An Insider’s Perspective of Trends in Downstream Of Nigerian Oil Market
… falling prices are a direct consequence of competition enabled by the deregulation or liberalisation of the downstream
Prices of gasoline have continued to fall and may soon go below N800. The big question is why? Many suggestions are being made as to the reason behind this phenomenon. Some suggest it is purely local refining capacity. Others suggest it’s the Crude for Naira initiative. Whatever the cause, it is definitely welcome relief to consumers and will simultaneously help to ease the inflationary pressures in the economy.
The overriding factor from my perspective is that the falling prices are a direct consequence of competition enabled by the deregulation or liberalisation of the Downstream. We had often made this point in arguing in favour of this policy. Unfortunately, many stakeholders, including labour, pushed back, allowing the country to almost go bankrupt before the policy was finally implemented. We should, however, note that prices can also go up in this deregulated environment.
The only way to ensure that prices remain at their lowest possible level is to ensure very robust competition in the industry. This means in particular that no single entity should dominate the supply to the country.
Today local refineries would prefer that there are no imports. To achieve that goal, they must continuously keep their prices low. The minute you remove that counterbalance, there will be no incentive to keep prices as low as possible.
My own take is that prices are being forced down because imports are still being allowed. The authorities should continue to monitor to ensure that only quality products are being imported and, at the same time, ensure that there is a balance between total consumption in the country, local production, and imports.
Ultimately, local refining of our crude is good for us. However, there must be an incentive for local refiners to keep their prices at the barest profitable minimum through limited and controlled imports. Local refineries also always have the option of exporting excess production to earn dollar
