Petrol price to rise more as naira-for-crude talks wobble
There is anxiety in the downstream arm of the oil and gas sector as operators await the decision of the Federal Government on the naira-for-crude deal between the Nigerian National Petroleum Company Limited and the Dangote Petroleum Refinery.
The six-month deal, which started in October 2024, officially ends today, Monday, March 31, 2024. The deal’s extension or complete halt is still being discussed by the parties involved.
However, it was gathered on Sunday that the committee responsible for the negotiations has yet to resolve on the matter. As this lingers, the effect is now felt in the pump prices of refined petroleum products.
Petrol has increased from about N860/litre to over N930/litre within one week. Dealers blamed this on the failure of the Federal Government to extend the naira-for-crude deal between the NNPCL and the Dangote refinery.
Our marketers also projected further hike in petrol price. They said the cost may hit N1,000/litre in weeks if nothing is done about the naira-for-crude deal that earlier helped in checking the rise in petrol prices.
Meanwhile, barring any last-minute change, the 650,000 barrels per day Dangote refinery is expected to shut down its petrol-producing unit for maintenance. According to Reuters, the maintenance, which may occur in June, will last for 30 days.
On the naira-for-crude deal, an insider at the finance ministry familiar with the ongoing negotiations revealed that no significant progress has been made. The source said both parties could not engage in any meeting throughout the past week.
“Nothing new has happened. Probably after the holidays, the committee will sit and meet,” the senior government official stated.
Recall that on October 1, 2024, the government commenced the sales of crude oil in naira to the Dangote refinery to improve supply, save the country millions of dollars in petroleum product imports, and ultimately reduce the pump prices of fuel.
NNPC recently stated that the Dangote refinery had received 48 million barrels of crude oil in naira under the deal. It also said a total of 84 million barrels of crude had been supplied to the refinery since it commenced operations in 2023.
NNPC’s Chief Corporate Communications Officer, Olufemi Soneye, in a statement, explained that the initial deal was for six months and discussions for the renewal of the agreement were currently ongoing, with the aim of establishing a new contract.
However, events took a drastic turn when the Dangote refinery, on March 19, announced a temporary suspension of the sale of petroleum products in naira.
The Lekki-based refinery lamented that there was a mismatch between its sales proceeds and its crude oil purchase obligations, which it said were currently denominated in US dollars.
“Dear valued customers, we wish to inform you that the 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 currently denominated in US dollars.
“To date, our sales of petroleum products in naira have exceeded the value of naira-denominated crude we have received. As a result, we must temporarily adjust our sales currency to align with our crude procurement currency,” the firm announced.
Immediately after the announcement, the cost of loading petrol at private depots in Lagos jumped to about N900/litre. It was less than N850/litre before the announcement.
Industry sources said the deal failed because the national oil company had used large volumes of its yet-to-be-produced crude oil to acquire loans from various international financial institutions, making it tough for the oil firm to have enough crude to supply the domestic market.
Retail stations also increased their pump prices between N930 in Lagos, N950 in Abuja and N960 in the far north.
While industry stakeholders have expressed optimism that a deal would be sealed between both parties, the intense uncertainty concerning the discussions points to a different direction.
Reacting to this, the National Publicity Secretary of the Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike, decried the current situation, noting that it was the sole reason for the upward movement in petrol prices by depot owners and retailers.
He said a stakeholders meeting has been called by relevant bodies to chart a way forward.
Ukadike said, “Because of this issue, we’ve called for a stakeholders meeting. We are going to meet to discuss it and come out with a way forward. We clamoured that crude oil should be sold in naira and any deviation would affect us. Our stakeholders’ meeting is very imminent.
“We had initially planned to meet this week, but it was postponed to May 1, 2025, because of the Sallah break and the upcoming Easter break.”
The national officer said the industry stakeholders expected at the meeting include the IPMAN National Working Committee and the executive and members of the Petroleum Products Retail Outlets Owners Association of Nigeria.
He further disclosed that marketers have lost over N200bn to price fluctuations in the last six months, which has, in turn, discouraged bulk buyers.
