Saudi Arabia's Crude Pricing Model Holds Lessons for Nigeria's Oil Industry
Nigeria's oil industry can learn from Saudi Arabia's approach to crude pricing. Aramco, the national oil company of Saudi Arabia, sets an official selling price for its crude oil, which is tied to benchmarks like Oman-Dubai and Brent. This price is higher than what it sells to domestic refineries, petrochemical plants, and power stations within the country.
The difference in pricing creates a loop where Aramco earns dollars from exporting crude at a higher price, which then funds the Saudi budget and dividends for shareholders. At the same time, cheap feedstock is provided to domestic users, making energy affordable and driving economic activity. This cycle reinforces itself as growth at home increases demand for energy, meeting it with more exports abroad.
Nigeria's experience has been the opposite, with its national oil company pricing crude sold to domestic refineries at export parity plus freight, insurance, and financing. This means that Nigerian refineries cannot compete because their main input is priced at world levels, leading to the importation of refined products at even higher prices.
The author argues that Nigeria should adopt a similar approach to Saudi Arabia's by obliging producers to supply crude to licensed local refineries at a formula price based on cost plus a reasonable margin. This would allow Nigerian refineries to produce cheaper feedstock, enabling businesses and manufacturing to grow, and subsequently increasing government revenue from taxes.