Domestic Market Prospects for White Petroleum Products in Nigeria: An Analysis of Current Trends and Future Potential

Abstract

The ancestry of the Nigerian petroleum industry is traced to 1956 when oil was struck in commercial quantities in the country. The first refinery came into existence in 1965, giving rise to the expansion of the oil industry vocabulary to include white products. The study focused on the trends and prospects for PMS, Kerosene and LPG in the domestic market. A 22-year time series of data was collected from reliable databases on the prices, production and consumption of the white products. Treated econometrically, trend equations were estimated, which showed that both consumption and prices were upward in the period under review for PMS, consumption was going downwards while prices were increasing for kerosene, and consumption was increasing for LPG, even with higher prices. Generally, the domestic market prospects were bright for all three white products investigated. The raw data were then transformed into their natural logarithm equivalents to estimate price elasticities for PMS and kerosene, and to estimate the cross elasticity between the rival products, kerosene and LPG. The own-price elasticity of demand for petrol came up as LPMSC = 1.816 + 0.02605 LPMSP, as LKeroC = 2.110- 0.3542 LkeroP for kerosene, and LGLPGC = -0.608 + 0.497 LKeroP for the case of cross elasticity. These interpreted to an unusual inelastic demand for PMS, an expected highly elastic demand for kerosene, and a theoretically correct positive cross elasticity between kerosene and LPG. These provided a basis for recommendations that urgent steps be taken to find substitutes for PMS to eliminate the captive market situation, and that the promotional efforts at LPG consumption be intensified, among others.