The Centre for the Promotion of Private Enterprise has cautioned that expanding domestic refining capacity may not substantially lower petrol prices for Nigerians, particularly as global crude oil prices climb above $100 per barrel.

This view was contained in a policy brief shared with Nairametrics on Monday by the Chief Executive Officer of CPPE, Muda Yusuf.

According to the think tank, although increased local refining can strengthen supply security, petrol prices in Nigeria will continue to be strongly shaped by developments in the global crude oil market.

The CPPE said there is a widespread assumption that the arrival of domestic refineries should automatically lead to lower petrol prices.

However, the group explained that the economics of refining mean local refineries are still exposed to international crude oil price movements.

“There is a widespread expectation that the presence of domestic refineries should automatically translate into significantly cheaper petroleum products. However, the economics of refining suggests otherwise.

“Crude oil feedstock for refineries is priced using international benchmark prices and denominated in U.S. dollars, irrespective of the location of the refinery.

“Even crude supplied by local producers or the national oil company is priced using international crude oil benchmarks.”
“Domestic refineries also pay a premium of about $3–$6 per barrel in order to secure crude supply,” Yusuf said.

Yusuf explained that because crude oil—the primary feedstock for refineries—is priced using global benchmarks, local refining operations cannot completely avoid the effects of international price fluctuations.

The CPPE further noted that even when crude oil transactions are carried out locally, the pricing mechanism still mirrors prevailing global market values.

According to the think tank, crude supplied to domestic refineries may in some cases be settled in naira under special arrangements.

However, the underlying valuation of the crude is still determined by the naira equivalent of international crude oil prices.

As a result, domestic refineries remain significantly exposed to fluctuations in the global oil market.

The CPPE stated that while domestic refining can boost fuel availability, it cannot entirely protect Nigeria’s fuel market from swings in global prices.

Nevertheless, it emphasized that local refining still delivers important economic benefits, particularly by lowering logistics and transportation expenses.

Importing petroleum products incurs costs including shipping, marine insurance, port handling, and demurrage, with freight charges often rising sharply during global supply disruptions.

Yusuf explained that refining crude locally cuts many of these logistics-related expenses, helping to ease overall supply costs in the domestic market.

He added that these savings become particularly valuable during global supply shocks, when international freight and shipping costs usually spike.

For decades, Nigeria has depended heavily on imported petroleum products, despite being a major global crude oil producer.

This reliance often left the country vulnerable to supply disruptions and fuel shortages.
Global supply shocks frequently triggered scarcity, resulting in long queues at filling stations.