Nigerians eye lower fuel prices as NNPC, Dangote battle for market control

Onome Amuge

Nigeria’s petrol market has recently experienced a promising development, with an uptick in domestic refining capacity and heightened competition among industry players conspiring to lower petrol prices, promising relief to Nigerian consumers in a context where fuel costs have historically been a vexing concern.

The ongoing price war between Dangote Refinery and the Nigerian National Petroleum Company Limited (NNPC), in which the two fuel giants engage in a series of retaliatory price cuts, has left fuel marketers and other industry stakeholders expecting further decreases in petrol prices as the competition for market dominance intensifies.

Dangote Refinery, a major player in the Nigerian fuel market, has stirred the market by lowering its fuel price not once but twice in the span of two months, the most recent reduction occurring on February 26 when the ex-depot price was slashed from N890 to N825 per litre.

The NNPC, as it has done in response to previous moves by Dangote Refinery, also reacted swiftly, cutting its own pump price from N940 to N860 in Lagos and N880 in Abuja and other regions, effective March 3.

Industry analysts have pointed out that the revival of Nigeria’s domestic refining capacity is a crucial factor in the current price movements.

Moreso, the Port Harcourt and Warri refineries, alongside the privately-owned Dangote Refinery, are seen injecting fresh supply into the market, enhancing domestic production and reducing the nation’s dependency on imported fuel.

The surge in local refining capabilities, in conjunction with the stiff competition between Dangote Refinery and NNPC, is projected to result in sustained price reductions for petrol, benefiting both Nigerian consumers and businesses reliant on fuel-powered transportation and logistics.

The ongoing tussle for market dominance between Dangote Refinery and NNPC, complemented by the renewed vigour of Nigeria’s domestic refining sector, has led industry experts to predict that the price of petrol, currently hovering between N900 and N950 per litre at most fuel stations, is likely to dip even further, potentially hitting N500 per litre before the end of the year.

Bismarck Rewane, the managing director of Financial Derivatives Company Limited, projected that the downward trajectory in petrol prices will persist until June 2025.

Explaining, Rewane attributed the sustained decline in fuel costs to the fierce competition between Dangote Refinery and NNPC, as well as the ongoing drive to enhance production efficiency.

“Between now (February) and June, we will see prices begin to decline. But after June, as things stabilise, depending on what happens in the global oil and currency market, we might begin to see some stabilisation,” he stated.

In light of the ongoing price war between Dangote Refinery and NNPC, Rewane noted that such intense competition, while temporarily beneficial to consumers, rarely leads to long-term gains.

Citing the adage that “in a price war, nobody wins,” Rewane highlighted the short-term nature of this cost reduction strategy, noting that the market will eventually revert to its equilibrium price point.

The renowned economist however acknowledged that the  competitive environment has led to price reductions,expected to offer temporary relief to consumers.

According to Paul Alaje, a financial analyst and Chief Economist at SPM Professionals, the intensifying price battle between Dangote Refinery and NNPC could potentially drive petrol prices down to an astounding range of N650 to N800 per litre.

Building on his analysis in a television interview, Alaje emphasised that, if left unchecked, the self-serving interests of both Dangote Refinery and NNPC, fueled by their desire to maximise profits, could drive them to continue slashing petrol prices in an effort to outdo each other and attract more customers.

However, he cautioned that if the two firms were to reach a mutually beneficial agreement, the ongoing price competition could cease, potentially causing petrol prices to rebound to higher levels.

The economist stated further: “In the beginning, when you have two major giants, Dangote and NNPCL, all of these are important. The danger is that if NNPCL fizzles out, you face a pure capitalist, and you don’t want to know the implications. If it is Dangote Refinery that stops, you are back to Egypt.

“We need to have more players in the market. We, in fact, want more of the competition to go on because this is the consequence of deregulation. I should be buying fuel at between N650, N750, and N800 per litre.

“But if any of them fizzles out, be ready to buy at over N1,000 per litre again.”

Alaje, however, said NNPCL must produce locally to compete effectively with Dangote Refinery, and not rely on imported products so as to sustain the current decrease in fuel prices.

