Local refining, the obvious solution

The National Bureau of Statistics (NBS) has released its latest report in its premium motor spirit (PMS) price watch series. The report shows the average monthly price for PMS (petrol/gasoline) paid by households across the country. In June it averaged N150.3/litre (l) for the 36 states of the federation and the FCT, and so above the fixed upper price limit for the retail pump price of N145/l set by the authorities.

The average price of gasoline in June represented a 1.2% y/y increase. Yobe State had the highest price for PMS at N168/l while Abuja, Edo, Ogun, and Osun each recorded the lowest with N145/l.

The June inflation report shows that for the core sub-index, the highest price increases y/y were recorded in liquid fuels (PMS inclusive).

According to the NBS, last year 18.8bn litres of petroleum estimated at N2.01trn were imported.

Furthermore, based on CBN data, the oil sector accounted for 34% of fx utilisation in 2016; we assume refined petroleum products contributed heavily to imports recorded in the oil sector.

Local refining is the solution to reliable and competitively-priced petroleum supply. However, Nigeria’s current refining capacity utilisation is c.23%.

The FGN has provided about 30 refinery licenses to private investors. However, access to finance to develop the refineries is a major challenge. Based on industry sources, the cost of constructing a 20,000 bpd modular refinery is estimated at US$250m.

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