In response to the escalating global crude oil prices, the Centre for the Promotion of Private Enterprise (CPPE) has called upon the federal government to amplify support for investments aimed at domestic refineries through a comprehensive strategy involving trade, fiscal, and monetary policies.
The CPPE underscored that this support must focus on establishing dependable crude supply chains, improving petroleum distribution infrastructure, implementing tariff protections, incentivizing further investments in refining, and enhancing the competitive edge of refined oil products for exports.
These insights were shared by the CPPE in a policy brief released on Monday under the title "Petroleum Products Pricing Dynamics Amidst Global Oil Market Volatility."
The document highlighted that while Nigerian refineries have the potential to stabilize supply, they cannot entirely shield the local market from drastic fluctuations in global oil pricing.
Dr. Muda Yusuf, the Chief Executive Officer of CPPE, emphasized the critical role of domestic refining in securing Nigeria’s energy future, ensuring macroeconomic stability, and fostering industrial growth, thereby necessitating a favorable investment climate.
Yusuf stated, "Government policy needs to continue promoting domestic refining through an integrated mix of trade, fiscal, and monetary initiatives."
He added, "Key areas of focus should be ensuring consistent crude supply, bolstering petroleum distribution networks, enforcing tariff protections, inviting new refining investments, and enhancing the export competitiveness of refined petroleum products."
Yusuf further observed that while domestic refining may not wholly insulate the market from global oil price fluctuations, it significantly mitigates risks associated with supply disruptions, conserves foreign currency, strengthens the balance of trade, and fortifies national energy security.
Moreover, he pointed out that recent increases in the price of petroleum products in Nigeria are linked to shifts in the global energy market, especially the sharp uptick in crude oil prices driven by escalating geopolitical tensions in the Middle East.
He noted that global crude prices have surged from approximately $65 per barrel to beyond $100 in just weeks, surpassing a 50-percent increase.
This rise has contributed to higher costs for refined petroleum products worldwide, including petrol, diesel, aviation fuel, and liquefied petroleum gas (LPG).
Yusuf remarked, "Given that petroleum products are traded in a globally integrated market, variations in crude prices inevitably reflect on domestic fuel costs, including in Nigeria."
The CPPE cautioned against assuming that the mere existence of domestic refineries would lead to significantly lower prices for petroleum products, as the cost structures associated with refining suggest a more complex scenario.
It explained that while crude transactions might occur in Naira under specific arrangements, the overall valuation remains largely influenced by international crude prices.
Thus, domestic refining entities continue to be largely susceptible to global price changes with no inherent advantages in crude procurement.
Furthermore, local refineries often have to purchase crude at rates reflecting international market conditions, and even crude provided by local producers or the national oil corporation is priced based on global benchmarks.
Domestic refiners typically incur an additional cost of $3–$6 per barrel to secure crude supplies.
The primary economic benefit of local refining lies in the reduction of logistics costs, as importing petroleum products or crude incurs significant expenses associated with shipping, insurance, port handling, and other logistical charges.
Opting for domestic sourcing and refining significantly reduces these costs, especially during global supply crises when freight rates rise sharply.
Yusuf also highlighted that the most significant advantage of domestic refining is the enhancement of national energy security.
He stated, "For decades, Nigeria has depended on imported petroleum despite being a major crude oil producer, exposing the nation to considerable supply risks and frequent fuel shortages during global supply disruptions."
The development of robust domestic refining capacities is altering this narrative by safeguarding petroleum supply within Nigeria’s borders, thereby decreasing susceptibility to international market shocks.
Yusuf remarked that domestic refining is crucial for buffering against global energy supply chain disturbances.
The CPPE also pointed out that domestic refining has significant implications for foreign exchange management and overall macroeconomic stability.
Historically, Nigeria has spent between $10 billion and $15 billion yearly on importing refined petroleum products, adding substantial pressure on the country’s foreign exchange reserves and risking exchange rate stability.
The advancement of local refining capacity has subsequently reduced the necessity for extensive fuel imports, thereby conserving foreign currency, strengthening external reserves, and improving trade balance.
The shift from being a major importer of refined oil products to a potential net exporter marks a significant transformative advancement in Nigeria’s external economic outlook.
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