Why Domestic Refineries Cannot Shield Nigeria From Global Fuel Price Shocks – Yusuf

Nigeria’s growing domestic refining capacity cannot completely protect the country from increases in global fuel prices, according to Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf.

Yusuf said recent adjustments in petroleum product prices across Nigeria reflect broader developments in the global energy market, particularly the sharp increase in crude oil prices driven by escalating geopolitical tensions in the Middle East.

The economist explained that crude oil, the primary input in refining petroleum products, has witnessed a dramatic surge in price in recent weeks, rising from about $65 per barrel to over $100 per barrel, an increase of more than 50 per cent within a short period.

According to him, this spike has inevitably pushed up the cost of refined petroleum products globally, including premium motor spirit (PMS), diesel, aviation fuel and liquefied petroleum gas (LPG).

“Because petroleum products are traded within an integrated global market, fluctuations in crude oil prices are inevitably transmitted to domestic fuel prices in most economies, including Nigeria,” Yusuf said.

Yusuf noted that many Nigerians expect domestic refineries to automatically deliver significantly cheaper fuel, but stressed that the economics of refining does not support that assumption.

He explained that crude oil supplied to refineries, whether locally or internationally, is priced using global benchmark prices and denominated in United States dollars.

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

Although some crude transactions within Nigeria may be settled in naira under special arrangements, Yusuf explained that the underlying valuation still reflects the naira equivalent of prevailing global crude prices.

As a result, he said domestic refining operations remain significantly exposed to fluctuations in global crude oil markets.

“Local refining improves supply stability but cannot completely shield the domestic market from global oil price volatility,” he stated.

The CPPE chief however noted that domestic refining provides certain cost advantages, particularly in logistics and transportation.

Importing refined petroleum products or crude oil typically involves substantial expenses including shipping costs, marine insurance, port handling charges, demurrage and other logistics-related costs.

“When refining occurs domestically and crude is sourced locally, many of these logistics costs are significantly reduced,” Yusuf explained.

He added that these savings become particularly important during periods of global supply disruptions when international freight rates often surge sharply.

Beyond price considerations, Yusuf emphasized that the most strategic benefit of domestic refining lies in strengthening Nigeria’s energy security.

For decades, Nigeria relied heavily on imported refined petroleum products despite being one of Africa’s largest crude oil producers, a situation that exposed the country to frequent supply disruptions.

These disruptions often resulted in fuel scarcity and long queues at filling stations during periods of global supply challenges.

According to Yusuf, the emergence of significant domestic refining capacity is beginning to alter this dynamic by enabling the country to secure a greater portion of its fuel supply locally.

“Domestic refining enhances Nigeria’s capacity to meet its petroleum product needs within its borders and reduces vulnerability to disruptions in global supply chains,” he said.

Yusuf also highlighted the significant macroeconomic benefits of local refining, particularly in reducing pressure on Nigeria’s foreign exchange reserves.

Historically, Nigeria spent between $10 billion and $15 billion annually importing refined petroleum products, making fuel imports one of the largest sources of demand for foreign exchange.

This heavy reliance on imports placed considerable strain on the country’s external reserves and contributed to exchange rate pressures.

“With the expansion of domestic refining capacity, the need for large-scale fuel imports has declined significantly. This helps conserve scarce foreign exchange and strengthens Nigeria’s external sector,” Yusuf noted.

He added that Nigeria now has the opportunity to export refined petroleum products to regional and international markets, which could generate additional foreign exchange earnings.

The shift from being a major importer of refined petroleum products to a potential net exporter represents what Yusuf described as a “major structural improvement” in Nigeria’s external sector outlook.

Beyond fuel supply and foreign exchange savings, domestic refining also has broader industrial implications.

Yusuf explained that refineries produce a wide range of intermediate products that serve as feedstock for several industries, including petrochemicals, fertilizers, plastics, pharmaceuticals, paints and other chemical-based manufacturing sectors.

These linkages, he said, can help deepen Nigeria’s industrial base and promote greater value addition within the economy.

The refining industry also stimulates economic activity across the petroleum value chain, including storage, transportation, distribution, marketing and retail operations, creating jobs and supporting broader economic growth.

Despite these advantages, Yusuf stressed that sustaining investment in domestic refining will require a supportive policy environment.

He urged the government to maintain policies that encourage refining investments through coordinated fiscal, trade and monetary policy measures.

Key priorities, he said, should include ensuring reliable crude supply arrangements, strengthening petroleum distribution infrastructure, introducing appropriate tariff protections, encouraging additional refining investments and promoting export competitiveness for refined petroleum products.

While domestic refining cannot fully eliminate the impact of global oil price movements, Yusuf maintained that it significantly reduces the risks associated with fuel supply disruptions.

“Domestic refining conserves foreign exchange, strengthens the balance of trade and enhances national energy security,” he said.

According to him, the development of Nigeria’s refining industry represents a strategic pillar for improving the country’s economic resilience and long-term energy sustainability.