By Rukayat Moisemhe
The Centre for the Promotion of Private Enterprise (CPPE) says the presence of
domestic refineries in Nigeria cannot completely insulate the country from
fluctuations in global fuel prices.
This, Dr Muda Yusuf, Founder, CPPE, in a statement on Monday in Lagos, said
this was because crude oil, the main input in refining, was priced using
international benchmarks, and the sharp rise in global crude oil prices is being
triggered by escalating geopolitical tensions in the Middle East.
Yusuf, an economist, noted that crude oil prices had recently risen from about 65
dollars per barrel to over 100 dollars per barrel, representing an increase of more
than 50 per cent within a few weeks.
He said the surge had pushed up the cost of refined petroleum products globally,
including Premium Motor Spirit (PMS), diesel, aviation fuel and Liquefied
Petroleum Gas (LPG).
“Petroleum products are traded in an integrated global market. Consequently,
fluctuations in crude oil prices are transmitted to domestic fuel prices in most
economies, including Nigeria,” he said.
Yusuf stated that although many Nigerians expected domestic refineries to
automatically result in cheaper petroleum products, the economics of refining does
not support that assumption.
He explained that crude oil supplied to refineries was priced using international
benchmark prices and denominated in U.S. dollars regardless of the refinery’s
location.
“Even crude supplied by local producers or the national oil company is priced
using international crude oil benchmarks. Additionally, domestic refineries
typically pay a premium of between three and six dollars per barrel to secure crude
supply,” he said.
The economist added that although some domestic crude transactions might be
settled in naira under special arrangements, the valuation was still largely based on
the naira equivalent of global crude prices.
This, he noted, meant that domestic refining operations remain substantially
exposed to global crude oil price movements, with no price advantage in crude
procurement.
Yusuf said, however, that domestic refining still offered certain economic
advantages, particularly in reducing logistics and freight costs associated with fuel
imports.
He said importing petroleum products involved significant costs including
shipping, marine insurance, port handling and demurrage, which could be reduced
when crude oil was sourced and refined locally.
According to him, the advantage becomes more pronounced during periods of
global supply disruptions when shipping costs tend to surge.
Yusuf also said domestic refining significantly strengthened Nigeria’s energy
security by reducing the country’s reliance on imported petroleum products.
He recalled that for decades Nigeria depended heavily on imported fuel in spite of
being a major crude oil producer, a situation that often exposed the country to
supply disruptions and fuel shortages.
“With the emergence of significant domestic refining capacity, Nigeria’s ability to
secure petroleum products within its borders is improving, reducing vulnerability
to international supply shocks,” he said.
He added that local refining also had important implications for Nigeria’s foreign
exchange management and macroeconomic stability.
Yusuf said domestic refineries could also create opportunities for Nigeria to export
refined petroleum products to regional and international markets.
He added that beyond fuel supply, the refining industry had strong industrial
linkages, providing feedstock for sectors such as petrochemicals, fertilisers,
plastics, pharmaceuticals, paints and other chemical-based industries.
According to him, the sector also stimulates economic activity across the
petroleum value chain including storage, transportation, distribution and retail
operations.
Yusuf said sustaining investments in domestic refining would require a supportive
policy environment.
He urged government to prioritise reliable crude supply arrangements, improved
petroleum distribution infrastructure, tariff protection for local refiners and policies
that promote export competitiveness for refined petroleum products.
“While domestic refining may not completely eliminate the effects of global oil
price volatility, it significantly reduces supply disruption risks, conserves foreign
exchange and strengthens Nigeria’s energy security,” he said.
