Will the price of petrol fall as Dangote refinery begins operations?

Will the price of petrol fall as Dangote refinery begins operations?

Following the commencement of the 650,000 barrel per day production by the Dangote Petroleum Refinery on Friday, January 12, 2024, some major questions begging for answers in the minds of many Nigerians are: Will the price of petrol crash? Will the refinery end frequent long queues at the filling stations? What benefits are there in having a “working” refinery?

Answering these very sensitive questions requires an in-depth analysis of various factors at play here. Majorly, prices of premium motor spirit (PMS) and other petroleum products are determined by the cost of crude oil, the rate of dollar to naira and government interventions such as subsidies, and reduction in taxes or levies.

Answering these very sensitive questions requires an in-depth analysis of various factors at play here

Firstly, Nigeria will sell crude oil to the Dangote Refinery at international prices through the Nigeria National Petroleum Corporation (NNPC). Should it sell it for less, it would be a form of subsidy.

As of today, the crude oil price is about $73 per barrel which translates to approximately N90,000 per barrel, using the official naira to dollar rate. Reports show that a barrel of crude oil yields about 170 litres of refined products.

Meanwhile, dividing N90,000 by 170 litres gives N530 per litre, which means that the cost of the raw crude oil alone comes to about N530 per litre. That’s how much the Dangote Refinery would pay on average per litre of products it produces.

What is more is that petrol production takes a chunk of the cost, which will ultimately affect petrol prices. So adjusted for that, petrol would cost more per litre, say N600 per litre.

Considering the actual cost of running the refinery, the Dangote refinery margin, taxes and levies, transportation to various filling stations across the country, and the retailers’ margins, the thoughts of having the price crash may not be happening soon.

Bearing all these in mind, the actual cost (not talking of any profit for anyone) with the current exchange rate and the price of crude oil already makes the cost a number that is a lot more than N600 per litre.

By the way, the reason why PMS is now selling for about N620 to 670 per litre today is because the NNPC is subsidising it. As at December 2023, Hong Kong, Monaco and Iceland are the three countries with the most expensive PMS prices in the world with N2,804, N2,129 and 2,071 per litre respectively.

Provision of job opportunities: The refinery is expected to create thousands of direct and indirect job opportunities. According to the latest report titled “Sailing through troubled waters”, by CardinalStone, a research firm, the Dangote refinery currently employs about 33,000 individuals and is projected to rise to 100,000 once the facility reaches full capacity.