Nigeria’s domestic refining cannot eliminate the impact of global oil price volatility on fuel prices, but it is crucial for reducing supply risks, conserving foreign exchange, and strengthening the country’s energy security, according to the Centre for the Promotion of Private Enterprise.
In a policy brief on Monday, the Chief Executive Officer of the CPPE, Dr Muda Yusuf, stated that recent adjustments in domestic petroleum product prices reflected developments in the international energy market, particularly the sharp rise in crude oil prices triggered by geopolitical tensions in the Middle East.
He explained that because petroleum products are traded in an integrated global market, fluctuations in crude prices inevitably influence domestic fuel prices in most economies, including Nigeria.
The CPPE boss noted that the presence of domestic refineries does not automatically translate into significantly cheaper fuel because refineries still purchase crude oil at international benchmark prices.
“Crude oil feedstock for refineries is priced using international benchmark prices and denominated in US dollars, irrespective of the location of the refinery. Consequently, domestic refineries in Nigeria procure crude oil at prices that reflect prevailing global market conditions,” Yusuf said.
In recent weeks, crude oil prices surged from about $65 per barrel to over $100 per barrel, pushing up the cost of refined petroleum products across global markets.
“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 per cent within weeks,” Yusuf said.
He further explained that even when crude is supplied locally or by the national oil company, its pricing still reflects global benchmarks. “Even crude supplied by local producers or the national oil company is priced using international crude oil benchmarks, and domestic refineries also pay a premium of about $3–$6 per barrel to secure crude supply,” Yusuf added.
Despite this exposure to global price movements, Yusuf said domestic refining still offers important cost advantages through reduced logistics expenses.
“The main cost advantage of domestic refining lies in reduced freight and logistics costs. Importing petroleum products or crude oil involves significant expenses relating to shipping, marine insurance, port handling, demurrage, and other logistics charges,” Yusuf noted.
He added that refining crude locally reduces these costs significantly, particularly during periods of global supply disruptions when freight rates rise sharply. Beyond cost savings, Yusuf said domestic refining plays a crucial role in strengthening Nigeria’s energy security by reducing dependence on imported fuel.
“For decades, Nigeria relied heavily on imported petroleum products despite being a major crude oil producer. This paradox exposed the country to significant supply chain risks and frequently resulted in fuel shortages and long queues at filling stations during periods of global supply disruptions,” Yusuf said.
The CPPE chief added that growing local refining capacity is beginning to change that dynamic, stating, “Local refining enhances Nigeria’s ability to secure petroleum products within its own borders, thereby reducing vulnerability to international supply shocks. Domestic refining, therefore, serves as a critical buffer against disruptions in global energy supply chains.”
The CPPE also highlighted the foreign exchange benefits of domestic refining, noting that Nigeria historically spent between $10bn and $15bn annually on importing refined petroleum products.
“With the expansion of local refining capacity, the need for large-scale fuel imports has declined significantly. This has helped to conserve scarce foreign exchange, strengthen Nigeria’s external reserves position, and improve the country’s balance of trade,” Yusuf said.
He noted that domestic refining also creates opportunities for Nigeria to export refined petroleum products to regional and international markets, thereby generating additional foreign exchange earnings.
Yusuf further explained that refineries generate wider economic benefits by supplying feedstock for petrochemicals, fertilisers, plastics, pharmaceuticals, paints and other manufacturing industries.
Yusuf said, “Refineries produce a wide range of intermediate products that serve as feedstock for industries such as petrochemicals, fertilisers, plastics, pharmaceuticals, paints, and other chemical-based manufacturing sectors. These linkages help strengthen Nigeria’s industrial ecosystem and promote deeper value addition within the economy.”
He called on the government to sustain policies that encourage investments in refining capacity, including reliable crude supply arrangements, improved distribution infrastructure, and export competitiveness.
“While domestic refining may not completely eliminate the effects of global oil price volatility, it significantly reduces the risks of supply disruptions, conserves foreign exchange, strengthens the balance of trade, and enhances national energy security,” Yusuf said.
