By Bamidele Famoofo
WorldStage– The Centre for the Promotion of Private Enterprise (CPPE) has called for support from government to boost local refining of crude oil, noting that it will strengthen national energy security.
Dr. Muda Yusuf, Chief Executive Officer, CPPE, argued that it is essential that the policy environment remains supportive of investment in the sector, given the strategic importance of domestic refining to Nigeria’s energy security, external sector stability and industrial development.
Speaking in a CCPE’s policy brief titled ‘Petroleum Products Pricing Dynamics Amidst Global Oil Market Volatility’, he noted that government policy should continue to encourage domestic refining through a coordinated mix of trade policy, fiscal policy and monetary policy measures. “Priority areas should 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,” he said.
Yusuf who acknowledged that domestic refining may not completely eliminate the effects of global oil price volatility, said it will significantly reduce the risks of supply disruptions, conserves foreign exchange, strengthens the balance of trade, and enhances national energy security.
In this regard, he argued, domestic refining represents a strategic pillar for improving Nigeria’s economic resilience and long-term energy sustainability.
CCPE disclosed that 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 escalating geopolitical tensions in the Middle East.
“Crude oil is the most critical input in the production of refined petroleum products and accounts for the largest share of refinery production costs worldwide. 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 percent within weeks.
“This development has pushed up the cost of refined petroleum products across global markets, including premium motor spirit (petrol), 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”, the report hinted.
Speaking on why domestic refineries cannot completely insulate fuel prices, CPPE explained: “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. Consequently, domestic refineries in Nigeria procure crude oil at prices that reflect prevailing global market conditions.
“Even crude supplied by local producers or the national oil company is priced using international crude oil benchmarks. Additionally, domestic refineries also pay a premium of about $3–$6 per barrel in order to secure crude supply.”
CPPE further explained that domestic crude transactions may be settled in naira under special arrangements, the underlying valuation is still largely based on the naira equivalent of global crude prices. This means that domestic refining operations remain substantially exposed to global crude oil price movements with no price advantage in crude procurement.
“Therefore, while local refining can improve supply stability, it cannot completely shield the domestic market from global oil price volatility,” CPPE disclosed.
