Petrol battlefield: Dangote, importers locked in brutal price war
Nigeria's downstream petroleum sector has plunged into what industry stakeholders refer to as a full-scale price war, following the decision made by the Dangote Petroleum Refinery to reduce the gantry price of Premium Motor Spirit (petrol).
This action has resulted in significant financial losses for fuel importers, depot owners, and retail marketers, even as the refinery itself acknowledges its own financial struggles.
Research indicates that petrol importers are on the brink of incurring losses amounting to N102.48 billion monthly after the Dangote refinery lowered its gantry price from N828 per litre to N699.
Simultaneously, the refinery is anticipated to face a loss of approximately N91 billion in a month as a direct result of the price reduction, highlighting the fierce competition currently transforming Nigeria's downstream oil market.
While many Nigerians have embraced the price cut as a significant relief, particularly during the Yuletide season, fuel marketers operating filling stations nationwide report substantial losses, as they will be compelled to sell existing inventories acquired at higher prices below cost.
This situation has revealed profound divisions within the deregulated petroleum market, with both winners and losers emerging almost concurrently.
The Dangote refinery announced a reduction of N129 per litre in the petrol gantry price on Friday, decreasing the ex-depot rate from N828 to N699 per litre.
This announcement came just days after the refinery reassured Nigerians of adequate fuel supply to prevent queues at filling stations during the festive season. The company also introduced a 10-day credit facility for marketers, stating that the new pricing structure would take effect from December 12.
During a press conference on Sunday, Aliko Dangote, President of the Dangote Group, pledged to enforce the new pricing structure, asserting that filling stations must sell petrol at N739 per litre nationwide starting today (Tuesday). He revealed that MRS filling stations would commence implementation immediately, with other partner stations expected to follow suit.
Depots have reduced their prices.
In order to stay competitive, importers and private depot owners have been forced to lower their prices to match the rates set by Dangote refinery, resulting in significant losses throughout the supply chain.
Market analyses conducted with data from Petroleumprice.ng indicated that private petroleum depots in Lagos had decreased PMS prices by approximately 14 percent shortly after Dangote’s announcement.
Numerous major depots in Lagos were observed selling PMS at N710 per litre, a decrease from an average of N828 per litre just a week prior. Marketers associated with Dangote were offering PMS at around N703 per litre, compelling nearby depots to adjust their prices to prevent poor sales and excess inventory.
At MENJ private depots, the price of PMS fell from N828 per litre on December 8 to N710 per litre on December 15, which signifies a reduction of N118. Integrated and Bovas depots also lowered PMS prices from N826 per litre to N710, reflecting a N116 decrease. A.A. Rano Depot experienced the most significant cut, with prices dropping from N829 to N710 per litre, resulting in a N119 reduction.
At Dangote Depot, PMS was priced at N702.5 per litre, while Automotive Gas Oil was sold at N916 and Liquefied Petroleum Gas at N815 per litre. Pinnacle Depot provided PMS at N710 per litre and AGO at N941.
Menu and Bovas depots adjusted their PMS prices to N710 per litre, whereas Matrix Depot sold PMS at N800 per litre. Rainoil had PMS priced at N803 per litre, with other depots primarily concentrating on AGO and LPG supplies.
In the AGO market, NIPCO sold at N930 per litre, Duport at N944, Ibachem at N930, while African Terminal and Gulf Treasure depots sold at N944 per litre. Bono Depot recorded the highest AGO price at N945 per litre.
In summary, the price adjustments represented an average reduction of 14 percent across Lagos depots, primarily driven by competitive pressures from the aggressive pricing strategies of Dangote refinery.
The losses.
According to data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigeria consumes an average of 50 million litres of petrol daily, translating to about 1.5 billion litres monthly.
The data showed that the Dangote refinery supplies about 23.52 million litres per day, equivalent to 705.6 million litres monthly, while fuel importers supply the remaining 26.48 million litres daily, amounting to 794.4 million litres monthly.
