Lagos: The Centre for the Promotion of Private Enterprise (CPPE) says the presence of domestic refineries in Nigeria can not 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.
The News Agency of Nigeria (NAN) reports that the sharp rise in global crude oil prices is being triggered by escalating geopolitical tensions in the Middle East.
Yusuf, also 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.
