The political economy of petroleum products and competitive pricing in Nigeria

Can Nigeria become a competitive producer and supplier of petroleum products for both domestic and international markets? This question has become increasingly urgent as the country grapples with persistent pricing uncertainties and structural flaws in its energy sector. For Nigeria to harness its full potential in the global hydrocarbon industry, policymakers and energy experts must address the misalignment that continues to undermine growth and stability.

A major challenge lies in Nigeria’s upstream hydrocarbon exploration and production sector, where investment has been inconsistent and poorly managed. The limited funds that have flowed into the sector have often been mismanaged by the state-owned Nigerian National Petroleum Company (NNPC) Limited. Meanwhile, Nigeria’s longstanding upstream joint venture (JV) agreements have become outdated and unattractive to international oil companies, many of which have chosen to exit these arrangements. This structural misalignment has hampered crude oil and natural gas production, affecting both domestic supply and export volumes.

Compounding this challenge is the delay in reforming Nigeria’s petroleum laws. The Nigerian Petroleum Act (1969) remained largely unchanged for decades, and while the Petroleum Industry Act (PIA) of 2021 sought to address this, its implementation has been mired in political interference. Key issues such as the abolition of the petroleum equalisation fund and the long-standing subsidy regime remain unresolved. These uncertainties persist partly because there are no reliable records of petroleum product volumes from NNPC and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). As a result, policymakers have struggled to develop a transparent, data-driven approach to managing supply and pricing.

Unresolved subsidy claims and equalisation fund entitlements continue to weigh heavily on the national treasury. While these issues are largely domestic and political, they have significantly impaired Nigeria’s investment environment. President Bola Tinubu’s decision to end the fuel subsidy was a bold and necessary move, but years of delay in implementing reforms have left Nigeria trailing behind global industry advancements.

Today, Nigeria faces a critical challenge: balancing domestic energy demands with export commitments. Crude oil production has fallen to an average of 1.6 million barrels per day (bpd), barely meeting the country’s OPEC allocation. This shortfall has made it difficult to supply local refineries with sufficient crude oil and natural gas, further stalling production at facilities such as the Nigeria LNG plant.

Transparency deficits in hydrocarbon accounting, environmental assessments, and community engagement frameworks have also contributed to Nigeria’s energy woes. NNPC’s neglected assets — including oil blocks, refineries, pipelines, and storage depots — have deteriorated, compounding the country’s reliance on imported petroleum products for over two decades. This dependence has distorted Nigeria’s competitive advantage in petroleum pricing.

Despite these challenges, local investors have recognised opportunities within Nigeria’s upstream and midstream sectors. The Dangote Refinery and Petrochemical Complex in Lagos stands out as a major development, alongside notable players such as Seplat, Aradel, Conoil, Aiteo, Waltersmith, Heritage Oil, First E&P, Sahara Energy, and Green Energy. However, these investors have faced significant losses due to bureaucratic bottlenecks and weak regulatory oversight.

The launch of the 650,000 bpd Dangote Refinery has disrupted Nigeria’s long-standing reliance on PMS imports. Yet smaller refineries in Rivers, Imo, and Delta states have struggled to produce enough petroleum products to meet national demand. Meanwhile, the government-owned refineries in Warri, Port Harcourt, and Kaduna have remained largely inactive despite costly rehabilitation efforts. While the recently reopened 60,000 bpd Port Harcourt refinery was celebrated with much fanfare, concerns persist over whether it will ever achieve optimal productivity. The status of rehabilitation efforts at the 150,000 bpd Port Harcourt Refinery, 125,000 bpd Warri Refinery, and 110,000 bpd Kaduna Refinery remains unclear.

Nigeria’s declining crude oil output poses a significant threat to energy security. With an average production of 1.6 million bpd, there is barely enough crude to meet both local refinery needs and international supply agreements. The Federal Government’s recent approval of the “naira-for-crude” scheme, which aims to allocate 450,000 bpd to local refineries, is a step in the right direction. However, compliance with this directive remains fragile. Without sufficient domestic crude supply, the Dangote Refinery may be forced to source crude internationally and pay in US dollars. This would ultimately lead to PMS being priced in dollars, undermining the potential benefits of the naira-for-crude scheme.

Such an outcome could worsen Nigeria’s economic challenges, with potential consequences for the naira’s stability — a situation reminiscent of Kenya’s recent currency crisis. To avoid this, the Federal Government must engage with the Dangote Group and other local refiners to establish a clear supply transition timetable. Critical incentives must be provided to ensure sustained production, and both parties must uphold their commitments.

Nigeria’s energy security depends on aligning domestic production with consumer demand while maintaining favourable export conditions. Ongoing tensions between the Dangote Refinery, NNPC, and petroleum importers reflect a fragile cooperation that, if left unresolved, could deter future investment. Price competition is healthy in a robust supply environment, but allowing low-quality PMS imports to undermine local refiners risks damaging the sector’s growth.

The Dangote Refinery, operating at full capacity, has the potential to meet Nigeria’s entire petroleum product demand with surplus for export. However, unless crude oil supply to local refineries is stabilised, Nigerians may fail to benefit from the competitive pricing Dangote’s scale promises.

Resolving these structural issues requires urgency. Nigeria’s energy sector cannot thrive without clear policies, accountable institutions, and a coordinated effort to support local refiners. Only then can Nigeria secure competitive pricing for petroleum products and protect consumers from prolonged economic hardship.

Dan D. Kunle writes from Abuja, Nigeria.