The Downstream Sector: An Assessment Of Petroleum Products Supply In Nigeria

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THE DOWNSTREAM SECTOR: AN ASSESSMENT OF PETROLEUM PRODUCTS SUPPLY IN NIGERIA 

TABLE CONTENTS

CHAPTER ONE

1.0     Introduction

  • Background to Research

The downstream petroleum sector of the Nigerian petroleum industry is one of the key sectors in the country’s economy. According to Manzano (2005, pp.6-7) the petroleum industry is both significant and strategic to the economy of any country, involving substantial economical flows and supporting transportation and other essential services. Kimani (2013, p.3) states that “petroleum is the world’s major source of energy and is a key factor in the continued development of world economies”. In Nigeria, petroleum products are one of the major sources of energy, accounting for about 70 percent of its total energy consumption (Agusto& Co., 2008, p. 11). Energy plays a critical role in social, economic and political development of the country and any inadequacies in its supply will not only restrict social-economic activities but also limit economic growth thereby adversely affecting the quality of life of its citizens (Agusto& Co., 2008, p. 11).

Nigeria has 4 refineries (Port-Harcourt I & II, Kaduna & Warri) with total installed capacity of 445,000 barrels per day including 2 offshore jetties and 4 inland jetties as well as over 90 tank farms with wide-ranging storage capacities being operated by different oil marketing companies to cater for domestic consumption of refined petroleum products (House of Representatives [HOR] , 2012, p.51). In addition, there are networks of 5,120 kilometers of pipelines (consisting of multi-product pipelines and crude oil pipelines), 23 strategic depots, and 24 pump stations installed to facilitate petroleum products distribution across the country (Alaba&Agbalajobi, 2014, p.119; Okoli&Orinya 2013, p. 68).

However, the Nigerian petroleum industry is confronted with several challenges. While the upstream sector of the industry faces challenges such as pipeline vandalism and oil exploration disturbances, the downstream sector is equally menaced by lack of maintenance of the refineries resulting in low refining activities for the domestic market, pipeline vandalism, poor maintenance of pipelines and depots, poor transportation infrastructure for the physical distribution of petroleum products to end-users. The challenges in the downstream sector affect the petroleum products supply chain with the resultant effects of perennial shortages of products and the antecedent long queues at retail stations across the country. The scarcity of petroleum products has a long history of supply disruptions. Onigbinde (2014, p.71) maintains that Nigerians have suffered many years of scarcity of petroleum products necessitating increase in products importation by the government. In an attempt to solve this problem, the government introduced partial deregulation of the downstream sector in 2003.Auwal and Mamman (2012, p.2) note that the deregulation policy was expected to bring competition into the sector as well as increase sources of supply for petroleum products and thereby ameliorate the situation. However, price control and subsidy schemes still in place have negated the benefits of the partial deregulation policy.

According to Okoli and Orinya (2013, p. 67), Nigeria recorded 16,083 pipeline breaks from 2002 to 2012 with activities of vandals responsible for 15,685 breaks (97.5%) and the remaining 398 breaks (2.5%) were as a result of rupture resulting from poor maintenance of petroleum pipelines. Ikeogu, Ugboaja, Stephen and Ukpere (2013, p.591) observe that petroleum products supply and distribution in Nigeria has peculiar challenges resulting from the chain reaction from pipeline vandalism and oil exploration disturbances.

Pipeline vandalism has resulted in increasing bridging of petroleum products from the south to the north and from the southwest coastal ports and storage terminals to the east and north of the country (Agusto& Co., 2008, p.10). The bridging arrangement is inherent with distribution challenges which have serious implications on the petroleum products supply chain, economic development and growth of the country as well as the welfare of her citizens.

The challenges of the petroleum products supply chain have also created problems such as increasing cost of product distribution by oil marketing companies and frequent pump price adjustments by the government which oftentimes lead to industrial strikes by trade unions in the downstream sector. The supply and distribution chain thus presents a problem of product availability to consumers.

The focus of this research is to identify the major causes of petroleum products supply and distribution ineffectiveness in term of logistical and supply chain management challenges of the downstream petroleum sector and also identify possible solutions to the problem.

  • Rationale for Research

Petroleum products supply and distribution in Nigeria is characterised by inadequate supply and distribution of products. Given the fact that energy plays a critical role in industrial outputs, socio-economic development, andprovision of essential services such as transportation, it is important to look at the problem of petroleum products supply and distribution ineffectiveness by considering the supply chain management issues affecting the petroleum products supply chain in order to gain a better understanding of the challenges confronting the downstream petroleum sector in Nigeria.

1.3       Aims, Objectives and Research Questions

Aim

The aim of this research is to identify the major causes of petroleum products supply and distribution ineffectiveness in Nigeria and also identify potential solutions to the problem.

Objectives

The objectives of this study are:

  • To establish the challenges of petroleum products supply and distribution in Nigeria;
  • To identify factors affecting the effectiveness of the petroleum products supply chain;
  • To identify means to improve the supply chain for effective products distribution.

Research Questions

In order to achieve the central aim of the research, the following research questions will be answered:

  • What are the challenges of petroleum products supply and distribution in Nigeria?
  • What are the factors affecting supply chain management and how do these factors affect the effectiveness of activities in the downstream petroleum sector in Nigeria?
  • What are the factors causing supply variability in the petroleum products supply chain in Nigeria and how do these factors impact on the effectiveness of the supply chain?
  • How can the petroleum products supply chain in Nigeria be improved for effective products distribution?
  • Research Methodology

Survey research method will be employed to achieve the research objectives. This research strategy will facilitate quick collection of data for the study from a wide range of participants. The population for the study will consist of employees from ten (10) oil marketing companies in Abuja. The sampling frame for the study will be drawn from the list of all employees in the operations department of the oil marketing companies in order to obtain pertinent information that will be needed to answer the research questions. Five employees will be selected from each company using the simple random sampling technique to make up the sample size of fifty participants for the study. A survey questionnaire will be designed and used as the main instrument to gather the required data. Collected data will be analysed using quantitative data packages such Statistical Package for Social Sciences (SPSS) and Microsoft Excel software.

  • Limiting Factors

The research instrument used for the survey could present a limiting factor as research participants may provide answer to the Likert-scale questions in the questionnaire as they think the researcher would like them to answer these questions.

  • Delimiting Factors

The scope of this study is limited to conducting field survey in one geographical area of the country, i.e. Abuja. Also, the petroleum products supply chain in Nigeria represents the interests of the following stakeholders in the petroleum downstream sector: the government, regulatory agencies, oil marketing companies, transporters and retailers. However, as a result of limited time available, the research will survey participants from oil marketing companies only. Therefore, participants for the study will be recruited from oil marketing companies located in Abuja.

  • Outline of the Dissertation

The dissertation is structured in five (5) chapters, followed by bibliography and appendices.The first chapter presents the introduction and background for research. It outlines the aims and objectives of the study including the research questions. It also outlines other relevant aspects of the study such as research methodology, limiting and delimiting factors.The second chapter covers the review of literature relevant to the research.The third chapter presents the research methodology employed to provide answers to the research questions.The fourth chapter presents analysis of data collected during the study and interpretation of results.The last chapter presents conclusions and recommendations.

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