Understanding Landing Costs: Why Petroleum Prices Don’t Always Drop in Nigeria

Petroleum pricing in Nigeria has always been a subject of heated debate and public interest. While many people focus solely on international crude oil prices as a determinant of fuel costs, an equally important, yet often misunderstood factor, is the landing cost. 

This multi-layered process impacts the final price consumers pay at the pump.

In this blog, we’ll explore the concept of landing costs, why it’s crucial to understand petroleum pricing in Nigeria, and how it affects consumers and businesses alike. 

Drawing on insights shared by Mr Peace Iyeke, Managing Director of Pedohis Offshore Limited, we’ll also uncover this process and why global price drops don’t always mean cheaper fuel locally.

What Is the Landing Cost of Petroleum?

Landing cost refers to the total expenses incurred importing petroleum products into Nigeria. This includes the cost of purchasing the fuel from the international market, transportation across global waterways, and various fees and levies imposed at Nigerian ports.

As Mr. Iyeke pointed out:

“You need to understand that you may not get a proportionate decrease in pump price, not because it will reflect, but not as you want it to.”

Why? The answer lies in the multi-layered process petroleum products go through before being available to Nigerian consumers.

Breaking Down the Landing Cost

1. The International Market and Petroleum Pricing

Nigeria is heavily reliant on imported petroleum products due to insufficient refining capacity. As a result, global crude oil prices influence the initial cost. However, even when global prices drop, there are other factors at play.

For instance, international shipping rates and insurance premiums fluctuate based on geopolitical events, piracy risks, and global demand for oil tankers. A decline in crude oil prices could be offset by an increase in these logistical costs, affecting the overall landing cost.

2. Navigating Global Waterways

Transporting petroleum to Nigeria requires traversing multiple international waterways. Each route has its own set of fees, taxes, and regulations. As Mr. Iyeke explained:

“Whether you’re importing from Texas, Malta, or Qatar, there’s a market cap price, but you must pay fees to pass through international waterways.”

These costs add up, making the journey from the refinery to Nigerian shores an expensive one.

3. Unpacking the Fees and Levies at Nigerian Shores

When petroleum products arrive in Nigeria, the cost accumulation doesn’t end with international logistics. A series of regulatory charges and levies come into play, adding to the landing cost of petroleum. 

These fees are enforced by various agencies tasked with overseeing imports, safety standards, and energy distribution. While these processes are essential for maintaining order and quality in the energy sector, their cumulative effect drives up the final cost of fuel.

Multiple Agencies, Multiple Fees

Agencies such as the Nigerian National Petroleum Corporation (NNPC), the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA, formerly DPR), and others impose fees for inspection, permits, and operational oversight.

Mr. Iyeke humorously described the scenario:

“When that vessel gets to the shores of this country, NNPC will come to collect their own, DPR will come, midstream and all, water view will come and collect their own.”

For importers, these charges are unavoidable, as compliance with regulatory frameworks is mandatory. However, each additional fee adds weight to the overall landing cost, making petroleum products more expensive by the time they reach Nigerian consumers.

4. The Role of Bulk Storage Costs

Once the petroleum reaches Nigerian shores, the process of distribution to end-users isn’t immediate. Importers must first store the products in bulk depots, which serve as holding facilities before the fuel is distributed across the country. 

This step is critical for maintaining a stable supply chain and ensuring that fuel is available where and when it is needed.

As Mr. Iyeke explained:

“These people that import these products, they have to store in depot, bulk depot storage, because you don’t go to vessels to get the product.”

While this process is operationally necessary, it is not free. Bulk depots charge fees for storage and handling, which are passed down the supply chain. Additionally, storage fees can escalate if delays occur, such as those caused by congested ports or slow clearance processes.

Why Storage Matters

Beyond cost implications, storage plays a vital role in managing supply stability. Without bulk depots, the country would be more vulnerable to fuel shortages, especially during high-demand periods like festive seasons or economic peaks. Thus, while the fees are burdensome, the storage infrastructure is indispensable for energy security.

Why This Matters to Nigerian Consumers

For the average Nigerian consumer or business, the concerns of landing costs and storage fees may seem removed from daily concerns, but they have direct implications for fuel prices. Understanding these dynamics can help Nigerians understand why global drops in crude oil prices often fail to translate into lower pump prices locally.

Can Nigeria Reduce Its Landing Costs?

Reducing landing costs and achieving more stable fuel prices will require significant reforms and investments, including:

• Boosting Refining Capacity: Developing local refineries could cut reliance on imported petroleum.
• Streamlining Fees and Levies: Reducing the number of regulatory fees imposed at ports could ease the financial burden on importers.
• Strengthening the Naira: Improving Nigeria’s economic stability would reduce the forex impact on import costs.

Conclusion

The next time you hear about a drop in international petroleum prices, remember the complex journey fuel takes before it reaches your local pump. From international market fluctuations to local levies and storage costs, the landing cost is a significant factor that shapes Nigeria’s petroleum pricing.

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