By Dan D. Kunle
For more than five decades, Nigerians have lived through one petroleum pricing policy after another. Since 1973, successive governments have attempted to moderate or control the pricing mechanism for petroleum products. This gave birth to the Petroleum Equalisation Fund (PEF), established to ensure uniform fuel prices across the country. Today, under the Petroleum Industry Act (PIA), its responsibilities have been absorbed into the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
Despite these interventions, the cost of fuel subsidies eventually climbed to the height of Mount Everest, consuming trillions of Naira and placing enormous pressure on government finances. Nigerians carried the burden while the intended benefits became increasingly difficult to sustain.
Following the removal of fuel subsidies and the deregulation of the downstream petroleum sector, many Nigerians expected petrol prices to fall rapidly. That expectation is understandable. However, petroleum pricing is far more complex than many people imagine.
In a deregulated market, prices are expected to be driven by demand and supply—not by government decree. Regulatory authorities understand this reality. Their responsibility is to provide oversight, ensure quality standards, encourage competition, and maintain market stability. They cannot simply decree lower prices without distorting the market and discouraging investment.
Recent geopolitical events clearly demonstrate how vulnerable petroleum markets are to external shocks. The outbreak of hostilities involving Iran and the wider Arabian Gulf disrupted global hydrocarbon supply chains. Such conflicts inevitably increased uncertainty, freight costs, insurance premiums, and crude oil prices. Nigeria, despite being an oil-producing nation, could not escape these global realities.
This explains why Nigerians witnessed petrol prices changing almost weekly. Crude oil—the principal raw material used to produce petrol—is rarely purchased on the spot market. Most refiners purchase crude under forward contracts several weeks or months before refining begins. Consequently, the petrol sold today often comes from crude purchased weeks earlier. Today’s pump price therefore reflects yesterday’s commercial decisions rather than today’s international oil price.
The petroleum pricing mechanism is therefore not a simple mathematical calculation. It includes crude acquisition costs, refinery processing margins, financing expenses, marine freight, insurance, storage, foreign exchange fluctuations, inland distribution, taxes, retail margins, and regulatory compliance. Every stage contributes to the final pump price.
Nigeria’s challenge extends far beyond pricing.
The objective of this article is to demonstrate that petroleum pricing mechanisms are significantly more complicated in developing economies than many assume. Without strong crude oil production, sufficient refining capacity, efficient logistics, reliable infrastructure, and genuine competition, petroleum products cannot simply become affordable because the public desires lower prices.
Nigeria possesses one of the world’s largest hydrocarbon reserves. Yet abundant reserves alone do not automatically translate into cheap fuel. Natural resources only create prosperity when they are efficiently produced, refined, transported, stored, and marketed.
Fuel importation alone cannot provide long-term price stability. Imported petroleum products remain exposed to international refinery margins, freight charges, insurance premiums, exchange-rate volatility, and geopolitical disruptions. Every litre imported into Nigeria carries international market risks before arriving at the filling station.
This is why expectations that petrol prices should immediately decline after deregulation—or after temporary reductions in crude oil prices—are understandable but unrealistic. Petroleum markets simply do not function that way.
The regulatory authorities are fully aware of these realities. Their influence over international crude prices, refinery economics, shipping costs, foreign exchange, and the commercial decisions of marketers is limited. Their role is to regulate the market—not to replace it.
## *Dangote Refinery Has Changed the Conversation*
As it stands today, *Dangote Refinery and Petrochemicals* has given Nigerians renewed hope for sustainable fuel supply and relatively stable petroleum prices. The emergence of a world-class domestic refinery demonstrates that local refining is not merely an industrial ambition—it is a strategic national asset capable of reducing import dependence, improving energy security, and stabilising the downstream market.
Equally important is another issue that receives very little public attention.
Up till this moment, the Federal Government of Nigeria has no meaningful national strategic petroleum reserve capable of protecting the country against unforeseen emergencies, supply disruptions, geopolitical conflicts, or sudden market shortages. Most major oil-consuming nations maintain strategic reserves as part of their national energy security policy. Nigeria does not yet have such a robust national system.
In practice, Dangote Refinery is already carrying much of that responsibility. The refinery reportedly maintains approximately *500 million litres of petroleum products* in storage, providing an emergency buffer for the Nigerian market. Maintaining inventories of this magnitude comes at an enormous cost. Financing, storage, insurance, product management, security, quality preservation, and the opportunity cost of tied-up capital represent billions of Naira in commercial exposure.
This demonstrates that domestic refining should not be viewed merely as a private commercial enterprise. It performs a strategic national security function. A refinery maintaining emergency stock for an entire nation is providing an essential public service that deserves recognition and supportive government policy.
## *Nigeria Must Learn from Other Sectors*
Nigeria can also draw lessons from other sectors of the economy.
Rice importation was encouraged with the expectation that Nigerians would enjoy cheaper food. Instead, many local farmers were discouraged from expanding production because imported rice flooded the market. Yet despite increased imports, rice prices have continued to rise. Importation alone did not deliver affordability.
The same reality exists in the pharmaceutical sector. Whether medicines are imported or locally manufactured, prices continue to respond to exchange rates, inflation, production costs, transportation expenses, and supply chain disruptions. No regulatory authority has been able to permanently suppress these market realities.
The lesson is straightforward.
Importation alone does not guarantee lower prices. On the contrary, excessive dependence on imports can weaken domestic production while leaving consumers equally exposed to international market forces.
*The Way Forward
My humble submission, therefore, is that the Federal Government should deliberately pursue policies that increase Nigeria’s crude oil production while simultaneously guaranteeing reliable crude oil supply to domestic refineries.
Consideration should also be given to a structured Domestic Crude Supply Obligation that allows Nigerian refineries to access crude oil at competitive and appropriately discounted terms. Such a framework would not represent a subsidy but a strategic investment in Nigeria’s energy security, industrial development, and economic competitiveness.
Supporting domestic refining would reduce dependence on imported petroleum products, lower transportation and logistics costs, conserve scarce foreign exchange, encourage additional investment in refining capacity, create thousands of skilled jobs, and ultimately translate into more competitive pump prices for Nigerian consumers.
Affordable petrol will not be achieved through sentiments, emotions, political declarations, or regulatory threats.
It will be achieved through increased crude oil production, secure oil infrastructure, efficient domestic refining, stable foreign exchange, modern logistics, strategic petroleum reserves, and genuine competition throughout the petroleum value chain.
Government can certainly intervene temporarily through subsidies or price controls. History, however, has repeatedly demonstrated that such measures eventually become fiscally unsustainable. Artificially fixing prices may provide temporary relief, but it ultimately discourages investment, reduces production incentives, and creates even greater economic distortions.
Nigeria has entered a new era. Deregulation has transferred petroleum pricing from government policy to market economics. The transition is undoubtedly painful, but understanding how petroleum markets actually function is essential if Nigeria is to build a sustainable energy future.
– Dan D. Kunle writes from Abuja.
