Why Nigerians Are Still Paying More for Fuel Despite Dangote Refinery Sourcing Crude Locally

March 2026 | By Visblog Economics Correspondent

Despite Dangote Refinery sourcing crude oil locally from NNPCL and refining it within Nigeria, petrol prices keep rising. We break down the six economic and structural reasons behind the paradox.

Despite Dangote Refinery sourcing crude oil locally from NNPCL and refining it within Nigeria, petrol prices keep rising. We break down the six economic and structural reasons behind the paradox.

For many Nigerians, the Dangote Refinery represented a turning point — the moment Africa's largest nation would finally stop exporting crude oil abroad, importing it back as refined fuel at ruinous foreign-exchange costs, and start keeping the value chain at home. President Bola Tinubu, Alhaji Aliko Dangote, and senior officials at the Nigerian National Petroleum Company Limited (NNPCL) all spoke, in various ways, about the relief the refinery would bring.

And on paper, the logic is airtight. Nigeria sits atop some of the world's most prolific oil fields. The Dangote Refinery, located in the Lekki Free Zone on the outskirts of Lagos, has a nameplate capacity of 650,000 barrels per day — easily enough to meet domestic fuel demand and export the surplus. The refinery sources crude from NNPCL. It refines that crude into petrol, diesel, kerosene, and aviation fuel right here in Nigeria. No ships crossing the Atlantic. No foreign refinery margins. No landing cost.

So why, many Nigerians are asking with understandable frustration, does fuel still feel unaffordable? Why do prices at the pump keep creeping upward even after the old landing cost excuse has been removed from the equation?

The honest answer involves at least six interacting forces — some global, some domestic, some structural — none of which disappeared simply because a world-class refinery opened its gates in Lagos.

Removing landing cost was necessary. But it was never going to be sufficient on its own to bring down pump prices."

1. Nigerian Crude Is Still Priced in Dollars — at International Rates

This is the point that most public discussion skips past, and it matters enormously. The crude oil that flows from Nigerian oil fields to the Dangote Refinery is not free. It is not even discounted. It is sold at prevailing international market prices, denominated in US dollars.

Nigeria operates as a participant in the global oil market, not outside it. When the Organization of the Petroleum Exporting Countries (OPEC) and its allies adjust production quotas and global benchmark prices shift, Nigerian crude moves with them. If Brent crude rises from $80 to $95 per barrel — as it did through stretches of 2024 and into 2025 — then the Dangote Refinery pays more for the same barrel of crude it buys from NNPCL. The crude may travel only a few hundred kilometres instead of across the ocean, but its price tag is set in London and New York, not Lagos.

This fundamental reality means that any global supply shock — a conflict in the Middle East, a cold winter driving European gas demand, a US Strategic Petroleum Reserve drawdown — can lift crude costs for Dangote just as directly as it does for a refinery in Rotterdam or Houston.

2. The Naira Has Lost Significant Value — and That Changes Everything

Even if we imagine a world where crude oil prices held perfectly flat, Nigerians would still face higher fuel costs because of the naira's trajectory. Since Nigeria moved to a more liberalised foreign exchange regime, the naira has depreciated sharply against the dollar. In mid-2023, the official rate was around N460 to the dollar. By early 2026, the rate had moved past N1,500 — a depreciation of more than 200 percent in under three years.

Why does this matter for a refinery that buys local crude and sells local fuel? Because a refinery is not just crude oil and the end product. It is a complex industrial machine that requires constant maintenance. Catalysts, lubricants, specialised chemicals, and spare parts for refinery equipment are almost entirely imported, priced and invoiced in foreign currency. Financing costs on the approximately $19 billion invested in constructing the refinery are also denominated in dollars and euros.

When the naira loses half its value, all of those dollar-denominated costs effectively double in naira terms. A spare part that cost N50 million to procure in 2022 now costs N150 million or more at the current exchange rate — even if the price in dollars did not change at all.

"The naira's fall did not spare the refinery. Every bolt, every chemical, every debt repayment is still priced in foreign currency."

3. Deregulation Means the Market — Not the Government — Sets Prices

For decades, Nigerian governments kept petrol prices artificially low through subsidies — a policy that cost the country trillions of naira annually, crowded out spending on health and education, and disproportionately benefited wealthier Nigerians who own more vehicles and consume more fuel.

President Tinubu ended the fuel subsidy in May 2023 in his inaugural address, a decision that was economically defensible but socially seismic. With deregulation came full price liberalisation: fuel prices are now meant to reflect actual cost of production, transport, and margin. The government no longer steps in to make up the difference between what it costs to put fuel in a tanker and what Nigerians pay at the pump.

