The decision by Dangote Petroleum Refinery to begin pricing Premium Motor Spirit (PMS), diesel and aviation fuel in United States dollars has ignited widespread discussions across Nigeria’s energy sector, with economists and industry stakeholders weighing its potential impact on fuel prices, inflation and the foreign exchange market.
While the announcement initially triggered fears of an immediate hike in petrol prices, industry analysts say such concerns may be premature, as the refinery’s new pricing structure has not significantly altered the naira value of its products for marketers.
At the prevailing official exchange rate of approximately ₦1,376.54 to one U.S. dollar, Dangote Refinery’s newly announced gantry price of $0.779 per litre translates to about ₦1,072 per litre. This figure remains largely consistent with the refinery’s previous ex-depot pricing, indicating that marketers are not currently paying substantially more for fuel despite the shift to dollar-denominated transactions.
However, experts warn that the long-term implications of the move could reshape Nigeria’s fuel pricing landscape, exposing domestic petrol prices more directly to fluctuations in the foreign exchange market.
Why Dangote Switched to Dollar Pricing
Industry sources attribute the refinery’s decision to commercial realities surrounding crude oil procurement and operational costs.
Although the Federal Government introduced a naira-for-crude arrangement through the Nigerian National Petroleum Company Limited (NNPC Ltd.) to enable local refining and reduce foreign exchange pressures, reports suggest that crude allocations under the programme have consistently fallen short of Dangote Refinery’s operational requirements.
As a result, the refinery has increasingly relied on imported crude oil purchased in dollars, while also covering logistics, taxes, levies and other operational expenses denominated in foreign currency.
A source familiar with the refinery’s operations disclosed that the facility requires about 15 cargoes of crude monthly but receives only a fraction of that under the existing arrangement.
“This is largely a commercial decision aimed at easing the pressure of sourcing foreign exchange to import crude oil. The crude supply obligations under the naira-for-crude arrangement have not been fully met. We struggle to secure about three cargoes monthly when our operations require approximately 15 cargoes. More than 70 per cent of our feedstock is currently sourced through importation,” the source said.
According to the source, the refinery’s primary objective is to guarantee uninterrupted fuel production and supply despite prevailing challenges in crude sourcing.
Why Petrol Prices Have Not Increased
Analysts explain that the refinery’s transition to dollar pricing does not automatically translate into higher fuel prices because the company merely converted its existing naira-based ex-depot prices into dollar equivalents using the prevailing exchange rate.
As long as the naira remains relatively stable against the dollar, marketers will continue to pay nearly the same amount when converted back into local currency.
Checks at filling stations in Lagos and other major cities indicate that pump prices have remained unchanged since the announcement, with normal commercial activities continuing across retail outlets.
Industry observers describe the development as a change in the currency of transaction rather than an immediate adjustment in product value.
The Bigger Concern: Exchange Rate Volatility
Despite the current stability, economists caution that the situation could change rapidly if the naira depreciates.
Under a dollar-based pricing framework, any weakening of the naira automatically increases the local currency cost of purchasing fuel. Marketers would require more naira to acquire the same volume of petroleum products, a cost that could eventually be transferred to consumers through higher pump prices.
This would effectively tie domestic fuel prices more closely to movements in the foreign exchange market, raising concerns about inflationary pressures and increased demand for dollars.
Experts Weigh In
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the development reflects the realities of a volatile global oil market rather than an attempt to arbitrarily increase fuel prices.
According to him, refiners worldwide are adopting strategies to protect themselves from fluctuations in crude oil prices and exchange-rate risks driven by geopolitical tensions and global market uncertainties.
Similarly, oil and gas analyst Dr. Ayodele Oni described the move as commercially logical, noting that a refinery that purchases crude in dollars but sells refined products in naira remains vulnerable to significant exchange-rate losses whenever the local currency weakens.
He argued that dollar pricing allows the refinery to align its revenue structure with its foreign currency obligations and reduce financial exposure.
Also speaking on the issue, oil and gas industry expert Otunba Tunji Oyebanji said the development highlights the challenges facing the naira-for-crude initiative.
According to him, Nigeria’s crude production constraints and existing supply commitments have limited the volume of crude available for local refining.
“Nigeria is not producing enough crude to comfortably satisfy all existing obligations. Some volumes have already been committed to international buyers under previous arrangements, while crude oil remains the country’s biggest export earner. These realities may be affecting the effectiveness of the naira-for-crude policy,” he explained.
Oyebanji warned that if Dangote Refinery continues to source a larger portion of its crude from international markets, demand for foreign exchange could rise further, placing additional pressure on the naira.
What It Means for Nigerians
For now, consumers may not feel an immediate impact at filling stations, as pump prices remain largely unchanged. However, analysts say the shift to dollar-denominated pricing marks a significant development in Nigeria’s downstream petroleum sector.
Should the naira maintain stability, fuel prices could remain relatively steady. But if the local currency weakens, the cost of petrol, diesel and aviation fuel may become increasingly vulnerable to exchange-rate movements, potentially affecting transportation costs, inflation and the broader economy.
As stakeholders continue to monitor the situation, the effectiveness of the government’s crude supply arrangements and the stability of the foreign exchange market are expected to play critical roles in determining whether Nigerians will eventually pay more for fuel.
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