Dangote Refinery’s Fuel Supply Unlikely to Lower Prices – Experts and Marketers

 

Dangote Refinery

As the Dangote Refinery gears up to start supplying Premium Motor Spirit (PMS), also known as petrol, to the Nigerian market, industry experts and marketers predict that fuel prices will not decrease significantly. Despite the anticipation, the refinery's impact on fuel costs is expected to be minimal.

Delayed Fuel Supply Start

Aliko Dangote, chairman of the Lagos-based refinery, recently announced a delay in the commencement of fuel supply from June to mid-July 2024. The delay was attributed to minor setbacks. Although the refinery began supplying diesel and aviation fuel in April, it has struggled to secure crude oil for petrol production.

Challenges and Allegations

Dangote has accused powerful cartels within Nigeria’s oil and gas sector of sabotaging the refinery’s efforts to start full-scale operations. Devakumar Edwin, Vice President of Dangote Industries Limited, claimed that International Oil Companies (IOCs) in Nigeria are selling crude oil to the refinery at a premium price, forcing Dangote to import crude from the US.

Responses from Authorities

In response to Dangote’s allegations, the Lagos State Chamber of Commerce and Industry cited oil theft and pipeline vandalization as reasons for inadequate crude supply. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) promised to ensure that IOCs supply crude to the refinery, but the issue remains unresolved, casting doubt on the refinery's ability to meet its new fuel supply timeline.

Impact on Fuel Prices

The potential for Dangote Refinery’s entry into the market to lower fuel prices is uncertain. Following the removal of fuel subsidies last year, petrol prices soared from N238 to an average of N769.62 per liter in May 2024. This increase, along with other government policies, has driven Nigeria’s inflation rate to 33.95% and food inflation to 40.66%, severely impacting purchasing power.

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Industry Expert Opinions

Billy Gillis-Harry, President of the Petroleum Products Retail Outlets Owners Association (PETROAN), expressed skepticism about Dangote Refinery’s ability to lower fuel prices. He noted that despite initial hopes, the introduction of the refinery’s diesel did not lead to a price reduction. He believes that importing crude oil will not decrease petrol prices and anticipates that the price of PMS may actually rise.

Gillis-Harry emphasized that the lack of subsidy on Dangote’s fuel would mean higher prices based on market rates and foreign exchange fluctuations. He also highlighted doubts about the full-scale commencement of Port Harcourt, Kaduna, and Warri refineries due to repeated delays.

Potential Market Changes

Regarding the role of the Nigerian National Petroleum Company Limited (NNPCL), Gillis-Harry suggested that Dangote could seek to capitalize on business opportunities and potentially create a semi-monopoly. However, he stressed the need for stakeholder input in decision-making processes affecting Nigeria’s energy sector.

Broader Economic Implications

Ameh Madaki, Managing Partner at BBH Consulting, criticized the mismanagement of Nigeria's oil sector, which has led to high energy prices stifling the economy. He urged the Dangote Refinery to reduce prices, arguing that the current price levels are unsustainable and damaging to the economy.

Conclusion

While the Dangote Refinery's fuel supply commencement is highly anticipated, experts and marketers remain doubtful about its potential to reduce fuel prices in Nigeria. The ongoing challenges in securing crude oil supply and the broader economic implications suggest that significant price cuts are unlikely in the near future.