Nigeria’s Fuel Supply Landscape Enters New Phase: Local Refining and Market-Driven Pricing on the Horizon |Saheed-Lekan Olayiwola ‘Aare’

IT WILL SOON BE CLEAR

It sounds like the fuel supply landscape in Nigeria is gradually transitioning into a new phase, with more emphasis on local refining and a market-driven pricing system. The fact that the Nigerian National Petroleum Company Limited (NNPCL) currently holds the mandate to purchase fuel from Dangote or other suppliers and sell it at a government-influenced rate is significant. This temporary setup will likely continue until domestic refineries, including Dangote’s and other modular refineries, ramp up full operations.

With the removal of subsidies, independent marketers now have the flexibility to source fuel from any supplier, but they appear hesitant due to the pricing gap between NNPCL’s government-mediated rates and the actual landing costs. This hesitancy likely stems from concerns over sustainability and profit margins in the current market conditions.

The positive news of Dangote and other modular refineries being able to source crude oil domestically starting in October 2024 offers hope for reducing the pump price. Once this local crude supply kicks in, it will cut down import dependency, which in turn could stabilize prices and ease market tensions. The long-term outcome would be a more open and competitive market, where marketers can freely purchase fuel based on market rates, leading to improved availability and pricing for consumers.

Another significant benefit of this shift towards local refining is its potential to drastically improve Nigeria’s foreign exchange earnings. Fuel importation has historically accounted for about 60% of the country’s total imports, which has been a major factor contributing to Nigeria’s trade deficits over the years. By reducing the need to import fuel, billions of dollars that were previously spent on fuel imports can now be saved, helping to stabilize the naira and improve the country’s balance of payments.

Additionally, with local production meeting domestic fuel demand, Nigeria could eventually become a net exporter of refined petroleum products. This would open up new revenue streams from exports, boosting foreign reserves and enhancing economic growth. The combination of reduced import dependence and increased export potential represents a transformative shift for Nigeria’s trade balance and overall economic health.

Saheed-Lekan Olayiwola (Aare)
12th September, 2024