The Centre for the Promotion of Private Enterprise has said that the emergence of domestic refining capacity in Nigeria will not automatically prevent fluctuations in petrol and other fuel prices, warning that local refineries remain exposed to movements in the global crude oil market.
The position was contained in a policy brief issued on Monday by the Chief Executive Officer of CPPE, Dr. Muda Yusuf, who explained that crude oil pricing dynamics in the global market continue to determine refinery production costs irrespective of where refining takes place.
The organisation stated that “while local refining can improve supply stability, it cannot completely shield the domestic market from global oil price volatility.”
According to the policy brief, the recent adjustment in petroleum product prices in Nigeria reflects developments in the global energy market, particularly the sharp rise in crude oil prices triggered by geopolitical tensions in the Middle East.
It explained that crude oil is the most important input in the production of refined petroleum products and accounts for the largest share of refinery production costs worldwide.
The document noted, “In recent weeks, global crude oil prices surged from about $65 per barrel to over $100 per barrel, representing an increase of more than 50 per cent within weeks.”
It added that the surge has raised the cost of refined petroleum products globally, including petrol, diesel, aviation fuel and liquefied petroleum gas.
The CPPE stressed that because petroleum products are traded within an integrated global market, fluctuations in crude oil prices are quickly transmitted to domestic fuel prices in most economies, including Nigeria.
The organisation said there is a widespread public expectation that the development of domestic refineries would automatically translate to significantly cheaper petroleum products, but the economics of refining do not support that assumption.
It explained that crude oil supplied to refineries is priced using international benchmark prices and denominated in United States dollars, regardless of the refinery’s location.
The policy brief stated, “Crude oil feedstock for refineries is priced using international benchmark prices and denominated in U.S. dollars, irrespective of the location of the refinery.”
It added that even crude oil supplied by local producers or the national oil company is priced using international benchmarks, while refineries often pay an additional premium to secure supply.
“Domestic refineries also pay a premium of about $3–$6 per barrel in order to secure crude supply,” the organisation said.
According to the CPPE, although domestic crude transactions may sometimes be settled in naira under special arrangements, the underlying valuation remains tied to the naira equivalent of international crude prices.
This means that the cost structure of domestic refining remains strongly linked to global crude oil price movements.
However, the organisation noted that local refining still offers certain cost advantages compared to imported fuel.
It said the major benefit lies in reduced logistics costs, as importing petroleum products involves expenses related to shipping, marine insurance, port handling, demurrage and other maritime charges.
The policy brief explained that these costs are significantly reduced when crude oil is sourced domestically and refined locally.
It added that the savings become particularly important during periods of global supply disruption, when freight costs and shipping rates often increase sharply.
Beyond cost considerations, the CPPE stressed that domestic refining plays a critical role in strengthening Nigeria’s energy security.
It recalled that for decades, Nigeria relied heavily on imported petroleum products despite being a major crude oil producer, a situation that frequently exposed the country to supply chain disruptions and fuel scarcity.
The organisation said the development of domestic refining capacity is beginning to change this pattern.
“Local refining enhances Nigeria’s ability to secure petroleum products within its own borders, thereby reducing vulnerability to international supply shocks,” the policy brief stated.
It added that domestic refining can therefore serve as a buffer against disruptions in global energy supply chains.
The CPPE also pointed to the macroeconomic benefits of refining petroleum products locally, particularly in terms of foreign exchange management.
Historically, Nigeria spent between $10bn and $15bn annually on importing refined petroleum products, making fuel imports one of the largest sources of demand for foreign exchange in the economy.
The organisation said the expansion of domestic refining capacity is gradually reducing the need for large-scale fuel imports.
According to the policy brief, this shift helps conserve foreign exchange, strengthen Nigeria’s external reserves and improve the country’s balance of trade.
It added that local refining also opens opportunities for Nigeria to export refined petroleum products to regional and international markets, thereby generating additional foreign exchange earnings.
The CPPE further emphasised the broader industrial benefits associated with refining activities.
It explained that refineries produce a wide range of intermediate products used as feedstock for industries such as petrochemicals, fertiliser, plastics, pharmaceuticals, paints and other chemical-based manufacturing sectors.
These industrial linkages, the organisation said, help deepen value addition within the economy and stimulate economic activity across the petroleum value chain.
It noted that the refining industry also supports activities such as storage, transportation, distribution, marketing and retail operations, creating employment opportunities and boosting economic growth.
To sustain investment in domestic refining, the CPPE urged the government to maintain a supportive policy environment.
It said that government policy should encourage investment in refining through coordinated trade, fiscal, and monetary policy measures.
Priority areas identified by the organisation include ensuring reliable crude supply arrangements, strengthening petroleum distribution infrastructure, introducing tariff protection, encouraging additional refining investments and promoting export competitiveness for refined petroleum products.
The PUNCH earlier reported that the cost of goods and services across Nigeria is expected to rise further following a fresh increase in petrol prices after the Dangote Petroleum Refinery raised the gantry price of Premium Motor Spirit to N1,175 per litre, marking the third upward adjustment within a week.
The latest price revision comes hours after The PUNCH projected that petrol prices could rise for the third time within a week following the temporary suspension of petrol sales at the refinery on Sunday.
The refinery announced the price hike to marketers on Monday, raising the gantry price of Premium Motor Spirit to N1,175 per litre from N995 per litre, announced on Friday, representing an increase of N180, or about 18.1 per cent, within three days.