One thing is certain in Nigeria, the supply of electricity is unpredictable. Like much of sub-Saharan Africa, the country has a woefully inadequate electricity grid that has suffered decades of underinvestment and failed improvement schemes.

Peak demand for electricity in the country is around 19,100 megawatts, while useable capacity is 5,000 MW despite there being another 2,000 MW unutilized. The gap is bridged by private generators, mostly imported from North America, Europe and Asia. Large industrial diesel-powered sets keep hospitals, factories and office blocks working while small, often two-stroke gasoline units light many homes and keep shops open.

Supply and Demand

Nigeria is Africas second-largest generator market after Egypt, according to the most recent United Nations Statistics Division data. It found generators worth an estimated U.S. $27.6 million were imported into the country between 2014 and 2015, and the amount imported annually could increase to $350 million by 2020 at current exchange rates. Leading original equipment manufacturers include global heavyweights GE, Cummins, FG Wilsons, Siemens, Firman and Honda, and local brands GloPot and Thermocool.

According to the World Banks report Diesel Power Generation, Inventories and Black Carbon Emissions in Nigeria, 17.5 million generator sets are in operation for between 15 and 18 hours a day. That is a long time to run any internal combustion engine, and it creates a substantial market for lubricant producers in the country.

U.S.-based consultancy Kline & Co. estimates that between 35 and 40 percent of Nigerias total industry lubricant demand is accounted for by generators. While not all Nigerian lube blenders agree with the accuracy of Klines figure, all who spoke to LubesnGreases agreed that generators use lots of lube.

Dapo Babatunde of Lagos-based generator maintenance company Rosetop Nigeria Ltd. thinks it could be even more. To me it is a conservative figure, because for every factory you have a generator, and the engine oil used in the generator is more than the volume used in lubricating machine parts, he said in an interview, adding they can gulp as much as 200 liters per day.

The erratic power supply situation in Nigeria drives almost all industries to generate their own electricity. Some companies that have sensitive production processes [in] the food, drugs and beverage sector do not even use public power when it is available. They use their private power plants because they do not want to compromise on the quality of their products, said Emmanuel Ekpenyong, head of Nigeria operations at Puma Energy, a global fuel and lubricants company.

This includes lubricants suppliers themselves. Taiye Williams, managing director of Lubcon International, another Nigerian petroleum products company, said, We run a generator for eight hours per shift and we run two shifts in a day, which is 16 hours per day on a generator. He emphasized that as long as the power situation remains the way it is currently, the generator lubricant segment will continue to see high demand.

Generating Business

Market leaders for generator lubricants are familiar names, from internationals Total and Mobil to local concerns Oando, A-Z Petroleum Products, Lubcon International, Eterna Plc. and Ammasco International Ltd.

Ammasco and Lubcon are key suppliers of the smaller, domestic generator segment, doing particularly brisk business with 1 liter bottles known locally as kegs. These small containers are very popular, said Emeka Obidike, executive secretary of the Lubricant Producers Association of Nigeria.

The 1 liter keg lubricant segment is used to service small generators … and motorcycle users all over Nigeria also prefer it, he said.

Babatunde explained that the two kinds of generators in Nigeria – those powered by diesel and those running on gasoline – use the same engine oils used by vehicles. In the case of smaller units, oils are often bought from filling stations or backstreet shops, which have a poor reputation for selling adulterated oils. Incidences of lubricant adulteration are very high in the generator lube segment.

Kegs of used generator oil are refilled with ordinary base oils and sold as generator lubricating oils. That is the greatest challenge in that segment of the market, Obidike said.

For larger generator sets, Niyi Okedairo, chief operating officer for Ranod Oil and Gas West Africa Ltd., explained that the kind of lubes used in generators depends on different companies, but the priorities are … top-range diesel oils. However, he said that there is no data on the categories of oils used in the generator market.

The type of lubricating oils used in large gasoline or diesel generator sets found mainly in industrial and commercial enterprises is determined by the service regime, according to Ekpenyong. Some large end-users contract maintenance of their generators to local servicing companies that tend to buy blended oils made from low API grades in order to maximize tight margins. These servicing companies sometimes use engine oils ranging from now obsolete API CD category to the still-current yet 16-year-old API CI 4 Plus. However, he added, there is a general lack of interest in the type of oils used by large businesses as long as their generators do not fail.

This laissez-faire attitude to using quality oils is a major concern to independent lubricant manufactures in Nigeria. Williams cited the case of one Nigerian telecommunications company that does not source quality generator lubes from local blenders, preferring instead to have local contractors use substandard
oils. At consumption volumes suggested by Babatunde, the savings could be substantial, as are the long-term risks to equipment health.

Telecoms companies are the largest end users of diesel generators in Nigeria, with a total of 24,252 sets often powering mobile phone masts, and so encouraging them to use quality, up-to-date products is an opportunity for established suppliers.

Sector Challenges

Aside from the use of quality, OEM-approved products, the generator maintenance and lubricant supply business faces other challenges. According to Williams, one of them is that some generator dealers in Nigeria travel to Dubai in the United Arab Emirates, where they order their own packaged oils and import them back into the country as specific fluids for their own equipment brands, thus shutting out local lubricant makers from this valuable market.

Local blenders dont have a business, and the regulatory oversight has been, at best, lacking in the country, Williams said.

Another problem is the safe disposal of the large quantities of used lubricants because continuous run times are so long and drain intervals are therefore short. Some end users say they dispose of used oil into the drainage system, while others said they leave it with service technicians to dispose of. But without much of a formal used oil and rerefining sector, the likelihood is that it ends up going the same way or is dumped in landfills.

Then there are the long-term economics. Nigerian blenders know that the profitability of the generator lubricant market is tied to developments in the conventional power supply sector. According to John Erinne, chief executive officer of MatrixPetrochem in Lagos, the benefits of the power reforms and privatization should materialize eventually, which, he noted, will negatively impact the generator market. More than 1,100 MW of new capacity is slated to come on line in 2018.

As mains power supply continues to improve there is likely to be a decline in generator lubricants, said Erinne. Okedairo and Williams both agreed, however, that this will not happen in the near term, especially after the failure of successive sector reforms.

The situation will remain the same in the next five years, Okedairo told LubesnGreases. It may be [improved] in 20 years time, but for now, there is no hope it will improve.

This means that the Nigerian generator lubricant market should remain attractive to both local lubricant manufacturers and major oil companies in the foreseeable future.