Nigerias market grew at an estimated 10 percent per year before its peak of 450,000 metric tons in 2015, according Taiye Williams of Nigerian lubricants company Lubcon International Plc. The economy entered a recession in 2016 that resulted in a drop to 400,000 tons, according to the Lubricant Producers Association of Nigeria (Lupan).

Global consulting and research firm Kline & Co. put total lubricant industry demand (consumer, commercial and industrial) at 585,000 tons in 2017, indicating healthy growth from pre-recession levels. The market is recovering, John Erinne, managing director of downstream engineering consultancy Matrix Petrochem Ltd. in Lagos, said during a presentation at the ICIS African Base Oils and Lubricant Conference in Accra, Ghana.

Vying for Business

Nigerias lubricant market comprises a host of major oil corporations, independent lubricant manufacturers and agents, traders and importers. The international majors are mostly represented by local subsidiaries or former subsidiaries and are involved across the board in blending, marketing, logistics, grease manufacturing, technical services, retail and industrial activities.

Majors include Totals subsidiary Total Nigeria, which is the market leader with its Total, Elf and Neptuna brands; Oando Plc., the successor to Esso West Africa Inc. and Agip Nigeria Plc., offering automotive, industrial, marine, generator and grease products; Forte Oil Plc., a former BP subsidiary that supplies automotive and industrial lubricants; indigenous oil company Conoil, which manufactures and markets transport and industrial lubricants; MRS Holdings Ltd., which acquired Texaco and Chevrons downstream assets; and 11 Plc., the sole authorized distributor of Mobil 1 lubricants.

Most other independent lubricant manufacturers are small and historically indigenous concerns involved in lube blending, small-scale grease manufacturing and various marketing activities. Leading independents include Lubcon International, Ammasco International Ltd., A-Z Petroleum Products Ltd., Tonimas Group, Eterna Plc., Dozzy Group and Necit Nigeria Ltd.

Agents, traders and importers are also small local firms that serve as local representatives of international companies for specialty lubricants. They also act as importers and marketers of conventional lubricants from various sources.

Retail Detail

Channels to market in Nigeria comprise small-scale retail, resellers, commercial, industrial, marine and specialties. The retail/reseller market deals in automotive engine and transmission oils. This segment is spilt between monograde and multigrade oils, with monogrades accounting for 70 percent of the market, according Lubcons Williams.

While the high end of the market has seen growth in sales of oils meeting original equipment manufacturer specifications, lower-grade oils are the mainstay of the market.

Hydraulic fluids and diesel engine oils dominate the industrial and commercial segments, while the specialties market, including synthetics, serves the oil drilling, food, aviation, power generation and refrigeration industries. Of these, synthetics comprise less than 1 percent of the market. Finally, the grease market is experiencing a shift from sodium to lithium-based products.

According to Erinne, oil majors hold 42 percent of the market, independents 45 percent and agents, traders and importers the remaining 13 percent. In terms of channels to market, retailers/resellers control 62 percent of sales.

Kline & Co. estimates engine oils account for 56 percent of the market, industrial including process oils 31 percent, transmission fluids 4 percent, grease 3 percent, marine 2 percent and specialty lubricants 4 percent.

Lagos, Nigerias commercial capital, is the hub of the lubricants business in the country, accounting for 42 percent of consumption. West Nigeria accounts for 13 percent, the east 20 percent and the north 25 percent.

Base Oils

Despite being Africas largest producer of crude – some 2.5 million barrels per day – Nigeria is totally dependent on imported base oils. The countrys only base oil unit, located at a Nigerian National Petroleum Co. refinery in Kaduna, was destroyed by fire in 1996 and has remained closed since, despite promises by successive governments to return it to production. The loss to the economy is estimated at more than U.S. $61 million, according to Nigerias New Telegraph newspaper.

Even if the unit came back on stream, Nigerias crude is too light for base oils refining, Erinne claimed. While operating, the refinery would have to import crude to produce base oils meaning that for the foreseeable future, Nigeria will remain dependent on imports.

The lubricant market is dominated by API Group I oils imported primarily from Russia and Ukraine. Erinne estimated that these imports account for more than 75 percent of the market. However, there are signs that Group II base oils will gain traction to support production from several new auto assembly plants in the country and to meet OEM specifications. As Lubcons Williams noted, We are considering switching to Group II because prices are gradually coming down. (The majority of Group II base oils are imported from Europe and the United States.) However, the lack of foreign currency has remained a daunting challenge for importers.

Good Mixer

Nigeria is home to about 35 licensed blending plants, according to the Department of Petroleum Resources Oil and Gas Annual Report of 2015, with 12 plants located in Lagos. Total base oil storage capacity is 120.5 million liters. Nine blending plants are owned by majors, accounting for 20 percent of total storage capacity, while independents control the rest.

Lupan estimates the average capacity utilization of blending plants in the country at 35 to 50 percent. In addition, the plants have limited grease manufacturing capacity, with only MRS, Oando, A-Z, Lubcon and Ammasco manufacturing greases locally.

The rerefining segment of the market is limited by logistic challenges that hamper the collection and delivery of waste oils. This has resulted in indiscriminate disposal of used oils in the environment, with serious consequences for public health and safety.

Finally, the additive market is dominated by the top four international companies, operating through local representatives. However, Erinne noted that there is increasing competition from Russian, Chinese and Indian additives suppliers, offering competitive pricing.

The tariff regime in Nigeria is very attractive for homegrown players. Prior to 2015, the import tariff for both base oils and finished lubricants was 10 percent. Then tariffs were readjusted to 5 percent for imported base oils and 30 percent for finished lubricants to encourage local production.

More Obstacles

The main challenge to doing business in Nigeria is its vulnerability to foreign currency fluctuations. The situation is complicated by the scarcity of U.S. dollars, the currency in which imports are processed.

This situation is exacerbated by regulatory issues, which Matrix Petrochems Erinne identified as a major weakness in the market. Regulations that should guide all aspects of the lubricant industry have failed, he said.

Lubcons Williams agreed, adding that the industry is fighting a fierce battle against counterfeit and substandard lubes in the country. To counteract this problem, Tolulope Alabi, trade operator at OVH Energy Marketing, said that there is a need to educate both consumers and influencers who recommend engine oils to end users. We have to engage the key influencers such as mechanics who make recommendation to consumers on the oil to buy. Consumers have to be addressed also because many are attracted to substandard lubes because of the price.

Another supply-side issue is the national electricity grids lack of coverage. Many homes, offices and businesses are powered by local generators, from large diesel-fueled units that use heavy duty motor oils to portable units that use passenger car motor oils or 2-stroke/4-stroke oils. Consequently, generator lubricants are a major proportion of finished products demand, at an estimated 35 to 40 percent of total industry demand, according to Kline & Co.

Investments in electricity infrastructure will have a major effect on this market segment. The World Bank approved a $486 million credit for grid improvements in February, so the clock is ticking.

That said, with a growing population and rising middle class it looks as if demand will grow, but it remains to be seen how lubricant suppliers, even with capacity and local knowledge, will deal with the diverse challenges that the country presents.