The Dangote Petroleum Refinery has defended its latest series of petrol price increases, saying the cost of crude oil already purchased, transportation timelines and existing inventory are among the major factors determining the price of Premium Motor Spirit (PMS) sold to marketers.
The defence came amid growing concern over another sharp increase in the price of petrol across Nigeria, with pump prices rising to between N1,310 and N1,400 per litre in different parts of the country.
In Lagos and Ogun states, where the Dangote refinery is located and distribution costs are relatively lower, petrol is selling for about N1,310 per litre. In northern states and other locations farther from the refinery, the price has climbed to N1,350 or more, while some markets are approaching N1,400 per litre.
The latest increase followed the refinery's decision to raise its PMS gantry price by N65 per litre, from N1,200 to N1,265, effective August 29.
It was the third price adjustment announced by the refinery in just eight days, bringing the total increase in its gantry price to N100 per litre.
The successive increases have generated questions from marketers and consumers, particularly because they came at a time when international crude oil prices had begun to decline after recent volatility triggered by geopolitical tensions involving the United States and Iran.
However, a senior executive of the Dangote refinery, who spoke on condition of anonymity because he was not authorised to speak publicly, said it would be misleading to determine the cost of locally refined petrol solely by looking at the prevailing international crude price.
According to the executive, there is a substantial time gap between the purchase of crude oil and the point at which the commodity arrives at the refinery and is eventually processed into finished petroleum products.
He explained that buying crude involves several stages, including negotiating the transaction, securing a loading window, chartering a vessel, loading the cargo, sailing to Nigeria and obtaining a berth before the crude can finally be discharged into storage tanks.
“If you want to buy crude at today’s price, when do you think you will complete the actual transaction to purchase the crude? When will you get a laycan? When can you get a ship chartered and a charter party agreement signed? When will the ship go to load the crude and secure the laycan for discharge? When is the sailing time before the crude eventually gets into your tank?” the executive asked.
He said the refinery must also take into account crude already purchased at higher prices and stored for future processing.
“And what will happen to the huge quantities of expensive crude that you bought long ago and stored in the tanks? These are the factors determining the change in prices, not an immediate crude price change,” the source stated.
N100 increase in eight days
The latest adjustment represents the third petrol price increase by the refinery within a little over a week.
On August 21, the Dangote refinery raised its PMS gantry price from N1,165 to N1,185 per litre.
Five days later, on August 26, the price was increased by another N15 to N1,200 per litre.
On Saturday, August 29, the refinery announced the biggest increase in the sequence, raising the price by N65 to N1,265 per litre.
The three adjustments have therefore pushed the refinery's gantry price up by N100 per litre in eight days, representing an increase of approximately 8.6 per cent.
The latest adjustment also increased the refinery's coastal PMS price from N1,582,380 to N1,669,545 per metric tonne.
In its communication to customers, the refinery instructed marketers to return their existing Authorisations to Collect for repricing. It said new volume contracts would subsequently be issued to enable immediate resumption of loading.
The effect has quickly filtered into the retail market, with motorists in different parts of the country paying significantly more for petrol.
Transport costs widen regional price gap
The disparity between petrol prices in Lagos and those in northern and other distant markets is partly explained by logistics.
Although the Dangote refinery produces petrol on the country's coast, the product still has to be transported by road to markets hundreds of kilometres away.
Transportation, depot charges and other distribution expenses add to the final pump price, meaning consumers in areas farther from the refinery generally pay more than those closer to the source.
The logistics challenge is one reason the Dangote refinery has plans to extend its free distribution scheme to other parts of the country.
The refinery's latest price increase has nevertheless intensified debate about how domestic petrol prices should respond to movements in international crude benchmarks.
Data contained in the Major Energies Marketers Association of Nigeria's Energy Bulletin for August 27 showed Dangote Refinery's PMS gantry price at N1,200 per litre.
The same data placed the estimated spot import-parity price of petrol into tanks at N1,222.32 per litre, while the NPSC-NOJ spot estimate stood at N1,221.32 per litre.
That meant Dangote's N1,200 gantry price was N22.32 below the estimated spot import-parity price as of August 27.
