The recent uptick in global oil prices, fueled by geopolitical tensions in the Middle East, has sent ripples across Nigeria’s fuel supply chain, exacerbating an already precarious situation.
As Brent crude futures soared to $90.78 per barrel and U.S. West Texas Intermediate (WTI) crude climbed to $86.78, concerns about the stability of Nigeria’s fuel market intensified.
Ceasefire negotiations between Israel and Hamas, which briefly offered hope for a reduction in geopolitical tensions and a subsequent drop in oil prices, failed to materialize into a significant decline. Instead, prices remained elevated, ameliorating concerns in oil-importing nations like Nigeria.
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The Effect of Rising Oil Prices on Subsidy Payments
The Nigerian National Petroleum Company Limited (NNPCL) finds itself grappling with mounting debts owed to oil traders, amounting to a staggering $3 billion for imported petrol, according to a report by Reuters. Despite efforts to gradually settle these payments, the pace remains sluggish, casting a shadow over the country’s ability to secure vital fuel imports.
“The slow pace of payments points to the slow comeback of fuel subsidies, discontinued in May 2023, depleting the NNPC’s budget for imports,” remarked industry insiders. Compounding the issue are escalating global gasoline prices and a weakening naira, further straining the NNPC’s import capabilities.
The Nigerian government is reportedly paying N17 billion daily on fuel subsidies but has stopped recently due to financial constraints, resulting in fuel queues resurfacing across the country. The situation is raising concern that the situation could escalate in the coming weeks if outstanding subsidy payments are not promptly paid.
With crude oil prices nearing the $90 mark, the cost of importing petrol into Nigeria has surged, putting immense pressure on the already burdened NNPCL. Despite this, the NNPCL has staunchly denied the existence of subsidies on imported petrol, attributing the rising costs to the recovery of full importation expenses.
“The oil firm is only recovering the full cost from the products that they import,” affirmed Mele Kyari, the Group Chief Executive Officer of NNPC Limited. However, market dynamics tell a different story, with petrol prices skyrocketing in West Africa, far surpassing the government’s price cap.
The Emergence of Dangote Refinery as a Game Changer
Amidst the turmoil in Nigeria’s fuel sector, the emergence of the Dangote Refinery offers a glimmer of hope. With the capacity to process 650,000 barrels per day, it is expected to revolutionize the country’s refining industry and reduce its dependence on imported petroleum products.
“Dangote Refinery has commenced supplying the domestic market with diesel and aviation jet fuel, marking a significant milestone in Nigeria’s quest for self-sufficiency,” remarked Abubakar Maigandi, head of the Independent Petroleum Marketers Association of Nigeria.
However, the transition towards reliance on domestically refined products is not without its challenges. As discussions between local oil marketers and Dangote Refinery continue, questions linger regarding pricing, margins, and logistical considerations.
Garima said IPMAN has reached out to Dangote Refinery with a proposal to fix the fuel price at N550 per liter, alleviating the impact of rising global oil prices.
“We have proposed that the lifting price should be N550 per litre in Lagos,” revealed Garima. “We expect that the price of locally refined petrol would be cheaper than imported petrol, due mainly to local availability of crude oil and removal of transportation costs.”
The Looming Threat of Fuel Scarcity
Despite the optimism surrounding Dangote Refinery’s potential to alleviate Nigeria’s fuel woes, the reality remains stark. With subsidy payments pending and global oil prices on an upward trajectory, the specter of widespread fuel scarcity looms large.
The completion of the rehabilitation of the Port Harcourt Refinery, situated in Rivers State, Nigeria, brings hope for more affordable oil products and is expected to contribute to meeting the country’s domestic demand for petroleum products. Nevertheless, recent obstacles, notably the shortage of crude oil supply, have severely hindered production at the refinery. This mirrors a comparable issue that has compelled the Dangote Refinery to seek crude oil supplies beyond Nigeria’s borders.
Stakeholders believe that if decisive action is not taken swiftly to address the underlying issues plaguing Nigeria’s fuel supply chain, the consequences could be dire. They said the government must prioritize effective policy measures and collaborative efforts with industry stakeholders to avert an impending crisis.