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A STUDY OF THE NIGERIAN PETROLEUM RETAIL MARKET

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CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY

There has been a relative slow rate of growth in the Nigerian Petroleum sector for past decades with a far reaching influence of foreign presence. It is a well known fact that the Petroleum sector in any economy requires great amount of technology, capital with seasoned and experienced manpower for national development, however all of these are insufficient in the Oil and Gas Industry and Nigeria as a whole.

As of today 2014, the Oil and Gas industry is the mainstay of the Nation’s Economy with other sectors of the economy relying on it to function. The nation is sustained on revenue from oil and gas and this roughly accounts for about thirty percent (30%) of Nation’s Gross Domestic Product (GDP)and an estimated ninety percent (90%) of Nigeria’s foreign exchange earnings in the early 90s (Davidson, 2003).

Michael (2003) posits that the Nation’s Petroleum Industry generated about $231billion in rents, or $1900 for every man, woman, and child and oil has annually produced over ninety percent (90%) of Nigeria’s export income. In the year 2000, the Nation got over 99.5% of its export income from oil, making it the world’s most oil-dependent country. The role of oil and gas in the Nigerian economy cannot be downplayed as it has consistently maintained its position as the most active, ever changing and thriving sector of the economy and has been the mainstay of the nation’s economy since gaining independence (Egbuna, 2004).

According to Hallowey (1994) in every industry, challenges exist for business and sales of goods and services irrespective of set goals. Challenges may be associated with price fluctuations in the economy, logistics, marketing, product transport and storage etc. The Nigerian oil and gas sector is not totally free from these challenges in the handling and sales of petroleum products. Just like every other sector of the oil and gas business, distribution and marketing of products takes place on a vast global scale. Hundreds of companies and individuals daily buy these products from thousands of retail outlets all over the nation, with number of consumers running into millions.

The Nigerian National Petroleum Corporation (NNPC)markets refined products like:

  • Premium Motor Spirit (P.M.S.)
  • Low Power Fuel Oil (L.P.F.O.)
  • Dual Purpose Kerosene (D.P.K.)
  • High Power Fuel Oil (H.P.FO.)
  • Lubricating Oil.
  • Cooking Gas etc.

Petroleum products are marketed by indigenous and multinational oil companies like Total Fina Elf, Exxon Mobil, Agip National Oil, African Petroleum, Oandoetc. Notwithstanding government best efforts at improving petroleum products distribution and retail marketing, challenges of insufficient and irregular product distribution among others still besiege petroleum product marketing in the country with the situation getting worse with the recent premium motor spirit (PMS) subsidy removal.

This gave rise to influx of independent marketers into the scene as a way to proffer solutions to the numerous challenges and help stem the tide of inadequate petroleum products availability, distribution and marketing in the country. Independent marketers were given rights to play their part in the sector so as to bridge the gap created by distribution logistics and improve standard of living of Nigerians, this was a welcome development because products distribution in the country had been epileptic and unreliable until the independent marketers’ appearance on the scene.

Shortage of petroleum products experienced in the country in the early 70s was attributable to paucity of distribution network. The government of the day responded to these problems in two ways:

  • Encouraged well meaning citizens to invest in petroleum products marketing business and build more depots to bridge gaps created by transportation deficit,
  • Promulgated laws and empowered various security agencies to tackle and control oil theft and pipeline vandalization with the setting up of various task forces to make sure petroleum products reach designated location without being hijacked or diverted.

This research work is concerned mainly with retail marketing of specific petroleum products such as diesel, kerosene, premium motor spirit, gasoline and domestic gascommonly used in domestic and socio-economic settings more than any other product of petroleum (crude oil).

1.2              STATEMENT OF THE PROBLEM

Participatory and regulatory rates of government to stabilize marketing of petroleum products have yielded good results but its resultant effects to equate demand with supply of these products have been unsuccessful with pattern of distribution constantly in the forefront of continuous discourse and debate, since diesel, kerosene, gasoline are described as one of the bedrocks of the Nigerian economy.

