New prospects in Nigeria’s downstream

Nigeria

Nnamdi Obiagwu, managing director and CEO of Eterna, talks to The Energy Year about the downstream sector in Nigeria, deregulation, the future of LPG/autogas and Eterna’s plans to become an integrated energy company. Eterna trades in crude oil and condensates; manufactures, sells, distributes and exports lubricants; bulk imports and retail distributes petroleum products; and supplies chemicals to the energy industry.

How do you view the recent deregulation of product pricing in the downstream?
The “deregulation” is not really a full deregulation simply because the government still holds onto a critical element, which is the forex sourcing. By using exchange rates which are unobtainable by other marketers to source its forex, the government still remains the single supplier of PMS [premium motor spirit] in the market. Although they are no longer controlling pricing at the pump, they exert significant influence through forex suppressed prices they sell to marketers.
This means that whatever price they give you is the base on which you build your margins. Thus, there is still an amount of state control on pricing but now they don’t dictate the price at which you sell your product.
Pricing on products such as AGO [automotive gas oil] diesel and kerosene have been fully deregulated as the government does not play a significant role in those areas. But when it comes to PMS, deregulation will not be fully achieved unless the government implements an equal playing field for all actors. Covid-19 gave way to a scenario of low oil prices which was seen by the government as an opportunity to remove price control while also allowing the public to see a reduction in price. The current leadership had the will to follow through.

How do you view the government’s plan to roll out an autogas programme across the retail landscape?
The common joke in the industry is that Nigeria is a gas country that has some oil. From here, the government’s drive to promote gas use in the country and make natural gas the new petrol is well received. It is a great initiative and the government wants to lead by example, with NNPC Retail making autogas available in its retail stations. Companies are being encouraged to follow in its footsteps.
Most retail stations are trying to explore opportunities in LPG for cooking gas. Some stations already have mini skids to fill up cylinders, and this will only create more momentum. The challenge is the level of capital investment required to put the infrastructure in place. Yet, there is a fundamental question arising around the theme of autogas demand. Does one wait for the demand to increase or wait for it to mature before entering the market?
So, you need to decide whether to make the infrastructure available first at the filling stations or focus on ensuring the vehicles to consume the gas are available. This is where the private sector can take the lead, and the government can give some sort of incentive like tax incentives or duty waivers on gas infrastructure.
Regarding conversion equipment, the government needs to find a way to help people convert their vehicles to dual fuel or gas or support companies to make conversion affordable. This is how to create the demand. Another area that needs attention is gas storage, as in storage plants and processing facilities. In any case, it is an ambitious and cleaner proposition for the future.
As for Eterna, we are currently doing a lot of background research and looking into partnerships. The first step will be in the area of LPG for cooking, where we aim to materialise our plans starting in 2021. Later down the line, we will look into autogas.

Where does Eterna stand with its network of retail stations?
In 2018, we had 15 stations and we managed to increase our network to 34 by the end of 2019. As of November 2020, we had about 64 stations. We have grown significantly and our target, pre-Covid-19 was to hit 100 stations and exceed it with a few more sites in Q1 2021. Once we hit this benchmark, most likely now by Q2 2021, we will re-evaluate the strategy and look at optimising the locations and the offers. Our strategy is a national one so the growth would be spread across Nigeria with a focus on key commercial hubs.

To what extent are you engaged in logistics and what options does the industry have to refine its logistics network?
Logistics is something we have thought about long and hard. We are looking at logistics in two ways. For the fuel business, we have mostly outsourced transporters. On the lubricants side, we own most of the fleets. We own our lubes fleet because a lot of the movements are done between our production plant and our warehouses. We also distribute the lubricants to our customers as this is more efficient given their nature and diverse needs.
However, there is a bigger side to logistics that the industry needs to tackle. Our infrastructure and roads are in a terrible state. In certain situations, delivery is a challenge. It is difficult and it takes time to recover from a breakage or shortage in the supply chain.
As an industry, we need to move away from trucks and start looking at rail as a more sensible option. There is a natural progression in the logistics of products in other parts of the world which goes from trucks to trains to pipelines. We were on this path in the past but have regressed to the trucking stage and the previously existing pipeline network across the country is largely moribund. We must start looking at more efficient ways to move products and recommence the path to achieving it.

You have a lube blending plant in Sagamu. What regional reach do you aim for it to have?
The plant is made to cater for Nigeria. However, we look to take advantage of what happens in the rest of West Africa. We have gone forward in the ETLS [ECOWAS Trade Liberalization Scheme], an initiative allowing you to export within West Africa duty-free. We started that long and difficult process, acquired the permits and started exporting last year [2019]. We managed to move four containers despite Covid 19. We are actively looking to support West Africa from that plant.

What expansion strategy do you have when it comes to lubricant and fuel storage?
Our strategy for lubricant storage aligns with the needs of our blending plant. By increasing our storage capacity there, we can move more base oil volume to the plant. In the past two years, we have doubled our plant base oil storage capacity and we can now store about 5,000 tonnes of base oil there.
On the fuel side, we have our 30-million-litre depot at the Ibru Jetty in Ibafon, Apapa, but our demand has grown substantially. We bring in a vessel and fill up our own tanks and have to store the balance in other depots due to the volumes we now handle. Given the need to expand and the space constraints in our depot, we are determining whether to buy another one or lease a tank. In 2021, we will make a final call on this.

In what ways would Eterna consider entering the upstream sector?
In line with what is happening globally, we definitely want to be an integrated energy company. The upstream, midstream and downstream are interconnected and part of the same energy stream at the end of the day. To this end, while not wanting to run an upstream company, we would however like to partner with upstream assets while letting the E&P experts operate. We believe the access to forex the upstream provides would aid our downstream business.

In a nutshell, what is your growth strategy for 2021?
Firstly, we want to continue our retail expansion. With the Dangote Refinery on the verge of completion, one needs to be a solid and a decent-sized downstream player. To this end, we will upscale our distribution capacity. As for the lubricants side, we have invested in making sure we can produce Castrol lubes in Nigeria, so it is now time to flood the market with this product, and the same goes for our Eterna lubricant brand. Likewise, we are now exporting lubricants and expanding our reach across the West African region. We are also finalising and executing plans to enter new business.

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