Nigeria is Africas most populous country and is a huge market for lubricants. Emeka Obidike, Secretary of the Lubricant Producers Association of Nigeria (Lupan) in Lagos, said in an interview, The country, which has been described as a frontier economy, has consistently achieved more than 6 percent growth in Gross Domestic Product in the past two years. The International Monetary Fund World Economic Outlook of July 2013 projects Nigerias economy to grow at more than 6 percent in 2013 and 2014.
However, Nigeria suffers from an ironic contradiction: It is arguably the only crude oil producing country that imports petrochemicals. This fact often blinds foreign interests to the potential inherent in the Nigerian economy. In addition, the country suffers from a bad reputation for safety. Jani Ibrahim, chairman of Lubcon Ltd., disputed this, saying, People outside Nigeria think it is a dangerous place, but foreign investors who are in the country dont want others to come, so they continue to discourage them.
Market Prospects
Deregulation of the Nigerian lubricants sector in 1991 gave rise to the first indigenous blending plants in the country. Since that transformation, the Nigerian lubricants industry has grown significantly and now comprises more than 32 independents and six majors (Mobil Oil Nigeria, Forte Oil, Conoil, MRS Oil Nigeria, Oando and Total).
Total market demand for lubricants in Nigeria is estimated at about 582,000 metric tons annually with a value of about N680 billion (3.14 billion), according to Lupan. Nigeria currently boasts 32 lubricant blending plants with seven new plants in the works. Completion of these facilities will significantly increase the volume of lubricants produced in the country.
Lupans statistics also put the total installed capacity of indigenous plants at more than 965,000 metric tons per year. Blenders in the country have leveraged this capacity to expand sales into surrounding countries. Our members supply lubricant products to Benin, Togo, Sierra Leone, Chad and other African countries, Obidike said.
Threats to the Industry
Dr. John Erinne, chief executive officer of Matrix PetroChem Ltd., a Lagos-based lubricants and petrochemical company, said that the Nigerian lubricants sector faces two important threats: Unrestricted importation of finished lubricants, sometimes of questionable quality, and unfavorable import tariffs on base oil. Both base oils and finished lubricants are classified under the countrys HS Code 2700.1930.00 and carry the same import duty rate of 10 percent.
Lupan members agree that indiscriminate importation of substandard lubricants and the heavy tariffs on both base oils and finished lubes have had the most adverse impact on the sector. For instance, the Kaduna refinery of Nigerian National Petroleum Corp., in north central Nigeria once produced base oils. However, it has not produced base oils since 1986 when it was gutted by fire. Consequently, blenders find importing base oils to be a viable alternative.
Ibrahim is worried that a country as large as Nigeria that imports more than 500,000 tons of oil does not produce its own base oils. I think the volume is sufficient for us to produce base oils locally, he said. We should have domestic base oil production, and I think there are ways to produce them.
Erinne of Matrix PetroChem expressed the opinion that these challenges can be alleviated by the reclassification of import tariff codes for base oils and finished lubricants by the Federal Ministry of Finance and the Federal Ministry of Industry, Trade and Investment. The base oil tariff should be reduced and the finished lubricants tariff increased, he said. The enforcement of applicable lubricants import restrictions on lubricants by the Department of Petroleum Resources and increasing the role of locally branded lubricants are requisites to put the sector on a solid footing, according to Erinne.
However, certain blenders attribute some of the difficulties to the late establishment of an industry lobby group such as Lupan. The organization was founded only in 2009, 18 years after the lubricant industry was deregulated.
The Nigerian lubricant sector is big, and the business can only grow, Ibrahim said. If we had a united front, certain issues could have been resolved at Lupans inception, such as the tariff structure, which we are now struggling to fix after it has already been announced by the government.
Lupan has taken the campaign for an improved lubricants sector to concerned government agencies and dignitaries. In a letter to the Minister of Trades and Investment, the organization emphasized that government efforts to transform the economy and generate employment might not achieve much if it does not protect the interests of indigenous blenders.
For its part, the Standards Organization of Nigeria said it has deployed mobile testing equipment to every corner of the country to monitor for substandard lubes. We go to fuel stations, blending plants or similar facilities, pick up samples and analyze them on the spot, Timothy Abner, head of petroleum standardization told LubesnGreases in Abuja.
But the Department of Petroleum Resources, a government agency that also supervises the lubricants industry, claims that the importation of base oils is not a threat. The departments Kawonise Olaide stated in an email, The importation of base oil to the country is not a threat because base oil is a raw material for the production of lubricants, and currently there is no base oil [production] in the country. However, he agreed that where the threat lies is in the importation of finished lubricants.
Market Trends
Conventional mineral oil dominates the Nigerian lubricants market, but interest in synthetic products is growing. There are also increasing demands for food-grade lubricants because of the emergence of beverage and packaging industries in the country, said Taiye Williams, managing director of Lubcon.
We have been seeing a lot of demand for synthetics because there are more top-end vehicles in the country, he added. Many people are car crazy in Nigeria. That is why they are looking for top-grade motor oils and greases.
Williams said sales of API SJ grade oils have been strong in the Nigerian market for the past 4 to 6 years. He added that the Standard Organization of Nigeria set its minimum standard at API SD, which he said is up for review.
Russian base oil is the most available to blenders in the country, but Williams said its color has a downside. The first thing you usually notice about some Russian oils is the color, which is a bit dark, he said. What Nigerians see matters to them, he added. They will look at [oils with] those colors as something [inferior]. That is why most serious blenders will not want to [use Russian base oils].
Disposal of used oil is another issue being addressed by the Nigerian market. Transportation and general industry are the two major sources of used oil. Transportation sources include used oil generated by cars in garages across the country, while used industrial oil is generated mainly by beverage and packaging companies.
The disposal of used oil has been a challenge. It is common for garages to indiscriminately dump used oils on the ground or pour it down the sewer. If blenders can meet and work together, we can look at how we can connect garages to collect used oil and protect the environment, Williams said.
He emphasized that the impact of disposing of used oil into the soil may not be much for now, but it will definitely have adverse effects in the future. We may be degrading our ecosystem without knowing it, he said. That is what developed countries have experienced. So, we have to be wise and put [used oil collection systems] in place.