Two days later, however, the refinery increased its gantry price to N1,265 per litre. The new price was therefore N42.68 above the August 27 import-parity estimate.
It remains unclear whether the import-parity figure has subsequently changed.
Refinery points to crude procurement cycle
The Dangote executive maintained that international crude prices cannot be treated as an instant input into the price of petrol coming out of the refinery.
Crude oil purchased by a refinery may take days or weeks to reach the plant, depending on the contractual process, shipping arrangements and availability of loading and discharge windows.
This means that the crude being processed at any given time could have been purchased when international prices were significantly higher or lower than they are on the day the finished petrol is sold.
The executive also highlighted the importance of inventory valuation.
If a refinery purchased substantial volumes of crude when prices were high, an immediate reduction in petrol prices following a decline in international benchmarks could mean selling products manufactured from expensive crude at prices based on cheaper replacement crude.
The issue is particularly relevant to the Dangote refinery because its operations are not dependent entirely on locally sourced crude.
Reuters reported on August 26 that between 30 and 40 per cent of the refinery's crude feedstock was being imported.
Marketers complain of uncertainty
For petroleum marketers, however, the rapid changes in prices are making business planning increasingly difficult.
The National Publicity Secretary of the Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike, said marketers were contending with a combination of domestic and international factors affecting the cost of petrol.
“We are facing the challenges of the volatility in the market. There are policies of the government, policies of the international market, and exchange rates. These are inherent dispositions to the increase in pump prices. We are not refiners to be able to determine the price of petroleum products.”
Ukadike acknowledged that Dangote had previously responded to international market movements by reducing its petrol price.
“But, I also believe that Dangote has been consistent in terms of reducing its price in line with the international market rate. With this situation now, we cannot, at this particular point in time, structure our business. It’s going to be too difficult for us to structure our business,” he stated.
He warned that continued geopolitical tensions could further complicate the market.
“The more the Iran and United States crisis continues to persist, the more we’ll be having these irregularities in price,” he added.
According to him, the fluctuations are already being passed on to consumers as marketers adjust their selling prices to reflect changing acquisition costs.
“Also, bear in mind that the price of crude oil is determined by the international market. So, for all the independent marketers, we will continue to strive. Prices have been fluctuating, and we are still loading. The price of petrol will continue to be volatile as long as the price of crude is not stable and other factors relating to the financial situation,” Ukadike noted.
Consumers bear the brunt
The latest round of increases comes at a time when Nigerian households and businesses are already grappling with high transportation and operating costs linked to elevated petrol prices.
For motorists, an increase at the refinery level can quickly translate into higher pump prices, while businesses that rely on petrol-powered generators and vehicles face additional operating expenses.
The situation has also revived debate about whether Nigeria's deregulated downstream petroleum market can deliver relatively stable prices when international crude markets, foreign exchange rates, logistics and domestic supply conditions remain volatile.
The crude market itself has continued to experience sharp movements amid geopolitical uncertainty involving Iran and the United States and concerns over crude flows through the Strait of Hormuz.
According to Oilprice.com, Brent crude closed at $88 per barrel while West Texas Intermediate closed at $83 on Friday, representing a five per cent decline.
For the Dangote refinery, however, such daily movements do not necessarily determine the cost of the crude currently being processed.
The refinery's position is that the economics of petroleum production must take into account the price at which crude was actually acquired, the cost of transporting it to Nigeria, existing inventory and other operational considerations.
The competing arguments highlight the complexity of petrol pricing in Nigeria's post-subsidy era, where changes in global crude prices do not always translate immediately or proportionately into pump-price adjustments.
As marketers continue to contend with unpredictable acquisition costs, consumers are left facing another round of higher petrol prices.
The development comes against the backdrop of renewed political debate over how best to cushion Nigerians from the rising cost of living. Former Vice President Atiku Abubakar, the presidential candidate of the African Democratic Congress, has said he would reintroduce fuel subsidies if elected, arguing that the policy would help reduce hardship and lower the cost of living.
For now, however, motorists remain exposed to the prevailing market dynamics, with petrol prices varying sharply from one location to another and the prospect of further volatility still hanging over the downstream petroleum sector.