The Centre for the Promotion of Private Enterprise (CPPE) has warned that domestic refining alone may not significantly reduce petrol prices for Nigerians, especially as global crude oil prices surge above $100 per barrel.
The position was outlined in a policy brief shared with Nairametrics on Monday by the Chief Executive Officer of CPPE, Dr. Muda Yusuf.
According to the think tank, while the growth of domestic refining capacity can improve supply stability, fuel prices in Nigeria will still be heavily influenced by global crude oil market dynamics.
What they are saying
The CPPE said there is a widespread belief that the emergence of domestic refineries should automatically translate into cheaper petrol prices. However, the group noted that the economics of refining mean local refineries remain exposed to international crude oil pricing.
- “There is a widespread expectation that the presence of domestic refineries should automatically translate into significantly cheaper petroleum products. However, the economics of refining suggests otherwise,” Yusuf said.
- “Crude oil feedstock for refineries is priced using international benchmark prices and denominated in U.S. dollars, irrespective of the location of the refinery.”
- “Even crude supplied by local producers or the national oil company is priced using international crude oil benchmarks.”
- “Domestic refineries also pay a premium of about $3–$6 per barrel in order to secure crude supply.”
Yusuf explained that because crude oil—the main feedstock for refineries—is priced using global benchmarks, local refining operations cannot fully escape the impact of international price movements.
More insights
The CPPE further noted that even when crude oil transactions are conducted locally, the pricing mechanism still reflects global market values.
- In some cases, crude supplied to domestic refineries may be settled in naira under special arrangements.
- However, the underlying valuation of the crude is still based on the naira equivalent of global crude oil prices.
- This means domestic refineries remain substantially exposed to fluctuations in international oil markets.
- As a result, changes in global crude prices will continue to influence the cost of refined petroleum products in Nigeria.
According to the CPPE, domestic refining can improve product availability but cannot completely shield the domestic fuel market from global price volatility.
Despite these limitations, the CPPE noted that domestic refining still provides several economic advantages, particularly in terms of logistics and transportation costs.
- Importing petroleum products involves expenses such as shipping, marine insurance, port handling, and demurrage.
- Freight costs can rise significantly during periods of global supply disruption.
- Refining crude locally reduces many of these logistics-related costs.
- These savings can help moderate overall supply costs within the domestic market.
Yusuf noted that these cost advantages become more significant during global supply shocks when international freight and shipping costs typically surge.
What you should know
For decades, Nigeria relied heavily on imported petroleum products despite being one of the world’s major crude oil producers.
- This dependence frequently exposed the country to supply disruptions and fuel shortages.
- Global supply shocks often led to scarcity and long queues at filling stations.
- Expanding domestic refining capacity is expected to reduce Nigeria’s vulnerability to such international supply disruptions.
Nairametrics reports that heightened geopolitical tensions and the ongoing US-Iran conflict have disrupted global oil markets, pushing crude prices above $100 per barrel.
