Africa must stop relying on foreign fuel price indices – NMDPRA

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) is calling for African nations to establish their own fuel price benchmarks. The authority argues that the continent must develop a regional pricing mechanism to accurately reflect its increasing refining capacity, improve market transparency, and decrease dependence on foreign pricing indices.

NMDPRA Chief Executive Rabiu Umar stated that every major energy-producing region globally operates a recognized pricing benchmark. He emphasized that Africa should not be an exception, especially as investments in refining, logistics, and cross-border petroleum trade continue to grow. Umar made these remarks in Abuja ahead of the second West Africa Refined Fuel Conference, which will focus on attracting investment for infrastructure and logistics needed to create a transparent and competitive West African petroleum pricing and trading hub.

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Every region in the world today has its own pricing benchmark. Whether you’re talking about Europe, Northwest Europe, or America, they have their own benchmarks. Whether you talk about the Mediterranean or you go to the Gulf countries, everywhere you go, there’s a trading index. It is a global index, but there is a specific index for that region.

"Every region in the world today has its own pricing benchmark. Whether you’re talking about Europe, Northwest Europe, or America, they have their own benchmarks. Whether you talk about the Mediterranean or you go to the Gulf countries, everywhere you go, there’s a trading index. It is a global index, but there is a specific index for that region," Umar explained. He elaborated that regional benchmarks are vital because they consider local market realities, including demand and supply dynamics and logistics costs, rather than relying solely on international indices.

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Why does it exist? Because the process for pricing starts with price discovery, and it takes a lot of elements into consideration. For example, demand and supply, what is the logistics cost to bring the product into that region? All that goes into defining the reference price.

Umar pointed to Europe's Amsterdam-Rotterdam-Antwerp (ARA) trading hub as a successful model. He suggested that West Africa should pursue a similar approach to bolster regional trade and enhance price discovery. The ARA hub serves as a primary pricing and supply center for much of Europe, demonstrating the effectiveness of a centralized regional trading point.

"The whole point of having a regional pricing is to be able to create a hub where all the activities within a given region are going to be coming out of that place," he said. "It has a lot to do with logistics cost, how much it costs to bring in the product, whether you have more supply than demand or more demand than supply. All that goes into improving market discovery and arriving at a price that is right for the market."

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The whole point of having a regional pricing is to be able to create a hub where all the activities within a given region are going to be coming out of that place.

Umar highlighted that the growth of refining capacity across Africa makes the establishment of a regional benchmark even more urgent. "We are also looking at Africa, in a sense, moving towards its own refining. So the more we’re able to do our product, the more relevant it is to have our own reference pricing and then create that advantage, particularly within the West Africa region," he added.

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We are also looking at Africa, in a sense, moving towards its own refining. So the more we’re able to do our product, the more relevant it is to have our own reference pricing and then create that advantage, particularly within the West Africa region.