The Centre for the Promotion of Private Enterprise has stated that the development of domestic refining capacity in Nigeria will not automatically eliminate fluctuations in petrol and other fuel prices, noting that local refineries are still vulnerable to changes in the global crude oil market.
This view was presented in a policy brief released on Monday by the Chief Executive Officer of CPPE, Dr. Muda Yusuf. He explained that pricing dynamics for crude oil in the global market continue to shape refinery production costs, regardless of where refining activities occur.
The organisation said that “while local refining can improve supply stability, it cannot completely shield the domestic market from global oil price volatility.”
According to the policy brief, the recent increase in petroleum product prices in Nigeria mirrors developments in the global energy market, especially the sharp spike in crude oil prices caused by geopolitical tensions in the Middle East.
It explained that crude oil remains the most critical input in the production of refined petroleum products and represents the largest component of refinery production costs worldwide.
The document stated, “In recent weeks, global crude oil prices surged from about $65 per barrel to over $100 per barrel, representing an increase of more than 50 per cent within weeks.”
It added that the increase has pushed up the cost of refined petroleum products worldwide, including petrol, diesel, aviation fuel and liquefied petroleum gas.
The CPPE emphasised that since petroleum products are traded in an integrated global market, changes in crude oil prices are quickly reflected in domestic fuel prices in most economies, including Nigeria.
The organisation noted that many members of the public expect that the establishment of domestic refineries would automatically result in significantly cheaper petroleum products, but the economics of refining do not support this belief.
It explained that crude oil supplied to refineries is priced using international benchmark prices and denominated in United States dollars, irrespective of where the refinery is located.
The policy brief stated, “Crude oil feedstock for refineries is priced using international benchmark prices and denominated in U.S. dollars, irrespective of the location of the refinery.”
It further noted that even crude oil supplied by local producers or the national oil company is valued using international benchmarks, while refineries usually pay an additional premium to secure supply.
“Domestic refineries also pay a premium of about $3–$6 per barrel in order to secure crude supply,” the organisation said.
According to the CPPE, although domestic crude transactions may sometimes be settled in naira through special arrangements, the underlying valuation remains tied to the naira equivalent of international crude prices.
This means the cost structure of domestic refining is still closely connected to movements in global crude oil prices.
However, the organisation pointed out that local refining still offers certain cost advantages compared with imported fuel.
It said the primary benefit lies in lower logistics costs, since importing petroleum products involves expenses such as shipping, marine insurance, port handling charges, demurrage and other maritime costs.
The policy brief explained that these expenses are significantly reduced when crude oil is sourced locally and refined within the country.
It added that such savings become particularly valuable during periods of global supply disruptions, when freight and shipping rates typically rise sharply.
Beyond cost factors, the CPPE stressed that domestic refining is important for strengthening Nigeria’s energy security.
It recalled that for decades Nigeria depended heavily on imported petroleum products despite being a major crude oil producer, a situation that often exposed the country to supply chain disruptions and fuel shortages.
The organisation said the growth of domestic refining capacity is gradually beginning to change this pattern.
“Local refining enhances Nigeria’s ability to secure petroleum products within its own borders, thereby reducing vulnerability to international supply shocks,” the policy brief stated.
It added that domestic refining can therefore serve as a buffer against disruptions in global energy supply chains.
The CPPE also highlighted the macroeconomic advantages of refining petroleum products locally, particularly regarding foreign exchange management.
Historically, Nigeria spent between $10bn and $15bn annually on importing refined petroleum products, making fuel imports one of the biggest sources of foreign exchange demand in the economy.
The organisation said the expansion of domestic refining capacity is gradually reducing the country’s reliance on large-scale fuel imports.
According to the policy brief, this transition helps conserve foreign exchange, strengthen Nigeria’s external reserves and improve the nation’s balance of trade.
It added that local refining also creates opportunities for Nigeria to export refined petroleum products to regional and global markets, thereby generating additional foreign exchange revenue.
The CPPE further stressed the wider industrial benefits linked to refining operations.
It explained that refineries produce various intermediate products used as feedstock for industries such as petrochemicals, fertiliser, plastics, pharmaceuticals, paints and other chemical-based manufacturing sectors.
These industrial connections, the organisation said, help deepen value addition within the economy and stimulate activity across the petroleum value chain.
It noted that the refining industry also supports sectors such as storage, transportation, distribution, marketing and retail operations, creating jobs and supporting economic growth.
To sustain investment in domestic refining, the CPPE urged the government to maintain a supportive policy environment.
It said government policies should promote investment in refining through coordinated trade, fiscal and monetary policy measures.
Priority areas identified by the organisation include ensuring reliable crude supply arrangements, strengthening petroleum distribution infrastructure, introducing tariff protection, encouraging additional refining investments and promoting export competitiveness for refined petroleum products.
NEWSCLICKNG earlier reported that the cost of goods and services across Nigeria is expected to rise further following a fresh increase in petrol prices after the Dangote Petroleum Refinery raised the gantry price of Premium Motor Spirit to N1,175 per litre, marking the third upward adjustment within a week.
The latest price change came hours after NEWSCLICKNG projected that petrol prices could rise for the third time within a week following the temporary suspension of petrol sales at the refinery on Sunday.
The refinery informed marketers of the price increase on Monday, raising the gantry price of Premium Motor Spirit to N1,175 per litre from N995 per litre, which had been announced on Friday. This represents an increase of N180, or about 18.1 per cent, within three days.