A military coup in Niger leading to the overthrow of the democratic government which has forced the shuttering of borders has ended planned exports of Nigerian petrol across the continent as demand decreases at home.
Prior to Niger’s crisis, the Nigerian government had ended subsidies on petrol, eliminating concerns about petrol smuggling, but demand at home was falling as N600 per petrol put the commodity out of the reach of many Nigerians to fuel their cars or power their homes.
Analysts say Nigeria’s petrol consumption has fallen by over 30 percent since the subsidy on petrol was removed, and this is impacting even European refiners.
The petrol subsidy removal has squeezed European refiners, which have lost one of their major outlets. European exports to Nigeria decreased by around 160,000 barrels per day in July compared to May, according to research by Kpler, a global data and analytics firm.
“We’ve always known a lot of subsidised petrol was smuggled out of Nigeria to its neighbours… but this is hinting the figure could be truly massive, at 30 percent,” said Charlie Robertson, head of macro-strategy at FIM Partners, in a Twitter post. “If sustained, ending the subsidy might be 3 times more important for Nigeria’s economy than Dangote’s refinery.”
One consequence of the declining demand for petrol is that marketers are downsizing and shuttering petrol stations where demand has fallen. BusinessDay gathered that some outlets are merging and acquisition discussions are ongoing for unprofitable petrol outlets.
Experts say the closure of borders between the two countries is a double-edged sword. It would end the smuggling of products and also prevent the growth of legal trade outlets. Seven Nigerian states – Sokoto, Kebbi, Katsina, Zamfara, Jigawa, Yobe, and Borno – share borders with Niger, making it a hub for illegal fuel trafficking to neighbours in the Sahel region.
The United Nations Office on Drugs and Crime, in a 2022 research titled ‘Transnational Organised Crime Threat Assessment – Trafficking in the Sahel’, revealed that Nigeria via Niger to Mali is one of the four major fuel trafficking routes into the Sahel countries.
Others include Nigeria via Benin to Burkina Faso and Mali, from Algeria to Mali, and from Libya to Niger and Chad, indicating that two routes depend on Nigeria for illegal activity.
“Fuel trafficking has always been rife around this part of the world with a large portion of the illegal market being informally organised; however, there are also usually cases of structured groups being involved,” said Joshua Olorunmaiye, team lead, Energy and Natural Resources Practice at Bloomfield LP.
He said it would not be an exaggeration to expect that the current crises would exacerbate the issue, due to the high level of insecurity and chaos.
“However the flip side to this is that due to these established facts, in a bid to tighten their grip on power, the Niger junta led by General Tchiani is likely to be on the lookout for unauthorised movements and tighten even more, what would rather have been porous borders,” he said.
“However, there are two sides to the coin because, usually, traffickers would want to take advantage of a chaotic situation.”
According to the report, low fuel prices in Nigeria, Algeria and Libya are the main drivers of fuel trafficking into the Sahel, and most of the fuel trafficked is government-subsidised official fuel from those three countries. But the Federal Government’s deregulation policy is expected to control the flow.
“If the Federal Government operates in line with sections 205(1) of the Petroleum Industry Act, prices will continue to adjust to reflect prevailing market conditions; market conditions being the price of feedstock and the exchange rate,” said Kelvin Emmanuel, CEO of Dairy Hills Ltd.
“This means that if prices keep rising from the current 78 cents per litre we currently have to the benchmark price of $1.10-1.30 per litre, there will be no incentive for smuggling, and the true North for daily consumption in Nigeria will continue the trend down,” he added.
Since the removal of subsidy in May, the daily petrol consumption in the country has been dropping. According to the Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigeria’s daily consumption figure now stands at 38.33 million litres, down from 65 million litres per day before the cut in subsidy.