Dare Babalola
The Centre for the Promotion of Private Enterprise (CPPE) has released a policy brief explaining that domestic refineries cannot completely insulate Nigeria from global oil price volatility, despite widespread expectations.
According to Dr. Muda Yusuf, Chief Executive Officer of CPPE in the policy brief on Monday, “Crude oil is the most critical input in the production of refined petroleum products and accounts for the largest share of refinery production costs worldwide.”
The recent surge in global crude oil prices, triggered by escalating geopolitical tensions in the Middle East, has pushed up the cost of refined petroleum products across global markets, including Nigeria.
Crude oil prices jumped from about $65 per barrel to over $100 per barrel, representing an increase of more than 50 percent within weeks.
The CPPE chief executive explained that domestic refineries in Nigeria procure crude oil at prices that reflect prevailing global market conditions, and pay a premium of about $3–$6 per barrel to secure crude supply.
“Even crude supplied by local producers or the national oil company is priced using international crude oil benchmarks,” Dr. Yusuf stated.
He continued that this means that domestic refining operations remain substantially exposed to global crude oil price movements with no price advantage in crude procurement.
However, there are benefits to domestic refining.
“The main cost advantage of domestic refining lies in reduced freight and logistics costs. Importing petroleum products or crude oil involves significant expenses relating to shipping, marine insurance, port handling, demurrage and other logistics charges. These costs are significantly moderated when crude is sourced domestically and refined locally,” Dr. Yusuf explained.
He added that domestic refining also strengthens Nigeria’s energy security, reduces foreign exchange outflows, and generates substantial industrial and economic multiplier effects.
“With the expansion of local refining capacity, the need for large-scale fuel imports has declined significantly, conserving scarce foreign exchange, strengthening Nigeria’s external reserves position, and improving the country’s balance of trade,” Dr. Yusuf stated.
The policy brief noted that Nigeria historically spent between $10 billion and $15 billion annually on the importation of refined petroleum products, which placed considerable pressure on the country’s external reserves and posed a major risk to exchange rate stability.
The CPPE recommended that the government ensures reliable crude supply arrangements, strengthens petroleum distribution infrastructure, introduces tariff protection, encourages additional refining investments, and promotes export competitiveness 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,” Dr. Yusuf concluded.
