Crude Oil Hits $93.55: How NNPC Keeps Fuel Price Stable Amid Falling Naira

Nigeria is facing a challenging situation as the price of crude oil, the main source of its foreign exchange, has increased significantly in the international market.

On Monday, the product sold at $93.55 per barrel, which is almost double the price it was a year ago. This would normally lead to a higher cost of importing petrol, the most widely used fuel in the country.

However, the Nigerian government has assured its citizens that there will be no further increase in the pump price of petrol, which is currently N617 per litre.

This is despite the fact that the Naira, the local currency, has depreciated sharply against the US dollar, exchanging at N980/$1 on Monday at the parallel market. This means that the cost of importing petrol in Naira terms has risen significantly.

How is this possible? The answer lies in the peculiar nature of Nigeria’s fuel market, where the Nigerian National Petroleum Corporation Limited (NNPC) is the sole importer and supplier of petrol nationwide.

The NNPC is a state-owned company that operates both upstream and downstream activities in the oil and gas sector. It also receives a monthly allocation of crude oil from the government, which it sells in the international market and uses part of the proceeds to import petrol for domestic consumption.

The NNPC has been able to maintain the current pump price of petrol by absorbing the extra cost of importing petrol due to the rising crude oil price and the falling Naira value.

This means that the NNPC is effectively subsidizing petrol for Nigerians, even though the government officially removed fuel subsidy in June 2023. Since then, the pump price of petrol has been increased twice, from N175 per litre to N546.83 per litre in June, and then to N617 per litre in July.

The NNPC has not disclosed how much it is spending on subsidizing petrol, but some analysts have estimated that it could be as high as N200 billion per month.

This is a huge burden on the NNPC’s finances, which are already strained by its operational inefficiencies, debts, and corruption allegations. The NNPC’s subsidy spending also reduces its contribution to the government’s revenue, which is needed to fund other critical sectors such as health, education, and infrastructure.

The NNPC’s subsidy spending is also unsustainable in the long run, as it exposes the country to external shocks such as fluctuations in crude oil price and exchange rate. If the crude oil price falls or the Naira appreciates, the NNPC could lose money by selling petrol at a lower price than its import cost. If the crude oil price rises or the Naira depreciates further, the NNPC could run out of funds to import enough petrol to meet domestic demand. Either scenario could lead to fuel scarcity, inflation, and social unrest.

Therefore, experts have advised that Nigeria should adopt a more market-based approach to determine the pump price of petrol, which would reflect the true cost of importing and distributing the product. This would also encourage competition and efficiency in the fuel market, as well as attract private investors who have been reluctant to import petrol due to uncertainty over pricing and regulation.

However, such a move would also entail a significant increase in the pump price of petrol, which could have negative impacts on consumers and businesses who rely on petrol for transportation, power generation, and other activities. To mitigate these impacts, experts have suggested that Nigeria should diversify its energy sources and promote alternative fuels such as Compressed Natural Gas (CNG), which is cheaper and cleaner than petrol.

The government has already initiated some steps to implement CNG as a viable alternative to petrol. For instance, it has launched a National Gas Expansion Programme (NGEP), which aims to convert one million vehicles from petrol to CNG by 2024. It has also partnered with some stakeholders such as IPMAN and MOMAN to install CNG facilities at their fuel stations across the country.

However, these efforts need to be accelerated and expanded to reach more Nigerians who are still dependent on petrol for their energy needs. The government also needs to provide incentives and awareness campaigns to encourage Nigerians to switch from petrol to CNG.

Moreover, the government needs to address other challenges such as inadequate gas infrastructure, regulatory bottlenecks, and security risks that could hamper the development of CNG in Nigeria.

Nigeria has a unique opportunity to leverage its abundant natural gas resources to reduce its dependence on imported petrol and improve its energy security.

However, this requires a holistic and strategic approach that balances the interests of all stakeholders involved in the fuel market. Only then can Nigeria achieve a stable and sustainable fuel price that benefits both producers and consumers.

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