West African countries are intensifying efforts to establish a regional benchmark for petroleum products as increased refining capacity, particularly from Nigeria’s Dangote Refinery, begins to transform the region’s fuel market.
For decades, West Africa has exported crude oil while relying heavily on imported refined petroleum products, with fuel prices largely influenced by international trading centres outside the continent.
The growing output of the 650,000-barrel-per-day Dangote Refinery is now changing that pattern and strengthening calls for West Africa to develop a pricing system based on transactions within the region.
Speaking at the West Africa Refined Fuel Market Conference in Abuja on Tuesday, Olu Verheijen, Special Adviser on Energy to President Bola Tinubu, said locally refined products should ultimately be valued within the region.
“Our ambition should be that a product refined in West Africa should not have to leave West Africa before the market can credibly determine its value,” Verheijen said.
She, however, noted that creating a reliable regional benchmark would require actual market transactions, accurate data, adequate liquidity and confidence in the institutions responsible for the pricing system.
Dangote Refinery Drives Market Changes
The expansion of Dangote Refinery has made the ambition more achievable by increasing the volume of refined petroleum products available within West Africa.
Data from S&P Global Commodities at Sea showed that West Africa’s clean petroleum product imports dropped to approximately 765,000 barrels per day in May, from 997,000 bpd in April.
The decline of about 23 per cent was partly attributed to increased production from the Dangote refinery.
The refinery has supplied petroleum products to markets across West Africa while also exporting fuel to Europe and other international destinations. Its output has therefore helped reduce the region’s longstanding dependence on imported refined products.
However, increased production alone will not automatically create a functioning regional benchmark.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority, in its roadmap presented at the conference, stressed the need for a deeper physical and commercial market.
“A reference price is not by itself a trading hub. A conference is not a market,” the NMDPRA said.
The regulator said adequate infrastructure, commercial liquidity and reliable market information would be crucial to developing a sustainable trading hub.
Infrastructure Remains A Major Challenge
West Africa still needs significant investment in infrastructure to support the movement and trading of petroleum products across borders.
According to the NMDPRA, the region requires improved pipelines, storage facilities, jetties, ports, rail lines, road networks and marine transportation systems.
Meanwhile, S&P Global’s Platts has begun developing pricing assessments for West African fuels aimed at reflecting market conditions within the region.
For such assessments to become widely accepted benchmarks, however, the market will need sufficient trading activity and participation from buyers and sellers.
Historically, limited refining capacity forced West Africa to depend not only on imported fuel but also on external markets for pricing signals.
The Dangote refinery has not eliminated that dependence, but its growing production has increased the volume of fuel being produced, traded and transported within Africa.
Nigerian authorities believe that as infrastructure, transparency and market liquidity improve, a regional benchmark can emerge naturally from trading activity.
The NMDPRA said, “the market itself will produce the benchmark.”
