A Review of the Nigerian Energy Industry

Why fuel prices have not dropped in Nigeria

Chuks Isiwu  & Oscarline Onwuemenyi 14 January 2015, Sweetcrude, Lagos – With global crude oil prices declining sharply in the last few months, questions are being asked why Nigerians are not feeling the global oil slump in their pocketbooks in terms of lower fuel prices.
Indeed, in other parts of the world, including countries in Africa, fuel prices have dropped heavily in response to the development in the crude oil market, which saw prices drop below $50 per barrel last week, the lowest level since 2009.
IPMAN-fuel pumpIn South Africa, for instance, petrol price has fallen by 127 cents per litre, diesel (105 cents per litre), and liquefied petroleum gas, LPG, or cooking gas (210 cents per kilogramme while in the United States the pump price of petrol was on Monday as low as $1.9 a gallon – about N79.8 per litre.
Despite calls for a reduction in fuel prices by the Nigeria Labour Congress and the Trade Union Congress, petrol still sells at the official N97 per litre price, as prices of kerosene and cooking gas also remain unchanged.
Many analysts who spoke to SweetcrudeReports blamed this on greed and avarice of petroleum product importers, stressing that the system has been rigged to always serve the interest of the oil companies against the citizens.
Others blamed the ineffective regulation in the system, and the subsidy process, which they say, is yet to deliver on rewards for Nigerian consumers of petroleum products.
“It is the kind of wonder you see in Nigeria, that crude oil prices would fall in the global market, yet local fuel prices would remain unchanged in Nigeria. If local fuel prices cannot drop at a time of low crude oil prices, at what point will it then drop?” queried one of the analysts.
He added: There are many variables involved in fuel importation and supply in Nigeria, but even with all the other variables being static, a reduction in the cost of the major variable, which in this case is crude oil, should naturally necessitate a drop in fuel prices anywhere in the world, even if the drop would be marginal”.
Director of Communications at the Petroleum Equalisation (Management) Fund, PE(M)F, Mr. Goddy Nnadi, explained that for Western economies, it is easier and faster to feel the impact of the global fall in the price of oil. “But for us in Nigeria, it is not the same because we do not refine the products here, we have to go really far away to refine the products, pay for transporting it back to the country including other handling and insurance charges”.
He noted that even when the products arrive Nigeria, there are other factors that go into the process which eventually further increase the cost, saying: “Someone has to pay for all of that, and thus your prices remaining where they are in spite of what we find in other societies.”
He noted that, “Basically, we import refined products, so you pay the cost of the crude which has come down globally now, and you also pay for the refined products, including the transportation and the inefficiencies that crop up in the system. All these combined does not give you the real price of the product.
“If you take the United States and Europe, for instance, the refining costs are fairly constant. When the crude price goes down, it catalyses a reduction in price which they now translate to the consumers.
“However, here in Nigeria, we have our crude which is mostly exported to other countries for refining. This means additional costs for refining, which is standard, cost of transportation, and cost of the inefficiencies in the system such as when vessels bearing refined products cannot come into our ports due to their sizes, and smaller vessels now have to go in and bring in the products – that certainly comes with added costs”.
“Also, the issue vandalisation of pipelines that carry crude to the different refineries in the country. This means that other modes of transportation have to be used, which may be quite costly. These are extra costs that are unnecessary and they all add up to the final cost of the product. If you remove all of these costs, you will definitely experience a reduction in the prices of petroleum products,” he added.

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