Although the price of diesel decreased slightly in recent days as a result of the decline in the price of crude globally, consumers hoping to see lower diesel prices or a decline in inflation rates may be dissatisfied as the global fuel markets are anticipated to remain competitive for a number of years.
The International Energy Forum (IEF) and S&P Global’s most recent report on the world’s oil refining industry claims that record amounts of refining capacity have been shut down over the past two years, leading to tight global fuel markets that are anticipated to last, at the very least, through the middle of this decade.
According to the analysis, the loss of up to 3.8 million barrels per day (bpd) of gross atmospheric crude distillation capacity between 2020 and the middle of 2022 exacerbated competitiveness and price volatility.
Indeed, problems with supply chains, labor, and capital continue to impede the opening of new refineries. For example, the 615 kb/d Al Zour refinery in Kuwait and the 650,000 b/d Dangote refinery in Nigeria are examples of such refineries.
According to the analysis, the world’s fuel markets will remain constrained for years because it takes time for additional capacity to ramp up. Investment in new refining capacity is anticipated to be subdued in the medium future due to predictions that the global petroleum consumption would plateau as electric vehicles replace combustion engines.
There are already worries that many developing economies could not be able to withstand the shock of increased oil prices, further escalating inflation. The prognosis for oil prices has been predicted to be volatile by many oil companies and analysts.
Even though spare capacity is also running low due to a lack of investment in exploration and production, reduced refining capacity implies that refiners are unable to satisfy fuel demand, such as that for gasoline and diesel, regardless of whether crude supplies grow.
The current exchange rate crisis and income difficulties are having a negative impact on gasoline prices and operating expenditures for many businesses in Nigeria, which is dependent on importation for refined fuels.
Local governments and businesses are starting to modify their projections for the fiscal year 2023 because they anticipate that rising inflation and high energy prices would have an impact on consumer spending and manufacturing expenses. There are worries that another increase in oil prices may spell disaster for people who depend on diesel at over N750 per litre.
The federal government has rejected plans to subsidize the price of diesel, noting the current huge budget deficit in its account, even though the cost of PMS is still fairly manageable thanks to the subsidy regime that is still currently supplied by the government.
Fuel markets are anticipated to remain tight in the future since it will take time for new capacity that is slated to go online to ramp up. Net capacity of more over 2 million bpd is expected to be operational by the end of 2023, but delays and operational difficulties have historically slowed progress, the IEF research warned.
“The expectation that the energy transition could make refineries stranded assets has deterred investment. The last major greenfield fuel refineries are likely FID’d and will come onstream in the next few years,” the authors of the report wrote.
In response to the pandemic’s increased need for electricity and the rising price of gas as a result of Russia’s invasion of Ukraine, a previous statistical analysis of the world’s energy by BP revealed that coal-fired electricity producers are producing more power than ever before. The world is moving toward alternate alternatives as a result of the high cost of gasoline and diesel.
The cost of operation and production, according to members of the Organized Private Sector (OPS), has increased by 30% to 100% as a result of the exchange rate and energy crisis.
According to Dr. Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), high inflation and energy costs continue to have a negative impact on businesses through rising production costs, increased operating costs across all sectors, decreased profit margins, a drop in turnover and sales, and a risk to the viability of businesses in many sectors of the Nigerian economy.