Responding to the ongoing price war between Dangote Refinery and NNPC, the Petroleum Retailers Outlets Owners Association of Nigeria (PROOAN) and Independent Petroleum Marketers Association of Nigeria (IPMAN) , expressed optimism that Nigerians will reap the benefits of this competitive market dynamic in the form of cheaper petrol.

In a statement, the PROOAN president Billy Gillis-Harry affirmed that the recent fuel price reduction by Dangote Refinery and NNPC is already reflected on the association’s portal.

Gillis-Harry further stated that the decrease in the cost of petrol will bring much-needed relief to many Nigerians who have been struggling with economic hardships, expressing his optimism that the lower fuel prices will translate into improved living standards and more financial breathing room for average Nigerians.

Olusegun Okedoye, managing director of Mountains Energy Solution Limited, commended the recent reductions in petrol prices as a positive outcome of market forces.

Okedoye also highlighted  the importance of letting market forces determine petrol prices, instead of relying on arbitrary fixed prices.

According to the energy expert, the current price reductions align with the desired outcomes of effective regulations, which should allow for the natural interplay between supply and demand to dictate prices, leading to a more stable and efficient petrol market in Nigeria.

Okedoye further elaborated on the benefits of the price reductions, noting that they not only offer relief to consumers but also provide a catalyst for the national oil company, NNPC to develop innovative strategies for customer retention. He noted that by continuing to operate in a competitive environment, where prices are responsive to market forces, the NNPC is incentivised to focus on improving the customer experience and increasing the efficiency of its operations

“We need that kind of competition so that we would depart from an era of only NNPC importing and distributing the product. Take, for example, since the Dangote refinery came on stream, you hardly see petrol scarcity.

“When the supply is high, there is a tendency for the price to go down. Then the next thing we are going to see is the stimulation for more people to be able to access it and buy, thereby giving more revenue to the producer or the seller, and then in the overall is stimulating  economic growth,” he added.

While the Nigerian petrol market has been shaped by domestic factors such as the price war between Dangote Refinery and NNPC, the broader global oil market has also played a significant role, with geopolitical and economic dynamics causing fluctuations in the price of Brent crude and, subsequently, impacting the price of petrol in the Nigerian market.

The ongoing tug-of-war between geopolitical and economic factors has left a wake of uncertainty in the oil market, resulting in volatile prices and concerns over the stability of the global economy.

Some of the key factors contributing to this volatility include an increase in US crude inventories, heightened speculation of possible negotiations between the US and Russia to ease sanctions, Ukraine’s assault on Russia’s Caspian Pipeline Consortium, and fears of a revived China-US trade war, all of which serve to reduce fears of slower global economic growth.

According to market data,These factors have  collectively pressured oil prices, causing Brent crude to drop by 3.1 percent month-on-month (m/m) to $73.7 per barrel. On the domestic front, Nigeria’s benchmark Bonny Light crude lost strength by 5.21 percent m/m to $75.45 per barrel from $79.60 per barrel due to low demand and geopolitical tensions.

Thougha the downward trend in petrol prices has offered some much-needed relief to consumers, analysts caution against unwarranted optimism, noting that market instability and geopolitical headwinds, coupled with currency fluctuations and the effectiveness of local refining operations, could ultimately overturn the current positive momentum, potentially leading to renewed price increases in the near term.

Energy economist Olufemi Adesina underscored the fleeting nature of the current price cuts, noting that, while the reduction in petrol prices represents a favourable development, the sustainability of these gains is contingent on the continued local production of fuel and stable global oil prices.

In her assessment of the Nigerian petrol market, financial analyst Funke Adeoye stated that while the current price cuts are undoubtedly a boon for consumers, the volatility inherent in the market and the interplay between local refining capabilities and global oil prices mean that any disruptions in either factor could swiftly upset this balance and result in price hikes for petrol.

Adeoye also highlighted the crucial role of all stakeholders in ensuring a stable and affordable market for petrol. As the situation continues to evolve, she advised stakeholders such as the government, industry players, and consumers to stay vigilant and proactively tackle potential issues that could threaten the sustainability of lower petrol prices.

“Government policies and currency stability are crucial. Without proper management, these low prices might not be sustainable,” she stated.