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By Merit Ibe
With Nigeria’s fuel pricing dynamics under pressure as a sharp surge in global crude oil prices ripples through the domestic energy market, the Centre for the Promotion of Private Enterprise (CPPE) is pushing strongly for higher local refining in order to stabilise costs.
In a policy brief released on March 9, CPPE Chief Executive Officer, Muda Yusuf, explained that crude oil prices had surged dramatically in recent weeks, rising from around $65 per barrel to over $100 per barrel, an increase of more than 50 per cent within a short period.
He noted that since crude oil represents the most critical input in the production of refined petroleum products, the surge has pushed up the cost of petrol, diesel, aviation fuel and liquefied petroleum gas (LPG) across global markets.
“The recent adjustment in petroleum product prices in Nigeria reflects developments in the global energy market,” Yusuf said. He noted that fluctuations in crude oil prices inevitably transmit to domestic fuel markets due to the integrated nature of global petroleum trade.
As a result, even countries with refining capacity are not fully insulated from international price shocks.
The development has also revived public expectations that domestic refineries should automatically lead to significantly cheaper fuel prices in Nigeria. However, the CPPE cautioned that the economics of refining make such assumptions unrealistic. According to the policy brief, crude oil feedstock supplied to refineries is priced using international benchmark rates and denominated in U.S. dollars, regardless of where the refinery is located. This means that Nigerian refineries purchase crude oil at prices tied to global market conditions.
Even when crude oil is supplied by domestic producers or the national oil company, the pricing structure still reflects international benchmarks. In addition, local refineries often pay a premium of between $3 and $6 per barrel to secure crude supply. Although certain transactions may be settled in naira under special arrangements, the valuation of crude oil remains largely linked to global prices when converted into local currency.
Consequently, CPPE noted that domestic refining operations remain significantly exposed to international crude oil price movements, limiting their ability to completely shield Nigerian consumers from global price volatility.
“Domestic refineries do not enjoy any significant price advantage in crude procurement because the feedstock is priced at international benchmark levels,” the policy brief stated.
Despite this limitation, the organisation stressed that local refining still offers important cost advantages.
One of the key benefits lies in reduced freight and logistics costs associated with importing refined petroleum products.
Nigeria historically relied heavily on imported fuel, which required shipping, marine insurance, port handling charges, demurrage payments and other logistics expenses.
By refining crude oil locally, many of these costs can be reduced or eliminated.
This advantage becomes particularly important during periods of global supply disruptions when international freight rates typically surge.
Beyond pricing considerations, CPPE argued that domestic refining plays a far more strategic role in strengthening Nigeria’s energy security.
For decades, Nigeria — despite being one of Africa’s largest crude oil producers — depended heavily on imported petroleum products due to the poor performance of its state-owned refineries.
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This dependence frequently exposed the country to supply chain shocks and often resulted in fuel shortages and long queues at filling stations whenever disruptions occurred in global supply networks.
However, the emergence of significant local refining capacity is beginning to change this situation.
According to the CPPE, domestic refining enables Nigeria to secure petroleum products within its own borders, thereby reducing vulnerability to international supply disruptions.
“Domestic refining therefore serves as a critical buffer against disruptions in global energy supply chains,” the organisation noted.
The expansion of local refining capacity is also expected to generate significant foreign exchange savings for the country.
Historically, Nigeria spent between $10 billion and $15 billion annually importing refined petroleum products, making fuel imports one of the largest sources of foreign exchange demand.
This heavy demand for dollars placed considerable pressure on the country’s external reserves and exchange rate stability.
With more refined products now produced domestically, CPPE said Nigeria can significantly reduce its fuel import bill, conserve foreign exchange and improve the country’s balance of trade.
In addition, the development could open new opportunities for Nigeria to export refined petroleum products to regional and international markets, thereby generating additional foreign exchange earnings.
According to the policy brief, this transition from a major importer of refined petroleum products to a potential net exporter represents a major structural shift in Nigeria’s external sector outlook.
The economic impact of refining also extends beyond the petroleum market.
Refineries produce intermediate products that serve as feedstock for industries such as petrochemicals, fertilizers, plastics, pharmaceuticals, paints and other chemical-based manufacturing sectors.
These linkages can stimulate broader industrial development and create multiplier effects across Nigeria’s economy.
Given these benefits, CPPE urged policymakers to sustain a supportive environment for investments in domestic refining.
Recommended measures include ensuring reliable crude supply arrangements for local refineries, strengthening petroleum distribution infrastructure, introducing tariff protections where necessary, and promoting export competitiveness for refined petroleum products.
Yusuf noted that while domestic refining may not eliminate the impact of global oil price volatility on local fuel prices, it remains a critical pillar for strengthening Nigeria’s economic resilience.
He added that expanding refining capacity would not only improve supply stability but also conserve foreign exchange, strengthen the external sector and support long-term energy sustainability in Africa’s largest economy.