“We have lost over N200bn because of the price fluctuations in the last six months. What happens is that when we buy at a price, and vessels load, by the time they get to the depots and point of discharge, Dangote has reduced the price again. That little difference is borne by the marketer, and this makes it difficult to go back again and buy, after selling at a loss.
“This is because they don’t have any buffer to cushion the loss. Bulk traders have also reduced due to these risks,” Ukadike stated.
Dealers blamed the Federal Government for orchestrating the current hike in the price of petroleum products, especially petrol.
They said the reluctance of the Federal Government to renew the naira-for-crude deal with the Dangote refinery led to the hike in petrol, warning that citizens should not be suffocated because of dollars.
The Vice President of IPMAN, Hammed Fashola, regretted that Nigerians might go back to buying a litre of petrol at N1,000/litre if the sale of crude in naira is not reconsidered with the Dangote Group.
The Dangote refinery had announced that it would no longer sell fuel in naira to local marketers because it no longer gets crude oil in naira from the Nigerian National Petroleum Company Limited.
During the weekend when Nigerians were celebrating Eid-el-Fitri, The PUNCH observed that the Dangote refinery, which had crashed petrol prices multiple times between December and March, bowed to pressure, as its partners like MRS, Heyden, and Ardova raised petrol prices from N860 to N930/litre in Lagos and neighbouring states. These prices were higher in the north.
As it is, Nigerians may once again grapple with the consequences of rising fuel prices, which have triggered an increase in transport fares. The abrupt change in government policy appears to have undermined the relief many had anticipated, fueling worries about the escalating cost of living.
The IPMAN VP described the price hike as unfortunate, calling on members of the Depot and Petroleum Products Marketers Association of Nigeria to pity the poor masses.
Fashola said that though the price of crude oil and the exchange rate are the major factors determining the prices of petroleum products, he argued that the naira-for-crude arrangement would help to tame the local price of fuel.
“It’s unfortunate the price of PMS is going up again. Although if you look at the crude oil, it is rising, the cause of this matter is Dangote and the naira-for-crude issue. Because we noticed that when Dangote announced the stoppage of the contract, there was an immediate reaction, especially from DAPPMAN members. They increased their prices, which is unfortunate,” he said.
While appealing to the Federal Government to renew the deal with the Dangote refinery, Fashola called on fellow businessmen to be more patriotic.
He declared that there was no justification for the price hike by depot owners, the same day Dangote announced the suspension of the sale of petrol in naira.
“I think we need to plead with the government to look at the agreement again, maybe that will drive the price down. I will equally appeal to our people to be more patriotic too, because I don’t see any justification for that initial increment. At least, they should have waited for the new consignment or so.
“But being what we are in Nigeria, it’s just a pity. But, I think that everything should not be about profit all the time. We should consider our citizens before we do anything. We hope that if the government goes back to the naira-for-crude arrangement, it will help reduce the price,” Fashola stated.
Asked if the NNPC and the Dangote refinery had announced an official price to marketers, he replied that the NNPC might name a new price after the Sallah break, saying whatever MRS says is from the Dangote refinery.
“NNPC is yet to react to the price hike. But we know that when MRS talks, it’s Dangote who is talking. MRS has announced new prices. And, I am very sure that after the holiday, NNPC will react too. MRS has informed marketers of its new prices. The prices depend on your location. For Lagos, I think it’s around N905 per litre. Outside Lagos, like Ogun State, it’s around N911. The pump price in Lagos is N930,” Fashola explained.
He stressed that prices may hit N1,000 in the coming days, saying, however, that the naira deal could have been a game changer.
“N1,000/litre is expected, but we just have to be patriotic and sincere with one another. In this era of deregulation, the price will go up and down. It depends on what is happening in the international market and the exchange rate. Those two factors are key to determining the prices of petroleum products.
“However, the local arrangement between Dangote and the Federal Government, that is, the naira-for-crude deal, would have been a game changer. We all witnessed that. It was working well before the agreement was terminated. But I think they can still renew it. At least, that would help to stabilise the prices. It would also help the Nigerian citizens, at least,” he maintained,
On the call by depot owners that the Federal Government should stop the naira-for-crude agreement because of its ‘negative effects’ on the economy, the IPMAN leader stressed that DAPPMAN members were only trying to protect their territory.
