Many critics have focused on the negative impact of the removal of the subsidy regime on Nigerians alone. This is rightfully so as the hike in the price of petrol affected practically every commodity on the Nigerian market. The transport sector was hit first immediately after the policy was implemented. The price more than tripled and commercial drivers had no choice but to effect a corresponding increase in bus fares. In some parts of the country, these fares have more than doubled.
This caused a domino effect on the price of other goods. One could argue that the price of staple foods, for example, have increased because of the increase in the cost of transportation. Also, the factories producing, manufacturing and distributing these commodities largely run on generators, which have to be run with very expensive fuel. Even small and medium-scale businesses are not left out of this impact. Many have closed down due to the cost of electricity tariff and others due to the cost of fueling generators.
European refiners produce more petrol than they use.
Well, beyond the shores of Nigeria, the policy is affecting refineries on the European continent, threatening to squeeze them. The average monthly West African (WAF) gasoline imports fell by 56 percent in the second quarter (Q2) compared with the first, according to Refinitiv Eikon data. According to the data, benchmark profit margins for gasoline in northwestern Europe have so far hovered at around $27 per barrel. The top two destinations for petrol exports from there are North America and West Africa.
Reuters reported that the refiners produce more petrol than is used over there. This means that they refine crude majorly for export. The Reuters report stated that they have been supported by demand from North America, a shortage of high-quality blending materials, disruptions caused by low water levels inland and local refinery outages. But analysts have revealed that the reduction of flows following the upheaval in Nigeria will increase pressure on European refiners, and any winners are likely to be newer Middle Eastern refineries.
Nigeria petrol demand fell by 35% due to the policy.
A major part of President Bola Tinubu’s speech on May 29, 2023 when he was sworn in was the announcement that the petrol subsidy regime was over. As a result, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) said that petrol demand fell by 35 percent. According to Jeremy Parker of the CITAC Consultancy, which focuses on Africa’s downstream energy industry, the signal for decline in demand is that onshore petrol reserves in Nigeria have increased to 960,000 tonnes from an average of 613,000 tonnes between January and June 2023.
Also, the black market for smuggled subsidized Nigerian fuel in Togo as well as Benin and Cameroon has collapsed, further reducing demand for shipments via Nigeria. Reuters noted that there was no reliable data on how much fuel was smuggled out of Nigeria under the subsidy regime. However, comparing estimates from official and independent sources shows that more than a third of petrol could have left depots of the Nigerian National Petroleum Corporation (NNPC) every day to be sold illegally abroad. Thus, there is no financial incentive anymore for smuggling oil now that there is no subsidy on fuel.
Analysts say that demand may not fully recover.
It is because of Nigeria’s non-functional refineries that the largest crude oil producer in Africa relies heavily on imports. But it has also been proven repeatedly that imports are increasingly unaffordable. This is especially as Nigeria’s naira has weakened to record lows since the central bank removed currency restrictions in June 2023. In any case, analysts say that the demand for petrol may not fully recover in the country. Following Tinubu’s pronouncement on May 29, 2023, petrol consumption reduced by an average of about 18.5 million liters every day in June.