Nigeria’s growing domestic refineries capacity may strengthen energy security and reduce reliance on imported fuel, but it cannot fully shield the country from fluctuations in global oil prices, the Centre for the Promotion of Private Enterprise has said.
In a policy analysis released on Monday, the Chief Executive Officer of the CPPE, Dr Muda Yusuf, explained that developments in the global crude oil market remain a decisive factor in determining fuel prices in Nigeria, regardless of whether the products are refined locally or imported.
According to him, the recent upward adjustments in petrol and diesel prices across the country reflect broader movements in the international energy market, particularly the surge in crude oil prices driven by geopolitical tensions in the Middle East.
Yusuf emphasised that petroleum products operate within a highly integrated global market where price changes in crude oil quickly cascade into the cost of refined products across various economies.
Domestic Refining Can’t Stop Fuel Price Volatility
Explaining the structural realities of the oil market, Yusuf said domestic refining alone cannot isolate Nigeria from global price swings because crude oil—the primary raw material for refining—is priced based on international benchmarks.
He noted that even refineries operating within Nigeria still purchase crude oil at global market prices, which are denominated in United States dollars.
“Crude oil feedstock for refineries is priced using international benchmark prices and denominated in US dollars, irrespective of where the refinery is located,” he said.
“As a result, domestic refineries in Nigeria procure crude oil at prices that reflect prevailing global market conditions.”
The CPPE chief added that crude oil accounts for the largest share of refinery production costs worldwide. Therefore, any sharp rise in crude prices inevitably drives up the cost of refined petroleum products.
In recent weeks, global crude prices surged from around $65 per barrel to above $100 per barrel, representing a significant increase within a relatively short period.
This spike, Yusuf explained, has pushed up the production cost of petrol, diesel and other refined fuels across global markets, including in Nigeria.
He further noted that even when crude oil is supplied by local producers or the national oil company, the pricing mechanism still aligns with international benchmarks.
According to him, domestic refineries also pay additional premiums to secure crude supply, which further adds to production costs.
“Even crude supplied locally or through the national oil company is still priced using global benchmarks,” Yusuf said.
“In addition, domestic refiners often pay premiums ranging between $3 and $6 per barrel to guarantee supply.”
Benefits of Domestic Refining
Despite the exposure to global price dynamics, the CPPE stressed that expanding Nigeria’s domestic refining capacity remains economically beneficial.
Yusuf explained that local refining significantly reduces logistics costs associated with importing petroleum products or crude oil.
These expenses typically include shipping fees, marine insurance, port handling charges, demurrage costs and other logistical charges tied to international transportation.
By refining crude oil within Nigeria, many of these costs are eliminated or reduced, which can moderate overall fuel supply expenses.
“The most important cost advantage of domestic refining lies in reduced freight and logistics costs,” Yusuf said.
He added that these savings become even more pronounced during periods of global supply disruptions when shipping and insurance costs surge.
Strengthening Energy Security
Beyond logistics savings, Yusuf said domestic refining plays a critical role in strengthening Nigeria’s energy security.
For decades, Africa’s largest crude oil producer relied heavily on imported petroleum products due to the limited operational capacity of its refineries.
This dependence frequently exposed the country to supply chain disruptions, which often resulted in fuel shortages and long queues at filling stations.
Yusuf explained that the expansion of local refining capacity is gradually addressing this vulnerability.
According to him, refining crude oil within Nigeria allows the country to secure fuel supply within its borders and reduce dependence on foreign suppliers.
“Domestic refining enhances Nigeria’s ability to secure petroleum products locally, thereby reducing exposure to international supply disruptions,” he said.
Foreign Exchange and Industrial Benefits
The CPPE also highlighted the foreign exchange advantages of refining crude oil locally.
Nigeria previously spent between $10 billion and $15 billion annually importing refined petroleum products, a situation that placed significant pressure on the country’s external reserves.
However, with increased refining capacity within the country, the need for large-scale fuel imports has declined, helping conserve foreign exchange.
Yusuf said this development strengthens Nigeria’s balance of trade and improves the country’s external reserve position.
He added that domestic refining also opens new opportunities for exporting refined petroleum products to regional and global markets, potentially generating additional foreign exchange earnings.
Beyond fuel supply, Yusuf noted that refineries produce intermediate products used by various industries.
These include petrochemicals, fertilisers, plastics, pharmaceuticals, paints and other manufacturing inputs.
According to him, these industrial linkages contribute to broader economic growth by supporting value addition within the country.
Call for Policy Support
While acknowledging the benefits of domestic refining, Yusuf stressed that the government must sustain policies that encourage investment in refining capacity.
He called for improved crude supply arrangements, stronger distribution infrastructure and policies that enhance export competitiveness for locally refined products.
“Although domestic refining cannot completely eliminate global oil price volatility, it plays a vital role in reducing supply risks, conserving foreign exchange and strengthening national energy security,” Yusuf said.
