Nigeria may be on the brink of another surge in petroleum product prices, coupled with mounting pressure on the foreign exchange (FX) market, as the short-lived era of market-driven ‘subsidy’ appears to be coming to an end.
In a move set to disrupt the domestic fuel market, the Dangote Petroleum Refinery on Wednesday announced a temporary halt to selling petroleum products in naira. The refinery cited the necessity of aligning its sales revenue with crude oil procurement costs, which are denominated in dollars.
Dangote Refinery Ends Naira Sales, Citing Dollarized Procurement
Industry analysts attribute this decision to Dangote’s bid to recover losses from recent fuel price reductions while also preparing for potential difficulties in securing locally sourced crude. The Nigerian National Petroleum Company Limited (NNPCL) and the Federal Government are now expected to prioritize crude supply to government-run refineries, such as those in Port Harcourt and Warri, as well as meet crude-for-loan obligations, rather than continue supplying Dangote.
Previously, Dangote benefited from an agreement allowing the government to supply crude oil to its refinery in naira. However, with this deal set to expire by the end of the month, prevailing conditions suggest the government may be forced to end the arrangement.
While both the Federal Government and NNPCL had indicated efforts to renew the agreement, Dangote has stated that its naira sales have already surpassed the value of locally-denominated crude received, making a shift to dollar-based sales inevitable.
“To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency,” Dangote said.
Naira Under Pressure as FX Demand Surges
The previous naira-for-crude deal and aggressive FX interventions had helped stabilize the naira since January. However, stakeholders warned yesterday that the currency will face renewed pressure due to the latest market shift.
Unless NNPCL significantly ramps up local refining to compensate for Dangote’s new sales policy, Nigeria will need to source additional dollars to import refined products. This will add further strain on the naira, which has already been declining in the past two weeks.
With full production, Dangote Refinery requires over $40 million daily to procure crude. This could further expose vulnerabilities in Nigeria’s FX supply. However, the impact might be mitigated by Dangote’s decision to also dollarize its sales.
Nigeria’s daily Premium Motor Spirit (PMS) consumption stands at approximately 60 million litres. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) states that 50% of this is supplied by local refineries, while the remainder is imported.
Marketers Warn of Fuel Scarcity, Seek FX Solutions
The Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) has expressed concern over the development, warning of significant challenges for independent marketers who rely on naira-based transactions.
PETROAN’s National President, Billy Gillis-Harry, highlighted the difficulty marketers face in accessing FX through official channels, forcing them to rely on black-market rates.
“It is going to be difficult for us because we don’t have access to dollars. The only way to get foreign exchange is through the black market, which will create further challenges,” he said.
He further noted that PETROAN is engaging with the Ministry of Petroleum Resources to find solutions and was taken by surprise by Dangote’s sudden policy shift.
“As of today, the matter is still being discussed at the highest levels. The Minister assured us there was no immediate policy change, and we were expecting the conclusion of a pilot phase before any further decisions. So, this announcement came as a surprise,” he added.
NNPCL Positions Port Harcourt Refinery as Alternative
NNPCL’s Chief Corporate Communications Officer, Olufemi Soneye, reaffirmed that the company does not conduct commercial business through the media but remains committed to local crude supply under agreed terms.
“We have consistently stated that NNPCL remains committed to supplying crude for local refining based on mutually agreed terms and conditions,” Soneye said.
Shortly after Dangote’s announcement, NNPCL emphasized that the Port Harcourt Refinery remains operational and continues to produce refined petroleum products.
IPMAN Predicts Fuel Scarcity and Higher Prices
The Independent Petroleum Marketers Association of Nigeria (IPMAN) has warned that the country could face fuel shortages and rising pump prices due to FX-related challenges.
IPMAN President, Abubakar Shettima, stated that independent marketers—who control about 80% of Nigeria’s retail outlets—traditionally purchase and sell petroleum products in naira. The sudden shift to dollar-only transactions, he noted, would pose a significant challenge.
“If we are required to source dollars before we can buy products, there will be scarcity. It is already difficult to access foreign exchange, and if we are forced to buy in dollars, the price of fuel will likely increase,” he warned.
He urged NNPCL to maintain its prior arrangement with Dangote Refinery, which allowed marketers to purchase in naira, contributing to recent fuel price stability.
Economic Experts: Dangote’s Move Could Reverse Gains
Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), described Dangote’s shift as a “disturbing development” that could reverse recent fuel price declines.
“The sustainability of the widely celebrated deceleration of petroleum product prices is now evidently at risk. We may see a reversal of the trend,” Yusuf warned.
He also pointed to broader macroeconomic concerns, including increased forex demand, potential naira depreciation, and pressure on foreign reserves. “All of these could result in adverse macroeconomic outcomes with profound implications for investor confidence,” he added.
Energy expert Ademola Adigun echoed these concerns, predicting higher fuel prices and the loss of recent gains.
“Our prices will rise—that’s the first thing that will happen. All the gains we have made in the last few months in terms of pricing will be lost,” Adigun said.
He noted that Dangote’s business model had aimed at market dominance but was now being adjusted due to economic realities and FX instability.
“With the instability in the foreign exchange market, Dangote cannot sustain naira transactions. He’s bleeding financially and needs to recover his investment,” he explained.
On the recent appreciation of the naira, Adigun noted that it was not backed by an actual increase in dollar supply.
“The naira always strengthens in February because China shuts down for the New Year celebrations, reducing demand for foreign exchange. There was no real factor increasing dollar supply, so this recent naira gain was temporary,” he said.