The Dangote Petroleum Refinery’s recent shift to pricing Premium Motor Spirit (PMS), diesel, and aviation fuel in U.S. dollars has triggered significant public debate.
While the move sparked immediate fears of a fuel price hike, the reality is more nuanced, as the current naira equivalent remains largely unchanged.
Is There an Immediate Price Hike?
No. The refinery has simply converted its existing ex-depot prices into dollars using the prevailing official exchange rate. At an exchange rate of approximately N1,376.54/$, the new gantry price of $0.779 per litre translates to roughly N1,072 per litre, which aligns with previous pricing. Consequently, petroleum marketers are currently paying a similar amount in naira, and pump prices at filling stations have remained stable.
Why the Switch to Dollar Pricing?
The refinery describes this as a commercial necessity. The transition is driven by two main factors:
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Feedstock Costs: The refinery must pay for the majority of its crude oil and operational logistics in U.S. dollars.
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Failed Naira-for-Crude Arrangement: The refinery was intended to receive crude via the Federal Government’s naira-for-crude deal with the NNPC. However, a source close to the refinery noted that the supply has been insufficient. “The crude supply obligation on the part of the federal government is not being met. We only struggle to get three cargoes monthly when we require about 15 cargoes for our operation. Over 70 per cent of our feedstock is sourced through importation.”
Potential Long-Term Risks
While current prices are stable, experts warn that this arrangement ties domestic fuel costs more directly to the volatility of the foreign exchange market:
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Exchange Rate Sensitivity: If the naira depreciates further against the dollar, the naira-denominated cost of fuel will automatically rise. Marketers would need more naira to purchase the same amount of fuel, potentially forcing them to pass those costs on to consumers at the pump.
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FX Market Pressure: Oil and gas analyst Otunba Tunji Oyebanji warned that this shift could increase the demand for dollars, potentially weakening the naira.
Expert Perspectives
Industry experts view the move as a rational commercial response to economic uncertainty:
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Dr. Muda Yusuf (CEO, CPPE): Argues that the move reflects a need to protect the business from global oil market volatility and exchange-rate risks rather than an attempt to raise prices arbitrarily.
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Dr. Ayodele Oni (Oil and Gas Analyst): Notes that as long as the refinery buys crude in dollars, selling products in naira exposes the business to massive exchange-rate losses when the naira weakens. Pricing in dollars aligns the refinery’s revenue with its foreign currency obligations.
In summary, while the immediate impact on Nigerian consumers is neutral, the transition highlights the underlying challenges of sourcing crude oil locally and suggests that future fuel prices may become increasingly susceptible to fluctuations in the foreign exchange market.
