Financial Energy Review
by Abisoye Shola………..
FBNQUEST has said that competition among the nation’s major oil marketers will increase if the federal government through the Petroleum Product Pricing Regulation Agency (PPPRA) continues with the Premium Motor Spirit (PMS) known as petrol new pricing template and effectively deregulating the downstream sector.
“We see competition intensifying over a long term under this scenerio, reach and distribution will be a key competitive advantage” FBNQUESTsaid.
According to analysts at FBNQUEST the country’s downstream petroleum sector is in need of favourable policy steps to ramp up investment.
In a statement titled ‘Downstream oil and gas at a crossroads and due for favourable policy steps’ analysts said given relatively softer petroleum products demand in the first half of this year, the near-term outlook for the sector was certainly subdued however, the long-term prospects appeared more promising.
“The downstream oil and gas business is typically a low margin one. However, other factors, mainly constraining policies, have led to historically low investments in the sector over the last decade.
“In our view, the fortunes of the sector could change with the growing possibility of full pricing deregulation.
“We believe the reintroduction of a market-friendly pricing template for petrol in March and the central bank’s current attempt at unifying foreign exchange rates increase the prospects of the end of mandated petrol price ceilings” FBNQUEST said.
It noted that the newly adopted pricing template took into consideration several factors such as the petroleum product cost and the foreign currency conversion rate at which oil marketing companies import petroleum products.
“We expect the recent adjustment of the naira official FX rate from N306/$1 to N380 to test the durability of this template within this quarter.
“Assuming all other inputs remain constant on the most recently published PPPRA petrol pricing template an adjustment of FX rate assumption to the current rate level raises ex-depot prices by approximately 20 percent.
“In the near term, we expect the industry to take a hit from measures adopted to stem the spread of the COVID-19 pandemic. The implementation of a total lockdown, followed by a partial economic re-opening in key states – Lagos, Ogun and the FCT – should result in declining petrol consumption in Q2.
“We estimate a petrol consumption contraction of between 40 and 45 per cent in Q2 even though product importation grew eight per cent year-on-year to 5.3 billion litres in prior quarter” they said.
