According to NBS data, Gross Domestic Product (GDP) for the second quarter declined by 2.06 percent while annual inflation rose from 16.5 percent to 17.1 percent in June. Nigerias recession stems from flagging oil prices on the international market.

Low crude oil prices led to a drastic reduction in Nigerias foreign exchange earnings, which it depends on for the majorly of its income. This resulted in a scarcity of foreign currency, especially the U.S. dollar, to finance imports. The countrys lubricant market was especially hard hit by this scarcity because it depends on imported base oils. Although Nigeria is Africas largest crude oil producer, it does not refine base oils domestically.

Declining crude oil prices forced Nigerias Central Bank to adopt a new policy. It granted access to foreign exchange at the official rate to purchase a few items on an exclusive list; another 41 items were restricted. While base oil is on the list of exclusive items, blenders did not have access to U.S. dollars and had to resort to the parallel market, adversely impacting base oil availability and cost.

Emmanuel Ekpenyong, head of lubricants for HOGL, noted that this development resulted in occasional scarcity of base oils because few blenders are able to access foreign exchange at the official rate (which is cheaper than the parallel market) from commercial banks to finance base oil imports. Consequently, he explained, lubricant blending in Nigeria has really slowed down in terms of volume.

A number of blenders, who hitherto purchased a 5,000 to 8,000 ton mix of base oils grades, now import only a few flexibags of products. This barely meets their finished lube requirements, Ekpenyong said. Capacity utilization of blending plants, which stood at 45 percent before, is now down to about 20 percent.

The overall result is a scarcity of lubricants accompanied by a hike in the price of base oils. Implicitly, base oils became a so-called beautiful bride, and those who could source foreign exchange currency for imports raked in a good profit.

Taiye Williams, managing director of Lubcon International, emphasized that the scarcity of base oils has caused somewhat of a shift on the Nigerian lubricant market. Because of the good profit margin in base oil, everybody, especially independents, are going into base oil trading, said Williams. Even non-independents and players in other downstream sectors of the Nigerian economy are competing for a piece of the base oil market in the country.

Ekpenyong concurred, stressing that the scarcity of foreign exchange has made base oil trading attractive to many businessmen playing in the downstream oil and gas sector. The traders, who largely procure their foreign exchange from the parallel market at a premium, import base oils and sell to whoever is willing to pay the high price. In some cases, the open market price of base oils could be so high that blenders make little or no margin on their finished lubricants.

Emeka Obidike, executive secretary of the Lubricant Producers Association of Nigeria (Lupan), said base oil trading is the big deal on the Nigerian lubricant market. If you import 10,000 metric tons into Nigeria, you are sure of selling it within a few weeks. Base oil is scarce, and many players are cashing in on it. It is a fast-selling product, he said.

Linus Ilozue, managing director of A-Z Petrochemical, one of Nigerias leading lubricant manufacturers, added that there are indications that independents are seeking to deploy flexitanks for base oil importation so that they will not be dependent on the majors for base oils. However, Ekpenyong noted that the majors seem to be riding the wave because of support from their offshore parents. The majors, who have offshore support and stronger financial capabilities, seem to have taken up any market share left open.

Unlike premium motor spirit, which is capped at N145, there is no price
cap on base oil trade in Nigeria. So importers sell to buyers, depending on their cost of importation. However, Obidike said this trend has resulted in selling of base oils to everyone, with dire consequences for quality. The danger in this thriving base oil trade is that regulatory agencies are not doing enough to monitor the end point of base oils imported to the country, which most of the time gets into the wrong hands, said Obidike.

Ekpenyong agreed: The wanton importation of base oil by traders who sell to anyone, if not checked, can lead to base oils getting into the wrong hands which could enable counterfeiting of name brand lubricant by unscrupulous persons. He suggested that Nigerian blenders can circumvent the challenges posed by scarcity of base oils by partnering to import bulk cargoes to tank rather than importing flexibags.