How To Start A Diesel Supply Business In Nigeria

The oil and gas industry is one of the most profitable sectors in the world. In Nigeria, it accounts for the holy grail of the country’s economic output, making it extremely important in aiding economic development in the nation.

While this industry remains a great source of revenue for the country, a few individuals are taking advantage of it to create fascinating businesses. They’re operating in both crowded and less crowded niches, and are generating amazing revenues ranging from a few millions of naira to multi-billions of Naira.

Whether you have a lot of capital or not to venture into the oil and gas industry, there’s always a niche you can play a role in, and one of them is the diesel supply business in Nigeria.

What Is The Diesel Supply Business In Nigeria About?

The diesel supply business involves the supply of diesel—widely known as Automated Gas Oil (AGO)—to organizations who require a steady supply. Some organizations who need diesel to be constantly supplied to them are hospitals, manufacturing companies, small private organizations, tank farms, and more.

How Does The Diesel Supply Business In Nigeria Work?

There are two ways the diesel supply business in Nigeria works:

1). Diesel Supplies To Tank Farms:

Tank farms usually need a regular supply of diesel or AGO (Automated Gas Oil). Depending on what they’re storing, they could also need a constant supply of DPK, and PMS.

The supplies to tank farms happens with a vessel. Since there are people who import diesel to Nigeria with their vessels, they regularly initiate the services of procurement officers, seller mandates, and brokers to help them identify tank farms who need diesel supplies, so they can either supplement their diesel supply or sign a long term contract with the tank farm to regularly supply them diesel every month for usually a period of one year or more.

The profit margins that businesses who supply to tank farms usually make from their supplies are usually about 5 to 10 Naira per liter, and the tank farms make a profit of that range too. While it may seem little, tank farm supplies usually run into millions of liters, and 5 million liters at a profit margin of 5 Naira is about 25 million Naira.

2). Diesel Supplies To Organisations:

Most organizations like private and government hospitals, manufacturing companies, and more, usually need a constant supply of diesel in Nigeria to run their operations. They mostly can’t pay upfront, and so, get organisations who are into the supply of diesel or AGO to register as one of their regular diesel suppliers.

People who supply to them purchase the diesel from the depots, mark up their profits at about 10% to 25% of the market value, and use petrol tankers to supply them to their clients.

Businesses who operate on this level could tend to make more money than those who supply to tank farms, only if they have a very wide client list collectively ordering hundreds of thousands or millions of litres of diesel monthly.

How Can You Start A Diesel Supply Business In Nigeria Even If You Have No Money?

The larger players who have a lot of money to venture into the diesel supply business in Nigeria easily make millions or billions of Naira monthly. But when you have no money to start a diesel supply business in Nigeria, becoming a broker is the best route to go.

Who’s A Diesel Broker?

A diesel broker is someone who sources organizations and businesses in need of diesel supplies at an affordable price and links them up with diesel suppliers who can deliver.

Usually when they do this, they tend to add their own mark-ups on the price with the company handling the supply, such that if they have an order for 100,000 litres of diesel to be supplied, they could get a quote from the diesel supplier, mark up the amount per litre by 2 Naira, and execute the contract, thereby making 200,000 Naira for themselves.

If they get a tank farm supply of say 10,000 Metric tons, which is about 11,299,435 liters, a profit margin of 1 Naira on every liter will make the broker 11,299,435 Naira profit. Depending on the tank farm purchasing, you may have a markup of 1 to 3 Naira. Including the fact that tank farms usually order anywhere from 10,000 Metric Tons of diesel to 50,000 Metric Tons of diesel, to a whole lot more.

The best part of the diesel supply business is that diesel brokers don’t have to own an office. All you need is to be able to build valuable links between both the buyers and the sellers, and follow up on every supply.

How Can You Know Which Organizations Are Looking For Diesel Suppliers In Nigeria?

The easiest way to find organizations that have an immediate supply need is to pay them a visit and advertise your service. When you’re present, submit your company profile and ask to know if you can speak with their procurement officer.

The procurement officers are the individuals whose job it is to find diesel suppliers in Nigeria that can fulfill their pressing needs. When you’re in contact with a lot of procurement officers and have made it known that your organization can meet their diesel supply needs whenever it comes up, they’d tend to reach out to you sometimes concerning a pressing supply need they may have.

Other times, these organizations could put up an advertisement on LinkedIn, announcing their need for supplementary diesel supplies. As a diesel broker, you should always be on the lookout for such announcements on LinkedIn.

How Can You Find Diesel Suppliers In Nigeria That You Can Successfully Broker Through?

1). Introductions:

This is one method to easily come in contact with organizations that can handle any diesel supply request that you may have. You could have a friend introduce you to a diesel supply company or you could walk into some offices to advertise your brokerage service, so you can know if they welcome the use of brokers or not for their businesses.

2). LinkedIn:

This is one of the most effective ways to find businesses to broker your diesel supply business in Nigeria through. You could connect with key people who work with petroleum companies in Nigeria via LinkedIn, and after they accept your connection request, make them know about your brokerage service.

They’d tell you whether it is possible or not, and will let you know their terms and conditions.

Does Having Diesel Suppliers And Diesel Buyers Mean That Anyone Can Venture Into The Diesel Supply Business In Nigeria?

The ability to build a strong supply chain network is critical to the success of any business. Anyone with the talent wins. The more deals he or she is able to close, the more money they’d make.

