WHY THE DANGOTE REFINERY WON'T SOLVE NIGERIA’S FUEL PRICE CHALLENGES

When the Dangote Refinery, Africa’s crown jewel and the world’s largest single-train refinery, was unveiled, it was hailed as Nigeria’s knight in shining armour, ready to end our dependence on imported fuel and curb the soaring prices. Finally, we thought we had found a homegrown solution to our age-old problems! But fast forward to today, and the story hasn’t quite turned out as expected. Instead of cheaper fuel, Nigerians are facing higher prices at the pump, leading many to question if the refinery is refining dreams instead of oil.

We were promised relief, but it seems the refinery is still warming up, and the much-needed price stabilisation is somewhere lost in translation—or perhaps still stuck in traffic on Lagos roads. Sure, there’s hope that once the refinery gets going, along with a sprinkle of policy magic and a dash of infrastructure upgrades, things might turn around. But for now, the reality check at the gas station is all too real: higher prices and plenty of questions. So, while we wait for this grand promise to materialise, Nigerians keep feeling the pinch—because, apparently, refineries don’t run on hopes and headlines alone.

In this piece, I will explain why the refinery will not solve the petroleum price challenge in Nigeria, at least not for now.

LIMITED REFINERY OPERATIONS AND CAPACITY RAMP-UP ISSUES

Despite its highly anticipated launch, the Dangote Refinery is still in the initial phase of scaling up to full operational capacity, significantly contributing to Nigeria's high petroleum prices. As the refinery is not yet running at full strength, it is not sufficiently supplying the domestic market, forcing Nigeria to rely heavily on imported refined products. This dependency on imports, combined with the refinery's slower-than-expected ramp-up to optimum production levels, has delayed the anticipated reduction in fuel prices. Instead of alleviating supply pressures, the refinery's gradual start-up has maintained the status quo, keeping prices high as domestic production is not yet meeting demand. It will take optimum conditions for Nigerians to begin to see the impact of the refinery on petroleum prices. Even under perfect conditions, it’ll still take years to feel any change at the pump—assuming that “perfect conditions” are even in Nigeria’s vocabulary. Until then, brace yourselves: it’s a long road ahead, with plenty of pit stops at overpriced petrol stations.?

HIGH PRODUCTION COSTS AND GLOBAL MARKET DYNAMICS

Refining crude oil is capital-intensive, and the costs associated with the Dangote Refinery are significant. Operational costs, coupled with the global oil market dynamics, directly impact the price of refined products. The refinery’s pricing strategy aligns with global crude oil prices, which have been volatile due to various international factors, including geopolitical tensions, supply chain disruptions, and OPEC+ production adjustments. As a result, the prices of petroleum products produced by the refinery are influenced by these global market conditions, contributing to higher domestic prices. So, while we might have a shiny new refinery, its pricing strategy is still married to the whims of the global oil stage, making domestic relief feel like a far-off fantasy.

FOREIGN EXCHANGE AND IMPORT PARITY PRICING

Even though the Dangote Refinery is in Nigeria, it operates under the import parity pricing model. This means that the pricing of its refined products is benchmarked against the prices of imported fuel. The refinery sells its output in U.S. dollars, reflecting the global crude oil pricing standard. Now, throw in Nigeria’s perpetual foreign exchange crisis and a naira that seems to be in a long-distance relationship with stability, and you’ve got a recipe for sky-high local prices. When dollars become expensive, so does everything tied to them—including our “homegrown” fuel. So, in a twist of economic fate, the refinery’s products end up costing just as much as imports, leaving Nigerian consumers to wonder: Is it really domestic if we’re still paying international prices?

GOVERNMENT POLICY SHIFTS AND DEREGULATION IMPACT

Nigeria’s recent policy shifts towards deregulating the downstream oil sector have also played a crucial role. The removal of fuel subsidies, aimed at reducing the government’s fiscal burden, has increased fuel prices. While the intention was to allow market forces to dictate pricing, the reality has been that prices have risen without significant local refining capacity to influence the market. The Dangote Refinery, operating as a private entity, does not provide subsidised products, and without subsidies, the cost is passed (every cent of it) directly to consumers. So, while deregulation was supposed to let market forces work their magic, without robust local capacity, it’s mostly been magic tricks of the disappearing kind—especially for your wallet.

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LOGISTICS, DISTRIBUTION CHALLENGES, AND INFRASTRUCTURAL DEFICIENCIES

Despite being located within Nigeria, the costs of distributing refined products remain high due to the country’s inadequate infrastructure. Even with the Dangote Refinery right in our backyard, getting fuel from the refinery to the pump feels like navigating a maze with no exits. Nigeria’s crumbling infrastructure—potholed roads that double as obstacle courses, a patchy pipeline network that seems more decorative than functional, and logistics that run at the speed of a sluggish snail—turn what should be a simple task into a costly expedition. These transportation headaches don’t come cheap, and every bump in the road (literally) gets added to the final price of fuel. By the time the product reaches the consumer, it’s not just fuel we’re paying for—it’s the cost of navigating Nigeria’s infrastructural nightmare. So, while the refinery might be close, the price tag reflects a journey that’s anything but smooth or cheap.

EXPECTATIONS VS. REALITY: THE SLOW IMPACT ON DOMESTIC SUPPLY

There were high expectations that the Dangote Refinery would immediately flood the market with cheaper petroleum products, but refinery economics aren’t as simple as flipping a switch; they’re tangled up in global market dynamics, hefty operational costs, and timelines that don’t care about our impatience. Instead of instant savings, we’re on a slow, steady march towards full capacity—and until we get there, plus some backup from other local refining efforts, the chasm between our sky-high expectations and the pricey reality will continue to widen. So, for now, cheaper fuel remains just another wish on Nigeria’s never-ending waitlist.

ANY SOLUTIONS?

So, what’s the magic fix, you may ask? Well, if you’re expecting a quick answer, here’s the twist: there isn’t one. Solving Nigeria’s fuel price fiasco is like putting together a jigsaw puzzle with missing pieces. We’ll need a bit of everything—better infrastructure that doesn’t feel like driving through a war zone, policies that actually support progress instead of lip service, and more local refineries that do more than make headlines. Oh, and let’s not forget the hardest part: managing our sky-high expectations and coming to terms with the fact that economic reality doesn’t bend to wishful thinking. In other words, it’s not just about building a big refinery—it’s about fixing the whole system that’s been leaking for decades.

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Written by Dr. Austin Okeke,

A UK-based lecturer in Management and Sustainability whose research is at the crossroads of supply chain management and sustainability, particularly in emerging economies' oil and gas industry. When he’s not busy lecturing or dissecting the world’s fuel challenges, he’s researching why pipelines leak more dreams than oil.