Petrol pump price cuts in Nigeria

According to Business Monitor International (BMI), the Nigerian government has reduced pump prices of petrol by 10 Naira per litre (N/l), from 971 N/l to 87 N/l. this is in line with BMI’s view that the strong decline in crude oil prices would see the government seize the opportunity to substantially reduce fuel subsidies in H115, while in parallel lowering regulated fuel prices in Nigeria, conserving political capital.

Nigeria subsidises gasoline and kerosene sales, with a regulated price set up by the Petroleum Products Pricing Regulatory Agency (PPPRA). The steep decline in international crude oil prices is translating into lower international refined fuel prices, which Nigeria imports in large quantities. Up until now however, the government had left its regulated prices unchanged. With international fuel prices falling close to the Nigerian regulated prices of petrol at 97.00 N/l, BMI has noted that the Nigerian government’s daily spending on fuel subsidies had nearly been erased, falling to 2.35 N/l by the end of December 2914, compared to 44.94 N/l early November 2014.

BMI forecasted that the government would be forced to lower its regulated prices for petrol in Nigeria in response to sustained public pressure, but not to the extent that would fully reflect the decline in the open market price for fuel. A 10.00 N/l decline in pump prices represents a 10.3% decrease. Meanwhile, the average for gasoline prices on the New York market declined from an estimated US$110.00/bbl in 2014 to approximately US$57.00/bbl as of late January 2015, a 48.0% decline.

With a new regulated price of 87 N/l, and given an estimated Expected Open Market of Premium Motor Spirit of 89.94 N/l, daily subsidy payments have fallen to approximately 2.84 N/l, compared to 44.94 N/l on 3 November 2014. Lower global fuels prices have allowed government to reduce its fuel subsidy burden, without implementing unpopular price hikes.

This move will have a positive effect on the government’s fiscal situation. Fuel subsidisation comes at a significant cost for the country. This is particularly true given that Nigeria depends on refined fuel imports for approximately two thirds of its domestic consumption, due to the poor state of its refining sector. Despite having a domestic refining sector with a capacity of 445 000 bpd, the country only refined approximately 100 000 bpd of fuels in 2013, resulting in a heft fuels import bill.

Based on an average 2013 daily consumption of 302 000 bpd (approximately 48 million l) and a new regulated fuel price of 87 N/l, BMI estimates that government daily expenditure on subsidies has been reduced to approximately N136 million in January 2015, compared to approximately N2.2 billion in November 2014. This could partly help make up for Nigeria’s loss from lower crude oil export revenues, as crude oil prices have been slashed in two over the second half of 2014.

Adapted from a report by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/petrochemicals/12022015/nigeria-petrol-price-cuts-241/