Finding diesel suppliers in Nigeria to cover your needs is usually never the problem. The real problem always lies in finding diesel buyers in Nigeria.

When you have a fail-proof and highly effective system to get a lot of diesel buyers like organisations and tank farms to reach out to you for a constant supply of diesel, you could make far more money—based on how many supplies you get in a month—as a diesel broker, than even people who own the products.

So if you have the means to get as many diesel buyers as possible to patronize your service, you’re already in business.

Is There An International Standard Fee For Diesel Or AGO Brokers In The Diesel Supply Business In Nigeria?

Asides a broker who first gets a quote from the diesel supplier before laying out a final price to the diesel buyer, there’s a standard way the facilitators’ commissions are calculated. This standard method is based on tank farm deliveries from vessels and is widely used in many countries around the world.

For instance, if the seller plans to supply diesel to a tank farm for 130 Naira per liter when facilitators are involved, the amount would be 132 Naira Less 2 Naira. The 2 Naira now, would be shared between the brokers on both the buyer’s and seller’s side.

So if there was only one broker on the seller’s side, the broker gets a full 1 Naira per liter. If there are two brokers on the seller’s side, they each get 50 Kobo per liter. The same applies to the brokers on the diesel buyer’s side.

If the commissions to be shared by the brokers on the diesel buyer’s side and the diesel seller’s side is 1 Naira instead, the amount would be 131 Naira less 1 Naira. Meaning both sides share 50 Kobo each, while the real cost of the diesel is 130 Naira.

But while this is the international standard method, a diesel broker could still go out of their way to get a quote from the diesel supplier at let’s say 128 Naira, and markup with an extra 3 Naira, while submitting a final quote of 133 Naira less 2 Naira to the diesel buyer. This way, the broker doesn’t just make a 3 Naira profit per litre on the diesel supply, but could also make an extra 1 Naira per litre on the seller’s commission end, or even a full extra 2 Naira per litre, depending on if there’s any broker on the buyer’s end, making it a full 5 Naira per litre as a profit.

So if a diesel broker gets a diesel supply order from a tank farm for 10,000 metric tonnes, which is about 11,299,435 liters, at a full 5 Naira per liter profit margin, the broker could make 56,497,175 Naira as a profit from the transaction.

The great news is that tank farms mostly only order a minimum of 10,000 Metric Tonnes. They could order 50,000 Metric Tonnes or even as high as 100,000 Metric Tonnes, making any facilitator in the middle of the transaction to be able to make a large amount of money from successfully closing the deal, based on the maximum amount the diesel buyer or tank farm is willing to pay per litre, or based on the international brokerage method and how many brokers are involved in the transaction.

How Do You Protect Your Interests In A Diesel Supply Transaction

If you’re handling a tank farm supply, you’d have the diesel seller and the diesel buyer to sign a SPA (Sales and Purchasing Agreement). In this agreement, the banking coordinates of all the brokers, facilitators, and mandates involved in the transaction would be present. So that when the diesel buyer pays for the AGO supplied, they’d have to pay all the parties involved in the agreement.

Now, if you added a personal commission for yourself before submitting the final quote to the diesel buyer, you’d need to have two separate agreements with the diesel supplier, called a Non-Circumvention/Non-Disclosure Agreement (NCNDA) and a Master Fee Protection Agreement (MFPA).

The NCNDA and MFPA will protect you from any form of circumvention by the diesel buyer and diesel seller. If for instance after the first supply, the diesel supplier decides to circumvent you and go straight to the diesel buyer to sign a one-year diesel supply contract, this agreement will ensure you continue to get paid your commissions no matter what.

Any breach of these agreements would give you the power to initiate legal proceedings. And since the proceedings could run into hundreds of thousands of dollars, it is always important that it should be included in the agreements that any breach by the diesel seller would mean the seller must cover the legal cost also.

So How Do You Start A Diesel Supply Business In Nigeria?

Step One: Find A Diesel Supplier

Getting a diesel supplier in Lagos, for instance, is the first step to starting your diesel supply business. Although sometimes, you could as well start searching for diesel buyers before you reach out to diesel suppliers, having a handful of suppliers you can always get quotes from for every supply is the best way to start.

Step Two: Find A Diesel Buyer

As stated earlier, the diesel buyer is the most important element in the diesel supply business in Nigeria, else, even if you have 100 diesel suppliers, you won’t make any money.

To find a diesel buyer like an organization or a tank farm, you could either advertise your business services by visiting their offices to submit your company profile or by connecting with them on LinkedIn.

Step Three: Broker A Deal

Having found a diesel supplier and a diesel buyer in need of AGO, you could go ahead to broker the transaction. If it is a tank farm supply, you would use the international standard method of handling broker remunerations or you could top up the quote you get from the supplier with a standard fee of maybe 2 to 3 Naira extra, making you more money per liter. If it is not a tank farm supply, but rather a tanker supply to an organization, you could top the diesel supplier’s quote with your commission before submitting the final quote.

What Next After Diesel Brokerage?

While first starting a diesel supply business in Nigeria through diesel brokerage can be a great way to start, over time you’d need to acquire tankers and more to enable you to fulfill most of the orders yourself, so you can make a considerably larger profit than if you were just brokering transactions.

What are your thoughts on this? kindly let your opinion known in the comment section below.
Like our facebook page to stay updated on your facebook Account.

Leave a Reply