Nigeria, Africa’s biggest oil producer and a member of OPEC, has suffered fuel shortages over the past few weeks. They complicated transport and hurt economic activity and, in the words of President Muhammadu Buhari, ensured that for many Nigerians the Christmas holidays were “anything but merry and happy.”
His administration says it’s working overtime to end the queues that have formed at gasoline stations throughout much of the country. Nigeria is about the only major African economy to experience frequent fuel scarcities.
1. What’s the reason for the shortages?
Part of the problem is that, despite pumping 1.8 million barrels a day of crude, Nigeria has to import almost all its fuel because of the decrepit state of its refineries. But in that, it isn’t alone: Most countries in Africa lack refineries. A bigger problem is that Nigeria caps gasoline prices, often at levels below retailers’ costs.
The cap today is set at 145 naira, or $0.40, a liter, which would translate to $1.52 per gallon. That makes the west African nation one of the 10 cheapest places in the world to buy gasoline and compares to a global average of $1.12 and a U.S. average of $0.73 per liter, according to GlobalPetrolPrices.com.
Nigeria is among the world’s 10 cheapest places to buy gasoline
2. Does that mean fuel retailers can’t make money?
They could when the current cap was set, in May 2016. Back then, Brent crude traded at less than $50 a barrel. It’s since risen about 40 percent, to $68, which has made it more expensive for retailers to buy refined fuel.
Neither does it help that Nigeria bases the cap on its official exchange rate of 305 naira per dollar, which few retailers can access, given that the market rate is almost 20 percent weaker at 360.
Many have stopped importing, leaving that job almost entirely in the hands of the state oil company, the Nigerian National Petroleum Corp., a task it is struggling with and was never designed to do on such a scale.
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