Nigeria : ‘Local refiners may be tempted by import parity prices to focus on export’
- 07 April 2022 / News / 58 / Fares RAHAHLIA
Except local refiners put patriotism above profit, it might be difficult to focus more on the domestic market in selling refined fuel, considering that they can make more in a competitive market, especially when exposed to import parity prices.
This was the view of some stakeholders at a virtual workshop organised by Major Oil Marketers Association of Nigeria (MOMAN) in Lagos, recently.
According to him, the local producers have the choice to sell in the domestic market or import.
Import parity is a price-setting mechanism for a commodity in which the price is set based on the cost of importing the commodity into a location
He said West Africa relies on imported products due to lack of sufficient regional refining capacity and that European surplus of petrol finds a natural home in Nigeria.
“In a global market, product flows are directed by price. Nigeria is competing with other destinations for products. Even if Nigeria had sufficient refining capacity, it would still be in a competitive market and exposed to import parity prices” he stressed.
Speaking on deregulation, Gooder said that regulated Premium Motor Spirit, PMS, petrol prices are out of step with market reality and that capped retail prices for PMS may be popular, or even expected, among those that can afford to own a car.
However, he said that current delivered prices for PMS are around three times as high as the pump price and there is an unfortunate but clear incentive to smuggle subsidized fuel out of Nigeria to neighbouring countries where retail prices are higher.
According to him, “The market is in an unusual state of turmoil and uncertainty. Fuel prices are high everywhere. Nigeria is an integral part of the world market and thus exposed to the same trends.
He noted that the Russia-Ukraine conflict has supercharged existing upward market momentum, adding that recovering global demand and constrained Organisation of Petroleum Exporting Countries, OPEC + output, low stocks and high refining costs have all played a part.
“But Russia is one of the three largest oil producers along with the US and Saudi Arabia.
Market unwillingness to buy Russia oil in the spot market means there is greater competition for alternatives hence higher prices.
“Diesel is driving the oil complex. Russia is a major exporter of diesel as well as crude.” he explained.
According to him, crude is expensive but diesel is at a strong premium and prices are highly volatile and unpredictable.
Chairman of MOMAN, Olumide Adeosun, lamented that the current N6.19 retail margin for marketers was hampering investments for oil marketers operating in the downstream sector.
He said total distribution margin under the current petrol pricing template accounts for 11.5 per cent of the petrol pump price despite significant increase in costs, saying operators are struggling along the supply chain to get petrol out of the nuzzles into the cars which is difficult to sustain.
“The backbone of distribution is based on diesel, from transport (vessels and trucks) to energy costs (depots and stations). This affects not just petrol distribution but also the distribution of aviation fuel”.
Head, Economic Intelligence Research and Regulation for MOMAN, Ogechi Nkwoji reiterated that margins are designed to help operators cover the cost of investment and expenses but noted that the reality is far from the ideal, as many operators are barely surviving on the approved margins from the government.
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