A report from the Major Energies Marketers Association of Nigeria revealed that as of December 12, the landing cost of petrol was N828 per litre. This indicates that the ex-depot prices for importers were approximately N129 higher than the price set by Dangote. Analysts suggest that market pressures may compel depot owners to align their petrol prices with Dangote's, potentially leading to losses of around N129 for every litre sold.
According to consumption statistics, this could result in daily losses of approximately N3.41 billion and monthly losses of N102.48 billion for importers. Furthermore, if the 705.6 million litres supplied monthly by the Dangote refinery is multiplied by the N129 decrease, it implies that the refinery could incur losses of up to N91.02 billion within a month.
Chinedu Ukadike, the spokesperson for the Independent Petroleum Marketers Association of Nigeria, expressed serious concerns for fuel importers, especially those whose shipments are still en route.
"For importers, I wish them good luck because many who have brought in petrol and whose shipments are still on the waterways have yet to be discharged. I am uncertain how they will navigate this situation. However, I wish them well and would also suggest they consider high blood pressure medication," Ukadike remarked.
Ukadike further noted that filling stations might face losses exceeding N80 billion, as they would be forced to sell their current inventory at a loss once cheaper products enter the market. While he praised Dangote for reducing petrol prices and congratulated Nigerians for benefiting from local refining and deregulation, he mentioned that marketers have started to tally their losses.
"This is a positive development. We marketers have long anticipated that with the stabilization of crude prices and the exchange rate, we should also see significant benefits from the Dangote refinery, the largest producer of petroleum products in Nigeria, and this has indeed materialized," he stated.
A report from the Major Energies Marketers Association of Nigeria revealed that as of December 12, the landing cost of petrol was N828 per litre. This indicates that the ex-depot prices for importers were approximately N129 higher than the price set by Dangote. Analysts suggest that market pressures may compel depot owners to align their petrol prices with Dangote's, potentially leading to losses of around N129 for every litre sold.
According to consumption statistics, this could result in daily losses of approximately N3.41 billion and monthly losses of N102.48 billion for importers. Furthermore, if the 705.6 million litres supplied monthly by the Dangote refinery is multiplied by the N129 reduction, it implies that the refinery could incur losses of up to N91.02 billion within a month.
Chinedu Ukadike, the spokesman for the Independent Petroleum Marketers Association of Nigeria, painted a bleak scenario for fuel importers, especially those whose shipments are still en route.
"For importers, I wish them good luck because many who have brought in petrol and whose shipments are still on the waterways have yet to be discharged. I am uncertain how they will navigate this situation. However, I extend my best wishes to them and would also suggest high blood pressure medication for their peace of mind," Ukadike remarked.
Ukadike further noted that filling stations might face losses exceeding N80 billion, as they would be forced to sell their current stock at a loss once cheaper products enter the market. While he praised Dangote for reducing petrol prices and congratulated Nigerians for benefiting from local refining and deregulation, he mentioned that marketers have started to tally their losses.
"This is a positive development. We marketers have been anticipating this change, as crude prices and the exchange rate stabilize, allowing us to benefit significantly from the Dangote refinery, the largest producer of petroleum products in Nigeria, and it has indeed come to fruition," he stated.
On the downside, Ukadike said marketers who bought petrol at about N828 per litre would “continue to lick our wounds” as soon as the new product starts circulating in the market.
“Marketers will lose over N80bn on this reduction. We will lose more than N80bn. And now that this reduction is there, you will see that the pump price will start dropping gradually from N900 towards N750 per litre,” he said, adding that consumers would naturally flock to stations selling cheaper fuel.
Ukadike urged Dangote refinery to contemplate compensating marketers who purchased petrol at the previous rate, proposing discounts on future acquisitions as a means to alleviate losses.
Dangote, on the other hand, maintained that the refinery was also incurring significant losses each time it lowered prices. During the briefing on Sunday, he revealed that the
