Dangote Refinery cushions Nigeria against global fuel price surge

Nigeria’s downstream petroleum market is being shielded from the latest wave of global fuel price increases as Dangote Petroleum Refinery continues to moderate domestic petrol prices despite rising international gasoline values and escalating freight costs, according to S&P Global Commodity Insights.

The latest market intelligence report by S&P Global said the refinery’s pricing strategy has effectively prevented higher global costs from being transferred to Nigerian consumers, even as international fuel traders struggle with mounting import expenses.

According to the report, importers supplying the Nigerian market are facing increasing pressure from rising global gasoline prices, tighter diesel supplies and higher shipping costs, making imported fuel significantly less competitive than products supplied by the 650,000 barrels-per-day Dangote Refinery.

S&P Global noted that Dangote’s pricing has effectively established a ceiling for domestic fuel prices, preventing importers from passing rising international costs on to consumers.

“Market participants told S&P that gasoline prices in Nigeria are effectively being capped by Dangote prices,” the report stated.

A trader quoted by the agency said: “Lomé values have risen above Dangote sales prices, which has shut the arbitrage,” indicating that importing petrol into Nigeria has become commercially unattractive under prevailing market conditions.

The report revealed that freight costs for transporting clean petroleum products from Northwest Europe to West Africa have climbed sharply from $29.70 per metric tonne at the end of June to $37.12 per metric tonne, as vessels are diverted to alternative destinations.

It also highlighted tightening diesel markets following reduced exports of Russian Black Sea cargoes, resulting in higher prices for high-sulphur gasoil across West Africa and further increasing the cost of imported petroleum products.

Despite these developments, Dangote Refinery has maintained relatively stable domestic prices, arguing that its pricing reflects the actual cost of crude procured under commercial contracts rather than daily fluctuations in international crude prices.

Since the end of May, the refinery has reduced the ex-depot price of Premium Motor Spirit (PMS) by more than ₦200 per litre, Automotive Gas Oil (diesel) by ₦300 per litre, and Jet A1 aviation fuel by ₦520 per litre.

The refinery has consistently maintained that crude oil used in its refining operations is purchased weeks or months ahead under contracts linked to monthly average pricing mechanisms, insulating domestic prices from short-term volatility in global energy markets.

S&P Global said that without Dangote Refinery’s growing domestic supply, Nigeria would almost certainly have experienced significantly higher pump prices as marketers contend with surging international product prices and freight charges.

Industry analysts also believe the refinery is increasingly emerging as the dominant pricing benchmark for West Africa, with importers finding it difficult to compete whenever international replacement costs exceed Dangote’s domestic ex-depot prices.

The report comes amid debate over the refinery’s recent decision to switch from naira-denominated pricing to a dollar-based pricing framework for refined petroleum products.

Under the new arrangement, petrol is priced at $0.779 per litre, with the naira equivalent now determined by the prevailing official foreign exchange rate. At an exchange rate of approximately ₦1,380.50/$, the benchmark translates to about ₦1,075.61 per litre, implying that ex-depot prices will fluctuate in line with movements in the foreign exchange market rather than remain fixed.

The transition has renewed calls by industry stakeholders for the rehabilitation of Nigeria’s state-owned refineries to deepen competition, expand domestic refining capacity and reduce the downstream sector’s exposure to exchange-rate volatility.

Analysts, however, argue that Dangote Refinery’s growing influence has already begun reshaping Nigeria’s fuel pricing dynamics, reducing dependence on imports and cushioning the economy against external energy shocks at a time of heightened geopolitical uncertainty and volatile global oil markets.