Aviation Fuel Price Crash Imminent as Dangote Refinery Begins Supply of Petroleum Products
After months to turmoil and near bankruptcy as a result of the prohibitive cost of aviation fuel, Nigerian airlines are celebrating following the news that Dangote Refinery will start supplying the product to them in the coming days.
The airlines, it was learnt, hope to gain financial momentum with expected reduction in the cost of aviation fuel as a result of the development.
Currently, the price of aviation fuel ranges between N1,450 to N1, 500 per litre in Lagos and higher in Abuja, Port Harcourt, with almost N2000 per litre in Kano and Maiduguri.
Research shows that aviation fuel constitutes about 60 per cent of cost of operation of domestic airlines and has made flight service unprofitable.
Nigerian airlines have been largely unable to pass the high cost of the product to passengers who are already complaining that cost of ticket has become too high, hence the noticeable dwindling of passenger movement at the airports.
Airline operators told THISDAY that if they dare increase fares further, traffic would reduce drastically and airlines would go out of business.
Records from the Nigerian Civil Aviation Authority (NCAA) showed that more people flew on domestic destination in 2022 than in 2023 and it is projected that if the cost of aviation fuel does not come down, the record of passenger movement this year will be less than the figures of last year.
The CEO of Cleanserve Energy, an oil marketing company and former Managing Director of Arik Air, Mr. Chris Ndulue, told THISDAY that although Dangote Refinery has not started producing aviation fuel, “everyone is expectant that it would soon start and when it does, it is also the expectation of everyone that there will be significant reduction in the price of the product.”
He said the cost of logistics of importing the product would no more be there because it is being produced locally and expressed the hope that Dangote would not sell the product at the international price.
Also, Dangote will sell the product in Naira, not in dollars; thereby reducing the pressure on the naira and eliminating the struggle marketers go through sourcing for dollars to import the product.
He predicted that the distribution of the product from Dangote would still follow the current system where the product is moved to the Apapa from the refinery and distributed from the tank farms there.
THISDAY also learnt that some marketers have made financial commitment for the supply of the product, which indicates that the selling of Aviation fuel through Nigeria’s latest refinery and one of the biggest in the world, has become imminent.
“Dangote has not started producing aviation fuel; however, everybody is expecting that soon it will start. It is expected that the cost will be cheaper as he is producing locally. First, there will be significant reduction in logistics cost, which will reduce the price and Dangote will not sell in dollars but in naira. This means that oil marketers will no more source for dollar for importation of the product. Dangote supply will ease the pressure on the naira; it will also reduce our import and give fillip to the recovery of the naira. When the naira is strengthened and these is an end to importation,” Ndulue said.
According to him, when the refinery fully comes on stream Naira will further appreciate on that account because petroleum product import is huge, which could be about 30 per cent of Nigeria’s total import.
He also admitted that the current price of aviation fuel is very high and that explains why airfares are also high, stopping many who hitherto travelled by air to seek alternative means of transport.
Speaking on behalf of Airline Operators of Nigeria (AON), the Chairman of United Nigeria Airlines, Professor Obiora Okonkwo, said the association would meet with Dangote and have an agreement with the company on the supply of the product to the airlines without passing through oil marketers, adding that through that process, Nigerian airlines will reap full benefit of the cost of the product.
He also believes that the price of the product when produced locally ought to be cheaper than when it is imported.
“We need to approach the company. There should be cost reduction. Import costs more but we cannot say until we see his price. I believe AON should make a deal with Dangote without passing through vendors and I heard that vendors have deposited money for the product already,” he said.
Importation, some industry observer said, constitutes a huge forex challenge for Nigeria adding that this explained why aviation fuel is very costly.
Numbers released by the National Bureau of Statistics (NBS) indicate that Nigeria spent N292.56 billion on the importation of aviation fuel, known as Jet A1 in the first three months of the year – January to March 2022.
An Oil and gas industry publication recently stated that aviation fuel import featured prominently in Nigeria’s trade data for the stated period.
NBS in its Foreign Trade Statistics Report for First Quarter of 2022, said aviation fuel, accounted for 4.96 per cent of Nigeria’s total import of N5.9 trillion, with the commodity ranking the second most imported commodity in the country in the first quarter.
According to the report, aviation fuel import in the first quarter of 2022, represented a significant increase of 287.29 per cent compared to the N75.54 billion spent on its import in the fourth quarter of 2021.