This structural change is irreversible in the short term and means that every upstream cost increase — whether from rising crude prices, currency movement, or logistics — passes through immediately to consumers. There is no buffer. In a deregulated market, when costs rise, pump prices rise. That is not a malfunction; it is the system working exactly as designed.

4. Getting Fuel from Refinery to Station Is Itself an Expensive Journey

The Dangote Refinery is in Lagos. Nigeria's fuel consumers are in Kano, Kaduna, Enugu, Port Harcourt, Abuja, and tens of thousands of towns and villages spread across a country the size of Western Europe. Moving refined product from the refinery gate to petrol stations across that geography requires diesel-powered tanker trucks, functioning depot infrastructure, and a road network that — particularly in rural and middle-belt states — is chronically underfunded.

The cost of diesel to run those same trucks has itself surged in the deregulated market. Loading fees at fuel depots, local government levies, and unofficial charges along major fuel corridors all add to the final cost. Industry analysts estimate that by the time a litre of petrol has travelled from the Dangote jetty to a filling station in, say, Maiduguri or Jalingo, the accumulated distribution cost can add between N50 and N120 per litre — depending on the season, the roads, and the security situation in the corridor.

This is a structural challenge that the refinery itself, however well-run, cannot solve alone. Infrastructure investment, competition among distributors, and regulatory efficiency in the midstream sector all need to improve before downstream prices can reflect the full benefit of local refining.

5. The Refinery Is a Business, Not a Public Service — and Has Debts to Repay

It bears stating plainly: the Dangote Refinery is a private commercial enterprise. It was built at enormous cost, financed through a combination of equity, project finance, and commercial loans. No private investor builds a $19 billion refinery and prices its products below the cost of production as a patriotic gesture. The refinery must recover its costs, service its debts, pay its workforce, and generate returns for its shareholders.

The commercial reality of refinery economics means that Dangote must sell fuel at prices that cover: the cost of crude, the cost of refining (energy, chemicals, labour, maintenance), loan repayment and interest, operational and administrative expenses, and a profit margin. That margin may be slimmer than what a foreign refinery would require once landing costs are genuinely stripped away — and in time, that should translate into meaningful consumer savings. But it cannot be zero, and it cannot be negative.

Those who expected that local refining would immediately slash petrol prices by half were, perhaps, misreading what refineries do. They reduce costs relative to imported refined product — they do not eliminate them.

6. Crude Allocation and Contract Arrangements Still Create Friction

In an ideal scenario, NNPCL would consistently supply Dangote with an adequate volume of crude at transparent, commercially fair terms, and the refinery would run at or near full capacity, generating the scale efficiencies needed to minimise per-litre cost. Reality, for now, is more complicated.

Nigeria's crude oil sector has historically been characterised by opaque contract arrangements, third-party trading, and questions about allocation priority between domestic refining and existing export commitments. There have been well-documented periods when the Dangote Refinery struggled to secure consistent crude supplies from NNPCL, even as the national oil company continued to sell crude to international buyers under pre-existing contracts.

When a refinery cannot run at full capacity because crude supply is inconsistent, fixed operating costs are spread across fewer barrels, and the per-litre production cost rises. Getting crude allocation right — ensuring that Dangote receives reliable supply at fair commercial terms — is as important to fuel prices as any other single factor.

"Running a refinery at half capacity because of inconsistent crude supply costs consumers just as surely as landing costs ever did."

What Would Actually Bring Prices Down?

The path to genuinely more affordable fuel in Nigeria is real — but it runs through a series of reforms that must happen simultaneously, not sequentially. A stable and competitive foreign exchange market would significantly reduce the naira-denominated cost of imported inputs. Consistent, transparent crude allocation to the Dangote Refinery at full operating capacity would unlock refinery-scale efficiencies. Investment in distribution infrastructure — pipelines, storage, and roads — would cut the midstream cost wedge. And the emergence of additional domestic refining capacity, from both the rehabilitated NNPCL refineries in Port Harcourt, Warri, and Kaduna, and new private entrants, would introduce competitive pressure that a monopoly supply situation simply cannot generate.

None of that is fast. None of it is simple. But each of those pillars needs to be built.

The Dangote Refinery is a genuine industrial achievement and, in the medium term, it will almost certainly help reduce the cost of refined fuel in Nigeria relative to a world where all fuel is imported. That matters. But Nigerians who were led to expect that local refining alone would deliver immediate and dramatic price relief at the pump were given an incomplete picture.

Crude oil prices are set by global markets in dollars. The naira is weak. Deregulation has removed the government's buffer. Distribution is expensive. The refinery is a business with real costs. And the crude allocation system still has kinks to iron out.

Understanding these realities is not defeatism. It is the necessary starting point for holding the right people accountable for the right things — and for building the kind of honest public conversation about energy economics that Nigeria has too rarely had.

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