It is very likely that Premium Motor Spirit (PMS) price regulation by the Federal Government will be extended, and the retail price of petrol by 26percent to N208 in 2022 says CardinalStone Partners Limited, an investment banking firm and financial services company.
In its outlook for 2022, the company stated that despite FG’s plans to halt fuel subsidies by mid-2022 in favour of monthly N5, 000 transport grants to 40 million Nigerians, current signs protrude to no full deregulation in sight.
“For us, we believe the political weight of the issue, public sentiments, and the potential knock-on effect on the cost of living are likely to dissuade the FG from pulling the plug. Instead, the government may be more likely to opt for a partial increase in prices to around N208.0 per litre levels,” CardinalStone said.
The outlook report projects Nigeria’s annual subsidy could moderate to N750 billion in 2022 compared to approximately N1 trillion in 2021.
Within this regulated environment, CardinalStone believes Nigeria’s downstream marketing companies may have to look beyond PMS sales for operating margin improvement in 2022.
“We see possible value accretion in other white products (Automotive Gas Oil (AGO), Household Kerosene (HHK), and Dual Purpose Kerosene) and lubricants, whose prices align with domestic supply and demand realities,” CardinalStone said
Data from the National Bureau of Statistics (NBS) showed local prices of AGO and HHK have risen by 13.2percent and 23.9percent, respectively, since the start of 2021, as marketers transferred the impact of higher crude oil prices on consumers.
“Beyond ATK price increases, the market has also been bolstered by the gradual rise in air travel, ” CardinalStone noted.
It added that the domestic travels (arrival + departure) increased by 81.6percent to 2.8 million in Q2 ’21, from 1.5 million lows recorded in the third quarter of 2020, however recent threats from Omicron-related flight restrictions and retaliatory actions continues to increase risks facing demand.
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CardinalStone also believes sharp increases in LPG prices may halt product penetration in 2022. “We see the continued surge in cooking gas prices as a potential threat to local LPG consumption. The 12.5kg cooking gas price has increased by 46.0percent, notably rising by 36.5percent in September 2021,” CardinalStone said.
According to the Nigerian Association of Liquefied Petroleum Gas Marketers, prices have been pressured by the re-introduction of VAT on the product, the rise in international freight costs (imports contribute about 60.0percent of total consumption) and an increase in customs duties.
Concerning the upstream sector, CardinalStone expects Nigeria’s crude oil production to gradually recover from the setbacks experienced in the first nine months of 2021, reaching 2021 and 2022 average production (incl. condensates) of 1.64 million barrel per day and 1.72 mbd respectively.
“Domestic oil output has notably been hit by several production challenges ranging from power failure on several terminals, pipeline downtime due to vandalization and prolonged repairs, as well as industrial actions over non-payment of salaries,” CardinalStone said.
“The imminent launch of the 160,000 bpd Amukpe-Escravos export terminal could support production as it offers an alternative to the inefficient Trans Forcados pipeline, which had a 74 percent uptime in the first nine months of 2021,” CardinalStone said.
According to Seplat Energy, the construction of the entire pipeline system is effectively complete, and hydrocarbons lifting through the pipeline should commence soon.
