The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, has explained why the existence of domestic refineries does not automatically guarantee cheaper petrol and other petroleum products.
Yusuf explained the rationale in a policy brief released on March 9, stressing that global crude oil prices remain the dominant factor determining fuel costs.
According to him, the recent increase in petroleum product prices reflects developments in the global oil market, particularly the sharp rise in crude prices triggered by geopolitical tensions in the Middle East.
Crude oil, the key input in refining, recently surged from about $65 per barrel to over $100 per barrel within weeks, pushing up the cost of petrol, diesel, aviation fuel and liquefied petroleum gas globally.
“Because petroleum products are traded within an integrated global market, fluctuations in crude oil prices are inevitably transmitted to domestic fuel prices in most economies, including Nigeria,” Yusuf said.
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Pinnacle Daily had reported that there are concerns that oil prices could hit $150 per barrel if the conflict in the Middle East continues to disrupt vital energy supplies.
Already, the pump price of petrol has jumped to over N1,000 per litre in the country.
According to the CPPE boss, many Nigerians expect local refineries to automatically deliver cheaper fuel, but the economics of refining make this unlikely.
He noted that crude oil feedstock for refineries is priced using international benchmark prices and denominated in US dollars, regardless of the refinery’s location.
“Consequently, domestic refineries in Nigeria procure crude oil at prices that reflect prevailing global market conditions.
“Even crude supplied by local producers or the national oil company is priced using international crude oil benchmarks,” Yusuf said.
He noted that domestic refineries often pay a premium of about $3 to $6 per barrel to secure crude supply, raising production costs further.
“This means that domestic refining operations remain substantially exposed to global crude oil price movements with no price advantage in crude procurement,” Yusuf said.
However, the CPPE boss said domestic refining still offers modest benefits by reducing freight and logistics costs associated with importing crude or refined products.
It also strengthens Nigeria’s energy security by reducing dependence on fuel imports and helps conserve foreign exchange.
“With the expansion of local refining capacity, the need for large-scale fuel imports has declined significantly.
“This has helped to conserve scarce foreign exchange, strengthen Nigeria’s external reserves position, and improve the country’s balance of trade, Yusuf said.”
He stressed that domestic refining could also support industrial growth and create export opportunities for refined petroleum products.
“While domestic refining may not completely eliminate the effects of global oil price volatility, it significantly reduces the risks of supply disruptions, conserves foreign exchange, strengthens the balance of trade, and enhances national energy security,” Yusuf added.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X
