The decision by Dangote Petroleum Refinery to denominate the prices of Premium Motor Spirit (PMS), diesel and aviation fuel in United States dollars has raised concerns among Nigerians over the possible impact on petrol prices, inflation and the foreign exchange market.

However, contrary to fears of an immediate increase in pump prices, industry experts said that the new pricing arrangement has not significantly altered the naira value of the refinery’s ex-depot price.

The refinery’s latest gantry price of $0.779 per litre, when converted at the prevailing official exchange rate of about N1,376.54 per dollar, translates to approximately N1,072 per litre, a figure largely consistent with its previous ex-depot pricing.

This means that marketers purchasing products from the refinery are not immediately paying substantially more for petrol than they did before the introduction of the dollar-denominated pricing model.

Searches by The Guardian also showed that filling stations in Lagos have continued normal operations, with no immediate changes in pump prices linked to the development.

Industry analysts, however, warned that while the move may not trigger an immediate fuel price shock, it could expose the domestic market to greater foreign exchange risks if the naira weakens significantly.

The decision by the refinery is largely linked to the realities of the global oil market and the structure of its crude supply chain.

Crude oil is internationally traded in dollars and several costs associated with refinery operations, including crude purchases, logistics, taxes and other charges, are dollar-denominated.

Although the Federal Government introduced the naira-for-crude arrangement with the Nigerian National Petroleum Company Limited (NNPC Ltd.) to supply crude to the refinery in local currency, industry players said the arrangement has not delivered the volume of crude required by the facility.

Experts reactions

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the development should be viewed within the context of global market realities and not necessarily as an attempt to increase fuel prices.

According to him, refiners and energy companies worldwide are adopting strategies to manage uncertainties caused by fluctuations in crude oil prices and currency movements.

Yusuf noted that businesses naturally seek pricing models that protect them from volatility in commodity prices and exchange rates.

Also, oil and gas analyst, Dr Ayodele Oni, described the decision as commercially understandable.

He explained that when a refinery purchases crude in dollars, but sells refined products in naira, it becomes exposed to exchange-rate losses whenever the local currency depreciates.

According to him, dollar pricing enables the refinery to align its revenue with its foreign currency obligations.

Oil and gas analyst, Tunji Oyebanji, said the dollar pricing decision may be linked to challenges surrounding crude supply to the refinery.

Oyebanji said the naira-for-crude arrangement faced operational challenges because Nigeria’s crude production level and existing commitments to third parties limited the volume available for domestic refining.

He said: “This means he’s not getting the crude or the arrangement is not working as expected. We’ve said it from the beginning that this is a tall order. Nigeria was not producing enough crude to start with. Then they have already pledged some of that crude to third parties.

“They took some advanced money from some of the buyers and then they are paying them back with crude oil. That limits the amount of crude available to sell either to Dangote or the international market.

“Don’t forget crude oil is also our number one export earner. I’m not standing in for NNPC. I’m just saying this might be the challenge that has made it not to work.”

According to him, the implication is that Dangote Refinery would increasingly have to source crude from outside Nigeria and pay in dollars.

Besides, a source close to the refinery explained that the company has been forced to rely heavily on imported crude because domestic supply under the government-backed arrangement has fallen short of expectations.

It was learnt that the refinery requires about 15 cargo of crude monthly, but only been able to get about three cargo through the arrangement, while over 70 per cent of our feedstock is currently sourced through importation.

The dollar pricing model is aimed at ensuring steady product availability and reducing pressure associated with sourcing foreign exchange for crude purchases.

Experts maintained that the switch from naira to dollar pricing does not automatically translate into an increase in fuel prices.

Rather, the refinery has effectively converted its existing ex-depot price into dollar terms based on the prevailing exchange rate.

However, under the new arrangement, any depreciation of the naira would automatically increase the amount marketers need to pay for the same quantity of fuel.

For instance, if the exchange rate moves significantly above the current level of about N1,376/$, marketers would require more naira to purchase refined products, and the additional cost could eventually be passed on to consumers.