Fuel price hike looms as NNPCL ends middleman role with Dangote Refinery

Fuel price hike looms as NNPCL ends middleman role with Dangote Refinery

Nigerians may face another increase in petrol prices following the Nigerian National Petroleum Company Limited’s (NNPCL) decision to terminate its exclusive offtake agreement with the Dangote Refinery. This pivotal move allows other marketers the opportunity to purchase petrol directly from the refinery, a development that signals a significant shift towards a fully deregulated oil market.

The current petrol price in Lagos was increased in August, when the NNPCL raised the cost from N568 to N855 per litre, with prices nearing N900 in other regions across the country. With the NNPCL stepping away from its role as a middleman, it will no longer subsidize the difference between the refinery’s prices and those at the pump, effectively eliminating a subsidy of N133 per litre that had previously cushioned costs for consumers.

In a related effort, the federal government plans to deliver up to 400,000 barrels of Nigerian crude oil daily to the Dangote Refinery under its naira-for-crude agreement, facilitating more efficient operations at the facility.

Under the new arrangement, independent marketers can negotiate petrol prices directly with the Dangote Refinery through a “willing buyer, willing seller” model. This approach mirrors the practices already in place for other deregulated products such as diesel and kerosene.

Devakumar Edwin, Vice President of Dangote Industries, previously confirmed that the refinery, which has a capacity of 650,000 barrels per day, had begun processing petrol with the NNPCL as its initial sole off-taker. However, as of now, independent marketers are empowered to engage with Dangote directly, marking a new era for fuel distribution in Nigeria.

An NNPCL official speaking to Premium Times expressed the pressures created by the subsidy system, stating, “We can no longer continue to bear that burden.”

Experts warn that rising tensions in the Middle East could further exacerbate the situation, potentially leading to an increase in petrol prices throughout Nigeria and globally.

Recent market fluctuations have seen oil prices extend their gains, with Brent crude nearing $80 per barrel, reflecting concerns over widespread conflict in the Middle East that could disrupt oil exports from key producers. Yesterday, Brent rose by $1.09 (1.4 percent) to settle at $79.14, while West Texas Intermediate (WTI) climbed $1.15 (1.55 percent) to $75.53.

The unrest in the Middle East comes in the wake of Iran’s missile attack on Israel, which provoked fears of retaliatory strikes and a possible full-scale war that could lead to significant supply shortages in the oil market. Analysts caution that should the situation deteriorate, oil prices could soar to triple digits, reminiscent of pre-shale revolution peaks.

Despite these challenges, expectations regarding the Dangote refinery’s impact on petrol prices have yet to be fulfilled. Dangote has clarified that much of the crude it processes is sourced from international markets at prevailing prices, meaning that selling petrol below production costs is not feasible.

The escalating tension following Iran’s aggression poses risks not only for regional stability but also for fuel supply chains worldwide. If conflict intensifies, it is likely that Nigerians will face higher petrol prices, adding to inflationary pressures, while increased revenues may flow to the government.

Economic experts caution that without some form of subsidy, the correlation between crude oil prices and petrol prices at the pump will likely lead to further financial strain on consumers. Meanwhile, OPEC’s Middle Eastern producers, such as Saudi Arabia and the UAE, possess sufficient spare capacity to mitigate potential losses from Iranian supply disruptions.

As the situation evolves, all eyes are on the Middle East and its implications for global oil markets and local consumers.