Dangote Refinery Halts Naira Sales: What's Happening With Fuel Prices In Nigeria?

Refinery's Decision Sparks Fuel Stockpiling

Listen up, folks. In the wake of the Dangote Petroleum Refinery’s recent decision to suspend the sale of petroleum products in naira, many filling stations across Nigeria are now stockpiling Premium Motor Spirit, also known as petrol. This move is being driven by the anticipation of a potential price hike in the near future. The Federal Government's inability to continue crude oil sales to the refinery in local currency has retailers bracing for higher costs.

IPMAN Urges Caution Amid Panic Buying

The Independent Petroleum Marketers Association of Nigeria (IPMAN) has taken a firm stance against panic buying. In a statement, they’ve cautioned retailers that indulging in such behavior could lead to significant financial losses. This warning comes as no surprise, considering the current uncertainty in the market. Last week, Dangote Refinery made a bold announcement, revealing that it had temporarily ceased selling petroleum products in naira after negotiations with the Nigerian National Petroleum Corporation Limited (NNPCL) over a naira-for-crude deal fell apart.

Concerns Over Currency Mismatch

The refinery, which boasts an impressive capacity of 650,000 barrels per day, has expressed concerns about the mismatch between its sales proceeds and crude oil purchase obligations. These obligations are currently denominated in US dollars. In a statement, the refinery emphasized the need to align its sales currency with its crude procurement currency. “We wish to inform you that Dangote Petroleum Refinery has temporarily halted the sale of petroleum products in naira. This decision is necessary to avoid a mismatch between our sales proceeds and our crude oil purchase obligations, which are denominated in US dollars,” the statement read.

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Immediate Market Reactions

Since the announcement, the cost of loading petrol at private depots in Lagos has surged to approximately N900 per litre, up from less than N850 per litre before the news broke. In an interview with The PUNCH on Sunday, IPMAN’s National Publicity Secretary, Chinedu Ukadike, voiced concerns over the profiteering behavior of depot owners. He noted that demand for petrol had risen significantly since Dangote’s announcement, prompting depot owners to raise their prices.

The Downstream Sector in Limbo

Let’s face it, the downstream petroleum sector is in a state of flux. There’s still no official clarification from Dangote Refinery on how PMS sales will proceed. Despite this, some filling station owners are already purchasing fuel at higher prices, hoping to sell it at a profit once prices inevitably rise. Ukadike condemned the actions of depot owners, warning that ongoing price hikes could have detrimental effects on the economy. “Some depot owners are already increasing the price, but we are advising marketers not to panic-buy. When the Dangote refinery reverses the price, it could lead to significant losses for marketers,” he said.

Stockpiling Risks

Ukadike further cautioned that filling stations stockpiling fuel in anticipation of higher prices might face financial challenges if the price correction occurs. “Marketers should be careful about overstocking fuel, as purchasing large volumes at inflated prices could lead to losses,” Ukadike added. Efforts are underway to resolve the disagreement between the Federal Government and Dangote Refinery, with hopes that the refinery will soon resume naira crude sales.

Government's Role in Resolution

According to Ukadike, the Federal Government and Dangote Refinery are almost resolving the matter. “I’ve gathered that the Federal Government and Dangote Refinery are almost resolving this matter. The two parties are reviewing the naira-for-crude deal to continue crude sales in naira to the refinery,” he revealed. Sources from the Federal Ministries of Finance and Petroleum Resources confirmed that the Technical Sub-Committee on the Naira-for-Crude Policy would reconvene to deliberate on the issue.

Impact on Foreign Exchange Market

Industry experts have warned that the halt in naira sales by Dangote Refinery could put pressure on the foreign exchange market. Marketers will now need to purchase US dollars to acquire petroleum products. Furthermore, the failure of the naira-for-crude deal has been linked to the NNPCL’s massive forward sale of crude oil, leaving the corporation with insufficient stock to meet domestic supply needs. A spokesperson for the NNPC, Olufemi Soneye, confirmed that fresh negotiations were underway with Dangote Refinery to renew the naira-for-crude agreement.

Long-Term Implications

The suspension of naira sales by Dangote Refinery means that marketers will now have to source dollars to purchase petrol from the facility. The National Vice President of IPMAN, Hammed Fashola, warned that this situation could weaken the naira, which had recently gained stability. Experts pointed out that the naira-for-crude arrangement had helped the Dangote Refinery lower petrol prices, which in turn pressured the NNPC to follow suit. The stoppage of the agreement may be a strategic move to limit the influence of Dangote Refinery, which has faced accusations of monopolistic practices in the downstream sector.

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Criticism from Domestic Refiners

Domestic crude oil refiners have criticized the suspension of the naira-for-crude deal, arguing that it undermines the efforts of all stakeholders to achieve energy security. Eche Idoko, National Publicity Secretary of the Crude Oil Refinery-owners Association of Nigeria, decried the decision, stating that it obstructs the goal of self-sufficiency in refining and energy security.

Relief on the Horizon

As part of efforts to alleviate the supply gap, seven vessels carrying a total of 115,000 metric tonnes of PMS are expected to arrive at Nigerian seaports between March 17 and 23. These shipments will be distributed through the Tincan port in Lagos, the Lekki Deep Seaport in Lagos, and the Calabar port in Cross River State, helping to stabilize fuel supply nationwide. This development is a much-needed relief as the country navigates this challenging period in its energy sector.