Challenges however still exist in product distribution and marketing in the nation with cases such as;

Inaccessible depot location: many towns and villages find it difficult to get supply of petroleum products due to distance between supply source and their location creating a false sense of unavailability of products in form of an acute shortage.

Despite best of efforts made to avoid problems, numerous challenges still plaque product distribution and marketing such as transportation difficulties in moving products safely and quickly to point of need occasioned by deplorable road conditions and lack of railway or cargo movement systems, unending electricity failures, lack of adequate storage facility with very low and poor refining capacity of refineries,finance inadequacy and improper funding, poor distribution channels etc. Recently, these challenges became more apparent as occasioned by the surge in crime wave in the country in form of oil theft and pipeline vandalism, militancy in the oil producing states with massive destruction of existing infrastructure, inflation rates in the struggling economy, incessant strike action by petroleum sector workers; paucity of adequate equipments occasioned by lack of maintenance cultureetc.

Becauseof excessive usage and increased demand for petroleum products during festive periods, demand exceeds supply leading to acute shortage and scarcity with some retailers cashing in on the opportunity to make more cash by hiking fuel prices, hoarding of products etc. which leads to long queues at filling stations across the nation.

Various studies conducted have shed light on the way in which these challenges affect the retail marketing and distribution of petroleum products but no specific study has been carried out on retail marketing of petroleum products commonly used such as kerosene, gasoline and diesel. This study is therefore focused on identifying challenges of retail marketing of the petroleum products under reference with the aim of proffering possible solutions.

1.3    RESEARCH QUESTIONS

The purpose of this study is to determine the associated problems in the Nigerian petroleum retail market. Based on the purpose of the research stated above, the following research questions have been formulated:

(1)              What are the problems associated with Nigerian petroleum retail market?

(2)     How does irregular supply of petroleum products affect the economy of Nigeria?

(3)     To what extent does transportation affect petroleum retail market in the county?

(4)               To what extent does a good distribution channel enhance petroleum retail market and sustain economic                        activities in the country?

1.4   RESEARCH AIM AND OBJECTIVES

Despite acclaimed progress made in management of marketing and distribution of petroleum products, the maximum potential of the industry is below standard with its operation at low level capacity. Due to these shortcomings, the industry is far from realizing set goals and objectives in the nation’s economy. This unfulfilled mission is apparent with the most apparent problem being the ineffectual retail marketing and distribution of petroleum products in Nigeria.

This study therefore aims at identifying challenges in the retail marketing of petroleum products with an attempt to proffer solutions to such problems by looking critically at activities involved.

The following objectives are stated:

(1)               Determining factors that influence policy on establishment of petroleum retail outlets in Nigeria.

(2)               The adequacy of distribution channels in the country.

(3)               Studying the policies of various marketing firms in granting franchise rights to set-up outlets.

(4)     Analyze specific activities of various dealers,identify their challenges and determine their role as it relates toproducts scarcity and availability.

1.5    SIGNIFICANCE OF STUDY

The significance of this study is stems from the fact that the petroleum industry is the bedrock of our economy.

Therefore the economic importance of petroleum retail market attracts the attention of government bodies, institutions, general public, international oil companies as well as independent marketers.

The information generated by this study would help the government carry out a more purposeful and result oriented planning; evaluation and control of the petroleum industry with the aim of enhancing its contribution in improving the Nigerian economy.

Benefits derivable from this research work by the researchers and the consuming public points to the significance of the study.

(1) This work is Associated Problems in petroleum retail marketing in Nigeria

(2)     The work will further expose the researcher to problems militating against retail marketing petroleum products in Nigeria and possible ways to ameliorate these problems.

(3)     For the producers, this study will educate them on their perception of end users of petroleum products, pricing policy, distribution network effectiveness and the need to improve on product distribution logistics.

(4) Dealers and oil companies through this study findings will know consumers needs in terms of services offered and product availability as at when required.


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