Nigeria triples gasoline prices as new president scraps subsidy

Nigeria's state-owned oil company tripled the price of gasoline on May 31, sparking panic buying in major cities days after new president Bola Tinubu announced the West African country's longstanding fuel subsidy would be scrapped.

The Nigerian National Petroleum Company raised the cost of gasoline at the pump to Naira 488 per liter ($1.05), up from Naira 184/l, in Lagos, the commercial capital. In the capital Abuja, gasoline skyrocketed to Naira 537/l from Naira 194/l, according to reports.

The increase in prices followed long queues at fuel stations in Africa's largest oil producer after President Tinubu, who was sworn in on May 29, vowed to follow through on his promise to end the policy.

In a statement, the NNPC said petrol prices were being adjusted "in line with the current market realities" and warned of further instability ahead.

"It is pertinent to note that prices will continue to fluctuate to reflect market dynamics," the NNPC said.

Previous successive governments have vowed to ditch the fuel subsidy, which costs the government an estimated $10 billion a year. The NNPC said May 30 it was owed $6.1 billion in outstanding subsidy payments by the central government.

Critics say the subsidy has burned a hole in public finances without properly helping the poor. Meanwhile, with 96% of Nigerian government revenue being used to service debt, the government has little fiscal wiggle room to maintain the subsidy.

Nevertheless, the last time a Nigerian government attempted to remove the subsidy -- in 2012 under former president Goodluck Jonathan -- millions took to the streets across Nigeria.

Nigeria imports enough gasoline to meet estimated demand of 50 million-60 million liters/day, due to the poor state its refineries, all of which are shut for repairs. Experts say import-related fees add 15%-20% to the cost of petroleum products in Nigeria. Most of Nigeria's freight is moved by road, meaning gasoline price rises have a direct impact on prices of commodities.

Landmark refinery

The expensive subsidy has long served as a reminder of Nigeria's lack of refining capacity. The OEPC member pumps around 1.3 million b/d of crude but exports almost all of it, relying on imports of refined products from Europe. Those imports put a strain on the country's foreign exchange reserves and currency, which has fluctuated wildly in recent years.

Platts, part of S&P Global Commodity Insights, assessed Bonny Light, Nigeria's flagship crude grade, at a 50-cent discount per barrel to Dated Brent on May 30.

Last week, outgoing president Muhammadu Buhari commissioned the Dangote refinery on the outskirts of Lagos, the world's largest single-train refinery built by Africa's richest man, which could make Nigeria self-sufficient in fuels.

The refinery plans to launch this year with a capacity of 500,000 b/d and ramp up to 650,000 b/d inn 2024, but analysts have questioned the speed of the project, which has faced years of delays and cost overruns. It will produce Euro-V quality gasoline and diesel, as well as jet fuel and polypropylene.

The refinery "will enable our country to achieve self sufficiency in refined products and even have some surplus for export," Buhari said at the commissioning. "This clearly makes this event a notable milestone for our economy and a game changer for the downstream petroleum products market not only in Nigeria but the entire African continent."