result of the
infrastructural deficit in the power sector in the nation , amongst other
reason

Nigeria demand growth has also been strong on the back of growing
economy and higher demand from industries

Demand is also driven by increase in both the nations population and

growing economy
75% of diesel in Nigeria are imported

 Most of the imported diesel are bought from international trading

companies- offshore cotonou
Daily Average demand for diesel -------- 18,000,000ltrs i.e
15,000MT/Day

Total local daily refining capacity for diesel is put at 11,209,039litres

Average daily local refinery output is 6,000,000 Litres

Average daily Imported Diesel into Nigeria 8,000Mt

4.10 DEMAND & SUPPLY PROJECTIONS FOR PETROLEUM PRODUCTS

Various scenarios have been adopted to forecast future demand and supply for
petroleum products by us , They are:
Worst Case: Combination of high GDP growth with long span
rehabilitation of refineries and low refinery capacity, leading to 3.6%
demand growth per annum.
Expected Case: Medium GDP growth with 3-4 years refinery rehabilitation
and refineries at less than full potential, leading to 2.8% demand growth
per annum.
Best Case: Low demand case, accelerated rehabilitation of refineries and
capacity restoration, leading to 2.0% demand growth per annum.

With the Expected Case, total products demand is projected to grow from
43.2 MLD this year (2012) to 56.4 MLD in 2020 and 71.2 MLD in 2030.
Notably, PMS demand is projected to grow at an average of 4.0% per
annum and attain 53.1 MLD by 2030.

 Even with full rehabilitation of the refineries, not more than 46.8 MLD of
products are expected to be produced, leading to an expected aggregate
supply gap of nearly 10.0 MLD in 2020 and over 24 MLD by 2030.
More specifically, the supply gap for PMS will be 21.7 MLD in 2020 and
32.1 MLD in 2030. Similar figures for DPK will be a supply surplus of 1.1
MLD in 2020 but a shortall of 2.2 MLD in 2030. A net supply surplus
situation is also expected for AGO, to the tune of 10.9 MLD in 2020 and
9.7 MLD in 2030.
It is instructive to note that if there is no decisive intervention, from
current trends, products import bill for bridging the supply gap will rise
steadily from $9.9 billion this year to $18.1 billion in 2030 and self
sufficiency will decline from about 21% to less than 13% over the same
period.

DIESEL (AGO) STANDARD SPECIFICATION

CHARACTERISTICS
Specific gravity (@
60/60F)
Distilation

LIMIT
0.820(min.)

Recovery (@35C%wt)
FBP (OC)
Colour
Flash point (oF)
Total sulphur (%wt)
Copper corrosion (3hr
@ 100C)
Kinematic viscosity (@1
OOFcst)
Carbon residue
(Conradson on 10%
residue) %wt
Strong acid number
(mg. KOH/g)

90(min.)
385 (max.) Colour
3(max.)
150 (min.)
0.5 (max.)
No.1 strip (max,)
1.6-5.5 Cloud point (oF)
0.15(max)

Nil

Tobal acid number (mg.

KOH/g)
Ash content (%wt)
Water by distillation
(%Vol.)
Water by extraction
(%wt)
Diesel index

0.5 (max)
0.01 (max.)
0.05 (max)
0.01 (max.)
47 (min)