Fuel prices in Nigeria

As of October 9, 2024, the price of petrol (Premium Motor Spirit or PMS) in Nigeria has increased significantly, with the Nigerian National Petroleum Company Limited (NNPC) raising the price initially from around N600 to between N855 and N897 per liter, and currently to N1030 per liter depending on the region. This price hike has led to a surge in transport fares across the country, with commuters expressing frustration at the elevated costs.

The recent price increase comes as a result of the NNPC terminating its exclusive purchase agreement with Dangote Refinery (more below).

The average price of diesel in Nigeria today stands at N1,379 per liter, with significant variations across different states. The highest price is recorded in Taraba State at N1,722 per liter, while Kogi State has the lowest price at N1,186 per liter.

Dangote Refinery and Its Impact on Fuel Prices

The Dangote Refinery, located in Ibeju-Lekki, Lagos, commenced operations in early September 2024, marking a significant development in Nigeria's fuel landscape. The refinery is expected to produce petrol domestically, which many stakeholders hope will stabilize and potentially reduce fuel prices in the long term. However, the dynamics surrounding the pricing of petrol from the Dangote Refinery remain complex.

Pricing Discussions

Recent discussions among stakeholders, including oil marketers and government officials, have focused on the pricing framework for petrol produced by the Dangote Refinery. The Federal Government has established a committee to ensure that crude oil is sold to local refineries in naira, and this committee is set to finalize the pricing details for petrol from Dangote. However, there are concerns that the price of petrol from the refinery may exceed current market rates, which could lead to further complications for consumers and marketers alike.

Market Dynamics

The landing cost of petrol, which is the price at which the commodity arrives in Nigeria, is currently around N1,120 per liter. This figure has raised alarms among marketers, who fear that if the price from Dangote is set too high, it will lead to increased imports of petrol, undermining the refinery's purpose of boosting local production. The NNPC has stated that it will only purchase petrol from Dangote if it is cheaper than international market prices, which adds another layer of uncertainty to the pricing landscape.

Potential for Price Stabilization

Economists have expressed cautious optimism that the commencement of operations at the Dangote Refinery could alleviate some of the supply challenges that have plagued the Nigerian fuel market. However, they caution that while the refinery may help ensure the availability of refined products, it does not guarantee lower prices. The domestic price of petrol will still largely depend on global oil prices and local market conditions.In summary, while the Dangote Refinery has the potential to transform Nigeria's fuel market by increasing local production and reducing reliance on imports, the actual impact on fuel prices remains to be seen as discussions around pricing and market dynamics continue. The interplay between local production and international pricing will be crucial in determining whether Nigerians will see relief from the current high fuel prices.

What is the trend looking like?

Over the last few decades, fluctuations have existed in the prices of fuel in Nigeria but have averaged at a price of 0.43 USD per litre from 1991 until 2021, with its highest ever being 0.73 USD per litre in May 2016 and its lowest ever being 0.02 USD per litre in December 1992.

That was until the notable spike occurred in June 2023, when petrol prices surged by 129.23%, reflecting the broader economic shifts following subsidy removal. The current prices represent a substantial increase from previous levels, with petrol prices having risen from around N600 to the current range within a few months. This trend has been exacerbated by infrastructure issues, including pipeline vandalism and inadequate storage facilities, which have led to supply shortages and further price hikes.

Nigeria is one of the countries where the prices of its domestic oils have been on the increase since 1970. Incessant increase in the price of crude oil has led to multiple negative effects on the economy from an increase in the cost of living, to an increase in the cost of production as well as transportation and inflation rate.

Currently, fuel pump prices in Nigeria stand at:

• Gasoline/petrol price: N998 per litre
• Diesel price: N1379 per litre

Unlike most products, oil prices are not determined entirely by supply, demand, and market sentiment toward the physical product. Rather, supply, demand, and sentiment toward oil future contracts, which are traded heavily by speculators, play a dominant role in price determination. A change in fuel price has a great effect on the GDP (gross domestic product) of the country, paying high prices for petrol and using less of it will affect the demand for goods and services. Nigeria is known more as a consuming nation than a producing nation. The production industries in Nigeria face a daunting challenge to staying in business due to the high cost of production.

The effects on demand, however, have a great potential impact on GDP in the short run. In a perfect world, using less energy has only a small direct effect on production because, of all the inputs to production (labor, equipment, energy, and other raw materials), energy costs account for a relatively small share of output, but in the case of Nigeria, energy is a major share of output, as organizations have to provide for their own power in-house, with the use of alternative power supply, such as generators and are exposed to the market as it relates to energy prices with the subsidy gone. The effects on demand and the consequent indirect effects on production—could be a much bigger problem, since spending more on petroleum imports and the nation’s poor power sector will generally reduce spending on goods and services in Nigeria while it will increase prices on virtually every good and service.

Looking ahead, several factors will influence the trajectory of fuel prices in Nigeria:

1. Impact of the Dangote Refinery: The recent commencement of operations at the Dangote Refinery is expected to play a crucial role in shaping fuel prices. While the refinery aims to enhance local production and reduce reliance on imports, its impact on pricing remains uncertain. Analysts suggest that while the refinery may alleviate supply challenges, it may not necessarily lead to lower prices due to the prevailing global market conditions and production costs.
2. Economic Factors: Economic analysts predict that the ongoing price hikes could push more Nigerians into energy poverty, with projections indicating that the number of citizens affected could rise to 168 million by 2025. High fuel prices are likely to trigger inflationary pressures, impacting transportation costs and the prices of goods and services across the economy.

In summary, while the commencement of the Dangote Refinery offers hope for improved fuel availability, the overall pricing landscape remains precarious. Fuel prices are expected to remain high in the near term, influenced by global oil market conditions, local economic factors, and the ongoing adjustments in the Nigerian petroleum sector. The interplay between supply, demand, and government policies will be crucial in determining whether Nigerians can expect any relief from the current high fuel prices.

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