Nigeria and West Africa can become a global oil pricing center, S&P Global

The Executive Director for Strategy and Benchmarks at S&P Global Energy, Joel Hanley, said Nigeria and West Africa can become a major pricing center for oil products. He shared this insight on Thursday during the opening of S&P Global's new office at the World Trade Centre Towers in Abuja.

Hanley noted that the Dangote refinery has changed the dynamics of the West African oil market. He pointed out that West Africa is already an energy hub, and with more refined products from Nigeria, the region can create benchmarks that better fit local market conditions.

"I’m a big believer that West Africa has the opportunity to be a pricing hub. It’s already an energy hub. Dangote has changed everything," Hanley said.

He explained that the increase in oil products from Nigeria, especially from the Dangote refinery in Lekki, is shifting the region away from relying on European pricing benchmarks. "For many years, we’ve seen the pricing linked. People have been pricing their cargoes coming into West Africa from European assessments," he said.

Importance of Local Pricing

While recognizing European benchmarks, Hanley said they mainly reflect European market conditions and might not capture what is happening in West Africa. He emphasized that developing price assessments for markets in Lekki, Lagos, and Lomé could create a pricing system that truly reflects West Africa's market.

"To have a price assessment or a benchmark that is more reflective of the local market, I think it probably makes sense to assess markets in Lekki and Lomé and Lagos," he stated. He added that this could help market players depend less on European benchmarks and more on changes in West Africa, especially Nigeria.

Hanley mentioned that S&P Global evaluates gasoline, gasoil, and jet fuel markets in West Africa. The company also looks at several crude oil grades from Nigeria and other African countries. He explained that S&P Global’s goal is to help market participants understand how its price assessments are made, as these figures are crucial for contracts and investment decisions.

Matthew Tracy Cook, the Senior Reporter for West Africa Refined Products at S&P Global Energy, stated that the Dangote refinery has significantly reshaped the West African oil products market. He said Nigeria is moving from being a price taker to having a bigger role in setting prices in the regional market.

"West Africa has been highly dependent on international benchmarks and international supply for its fuel needs, gasoline, diesel, and jet fuel. But with the development of the Dangote refinery, that has all changed," Cook said.

He noted that the refinery is adding significant volumes of products to the regional market, creating new supply routes and changing how petroleum products are shipped from Europe to West Africa. Cook said S&P Global’s regional price assessments aim to provide more clarity on market changes and help participants understand product flows and trading opportunities between Nigeria and other West African countries.

Concerns About Petrol Subsidy

Regarding the potential return of petrol subsidy in Nigeria, Cook said that during an S&P Global event in Lagos, many participants opposed such a move. He clarified that this view reflects market participants' opinions and not his personal stance.

"We ran an event in Lagos for the last two days, and during that, there was a strong feeling against the return to subsidy," he said. Cook added that reinstating a subsidy could complicate the creation of a free market and affect traders working to make West Africa a significant trading and pricing center.

"I don’t know that a return to subsidy will be overwhelmingly popular among parts of the trading community who are trying to build this area as a major hub for trade and price assessment," he said. He believes that market-based pricing would allow regional benchmarks to truly reflect supply and demand.

Nigeria's Commitment to Energy

Nigeria’s Minister of State for Petroleum Resources, Heineken Lokpobiri, called S&P Global strategic to Nigeria’s energy sector. "S&P Global is very strategic to our energy sector. We have an existing relationship, and we are committed to ensuring that Nigeria does not take that relationship for granted," Lokpobiri said.

He welcomed S&P Global’s decision to open an office in Abuja, emphasizing that Nigeria will continue to play its part in the global energy scene. "This is very important work, and I want to say that Nigeria will not be left behind. We will make sure that we play our role in the global energy landscape," he stated.

Farouk Ahmed, the Chief Executive Officer of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), said S&P Global’s Abuja office will help the company engage more closely with Nigeria and West Africa. Ahmed noted that their presence in Nigeria would help them understand regional market dynamics better and aid in developing a reference base for African energy markets.

"We want to have a reference base within the African and West African space. And this, to me, is a beginning because we now have an office," he said. He added that Nigeria has the ability to supply oil products to other West African countries, strengthening its role in the region’s energy economy.

"Can we look at Nigeria actually supplying the rest of West Africa? We have the volumes. We have the tanks. We can turn Nigeria into the anchor of West Africa, and we can turn West Africa into a true regional economy," he said.

Craig Powers, the Senior Director, EMEA, S&P Global Energy, said the company is committed to providing clear price assessments and keeping the integrity of benchmarks used by market participants.