The Dangote Refinery has finally broken the jinx on domestic production of petrol. On Tuesday, September 3, 2024, the company commenced the supply of petrol to retail stations in the country. This is good news for an economy that has spent billions of dollars on petrol imports in the last 10 years.
The breakthrough by the Dangote Refinery occurred just as the Nigerian National Petroleum Company Limited (NNPCL) finally agreed to sell crude oil to the Dangote Refinery in naira as directed some weeks ago by President Bola Ahmed Tinubu.
Since the president issued the directive to NNPCL, there have been illogical invectives within the oil industry about the difficulty in implementing the policy.
That is why people were excited that the state oil monopoly has finally bowed to pressure and agreed to sell crude oil to Dangote Refinery in naira.
The announcement by NNPCL came just as the Dangote Refinery rolled out the first quantity of petrol. The commencement of petrol refining by the Dangote Refinery came just in time to reduce the pains of Nigerian petrol consumers.
NNPCL had hiked the pump price of petrol to N885 per liter. The wide expectation by Nigerian consumers is that with the Dangote Refinery now producing petrol with crude oil purchased with naira, consumers would heave sighs of relief from outrageous pump price.
The NNPCL blamed the long queues at petrol retail outlets in the last one month on logistic problems.
At a certain point in July, the company blamed the petrol scarcity on flooded roads that allegedly prevented articulated trucks hauling petrol from reaching their destinations.
The company stuck to that excuse even as retailers insisted that the scarcity was a factor of supply deficits. Last week the NNPCL admitted crippling supply deficits emanating from European refiners’ sanctions against mounting debts.
It is obvious that the NNPCL has run out of forex to continue importing petrol when it has a cheaper option at home. That probably explains its decision to implement the president’s directive on sale of crude oil to the Dangote Refinery.
Blueprint commends the Dangote Refinery for the resilience that eventually led its rolling out petrol.
The commencement of petrol production by the Dangote Refinery would benefit the Nigerian economy in various ways. Nigeria spends something close to $20 billion annually on refined petroleum products imports.
With the Dangote Refinery coming on stream and the NNPCL willing to supply its crude oil in naira, that huge sum washed down the drain on refined petroleum products imports would be saved.
Saving such huge sums would definitely reduce the demand pressure on the naira in the foreign exchange market and facilitate considerable appreciation by the local currency.
The second benefit to the economy would go directly to Nigerian consumers of refined petroleum products. With the Dangote Refinery accessing crude oil in naira, the pump price of petrol, diesel and aviation fuel would almost certainly drop.
That would exert considerable downward pressure on Nigeria’s spiraling inflation which is partially fueled by high energy cost. Sometime in July, 2024, the pump price of aviation fuel suddenly surged to N1,800 per liter. Nigeria’s airline operators responded to the surge in fuel price by hiking the air fare for one hour flight to N200,000.
With the Dagote Refinery now supplying refined petroleum products, the pump price of aviation fuel might drop below N1,000 per liter. That could force the fare for a one hour flight below N50,000.
Local sourcing of refined petroleum products would exert downward pressure on prices of food items. If the pump price of diesel drops below N1,000 per liter, the cost of evacuating food items from Nigeria’s inaccessible rural farming communities to the markets in urban slums would drop drastically. That in turn would bring down the prices of food items.
Perhaps the most significant gain to emanate from self-sufficiency in refined petroleum products as the Dangote Refinery comes on stream would be in the quantity of foreign exchange inflow.
Aliko Dangote, president of the Dangote conglomerate, said recently that his refinery and the petrochemical plant would be generating $30 billion annually from refined petroleum products exports.
Such huge exports proceeds would reduce the foreign exchange supply deficit humiliating the naira in the foreign exchange market.
With reduced pressure from demand side and considerable gains from the supply side, the naira could trade at N700 to the dollar within months.
Now that he has won the battle for domestic supply of crude oil, Dangote should shun profiteering and sell refined products at prices determined by demand and supply.
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