Well, well, well, it seems like the burning question on many people’s minds is whether the Dangote Refinery will bring the pump price of petrol down. The answer, my dear friends, is a resounding “it depends!”
Now, let me break it down in simple terms, and please others with more knowledge can chime in with their own knowledge and insights.
1.) The cost of crude oil, the exchange rate of the Dollar to the Naira, and government interventions (i.e., subsidies, taxes, levies, etc.) are the biggest factors in determining the price of petrol, diesel, kerosene, and other petroleum products to the consumer.
2.) Nigeria will sell crude oil to the Dangote Refinery at international prices. If it sells it for less, it would be a form of subsidy.
3.) Today’s crude oil price is hovering around $73 per barrel. This translates to approximately NGN 90,000 per barrel.
4.) A barrel of crude oil yields about 170 liters of refined products. If you divide NGN 90,000 by 170 liters, you get NGN 530 per liter.
5.) So, the cost of the raw crude oil alone comes to about NGN 530 per liter. That’s how much the Dangote Refinery would pay on average per liter of products it produces.
6.) Mind you, petrol production costs even more, so adjusted for that, petrol would cost more per liter, say N600 per liter.
7.) Next, you have to consider the actual cost of running the refinery, the Dangote Refinery margin, taxes and levies, transportation to various gas stations across the country, and the retailers’ margins!
8.) So the actual cost (not talking of any profit for anyone) with today’s exchange rate and the price of crude oil already makes the cost to a number that is a lot more than NGN 600 per liter
9.) By the way, the reason why PMS is now selling for around NGN 620 – 670 per liter today is because the NNPC is subsidizing it.
Now, back to the original question: Will the price of petrol come down? The answer is “it depends!” There are many factors at play here!
If the excahnge rate comes down, or if the price of crude comes down, the price should come down. And vice versa!
That said, even if the price of petrol doesn’t come down, the refinery will be great for Nigeria in a number of ways:
1.) Fueling Job Creation: The refinery is expected to create thousands of direct and indirect job opportunities.
2.) Saving on Forex: Nigeria will no longer need to import refined petroleum products, saving billions of dollars annually. Nigeria can now spend that money on other important things.
3.) Stabilizing the Naira: Petroleum products are the biggest drain on the nation’s forex. Eliminating this demand will create more supply of dollars than demand, reducing and ultimately stabilizing the value of the Naira.
4.) Reduction in Inflation: If the exchange rate comes down, inflation will naturally come down as well.
5.) Boosting Local Industries: The Dangote Refinery is like a superhero, swooping in to save the day for allied industries. It’s like a rising tide that lifts all boats.
6.) Ending Fuel Shortages: With the Dangote Refinery on the scene, Nigeria can finally say goodbye to those pesky fuel shortages.
7.) A New Era of Self-Sufficiency: The Dangote Refinery is set to make Nigeria self-sufficient in petroleum refining, which is a huge step forward for the country. It’s like learning to make your own cake instead of always relying on your neighbor to bake it for you.
So, there you have it, folks! An analysis of the possibility of petrol prices coming down and the potential impact of the Dangote Refinery on Nigeria’s economy explained in a simple way.
A MIT Engineer, Dantata posted this piece on his X handle @SasDantata
1 Comment
The backbone of your analysis is based on forex to determine the price of crude oil sold to dangote now the simple question is why the forex when the trade between dangote and the federal government is a local trade ? Why the dollar price not naira ?