By Joyce Ekeh
Despite local production of aviation fuel, Nigerian airlines may not enjoy significant price reductions because of pricing disparities, limited competition among marketers and rising operational costs, aviation fuel marketer, CITA Energies, has said.
The company said the reliance on a single major domestic source of supply had narrowed pricing flexibility among marketers, leaving little room to offer airlines substantial discounts despite the availability of locally produced Jet A1.
The development comes amid complaints by Nigerian airlines over the high cost of aviation fuel, which accounts for at least 40 per cent of their operational expenses.
Speaking with journalists on the sidelines of CITA Energies’ 20th anniversary celebration in Lagos, the company’s Chairman, Dr Thomas Ogungbagbe, identified differences between global aviation fuel pricing benchmarks and the pricing arrangement adopted by Dangote Refinery as a major challenge for marketers.
According to him, marketers operating under the global pricing formula use the average benchmark price for the preceding month, while Dangote Refinery applies a different pricing arrangement, creating uncertainty over purchase costs.
“We still have issues with pricing because we are priced on the global formula pricing, and the global formula pricing does not recognise individual countries. The contracts are signed, for example, on a month minus one basis, using the average of prices published daily during the preceding month,” he said.
Ogungbagbe explained that under the arrangement, marketers selling in October would use September’s average price as their benchmark, while Dangote Refinery’s pricing followed a different formula.
“This means that in October, we use the September average as our benchmark for selling. Meanwhile, in Dangote, it is BL plus five. So, you have a lot of mismatches, which means that once you load, five days may pass before you know the price. You can even be selling in Lagos without knowing the price at which you bought the product. That is the major gap,” he said.
He also complained about a premium introduced by Dangote Refinery around March, which he said had not been removed and was not consistent with the global pricing formula.
“What that means is that we can only pass it on to customers, and that is why the airlines are making noise,” he added.
While acknowledging Dangote Refinery’s role in addressing aviation fuel scarcity, Ogungbagbe said pricing remained a major concern for marketers and airlines.
According to him, domestic production has improved product availability, but the pricing structure continues to create difficulties for businesses supplying the aviation industry.
“Nigeria had never produced jet fuel. Even the refineries we had before never produced jet fuel. Basically, Dangote is the first one. Dangote, being the first, has also brought a lot of opportunities and challenges. The opportunity is that the problem of scarcity has been eradicated. Availability is assured,” he said.
He, however, argued that the additional premium was making locally sourced fuel less attractive to some marketers compared with imported supplies.
“That is why some people prefer to import, where they can get the real formula. We are still pleading with Dangote to help us remove this,” he said.
Also speaking, CITA Energies’ Acting Managing Director, Titilayo Olaore, said the company reviewed its costs weekly to determine how competitive it could be and what relief it could offer airlines.
She said marketers were operating under a supply arrangement that left them with little room to differentiate their prices significantly.
“It is a dynamic industry, and we have a one-source justification hazard now, which has led us and every other stakeholder that supplies aviation fuel to the airlines to rely on one price,” Olaore said.
She explained that marketers had to add other operational expenses incurred in transporting and supplying the product to the airport tarmac, commonly referred to as the airside.
“With that price, we then build up whatever other costs come up along the way before we get to the airside. Every week, we look at our numbers. We try to work on how competitive we can be and how beneficial we can be to the airlines in terms of pricing, but we are working with one price,” she said.
According to Olaore, the difference between prices charged by marketers was currently within a range of about N5 per litre, limiting the scope for significant reductions.
“The times when we could work with multiple options, maybe there would be a bit more flexibility. But the fact is that we all get from one source now, and our prices vary within a N5 differential between us and the next person. So, the flexibility is not there,” she added.
CITA Energies’ National Operations Manager, Dr Jeffrey Egbadon, also attributed pressure on aviation fuel prices to international conflicts and disruptions to global petroleum supply chains.
He cited tensions involving Iran, Israel and the United States, disruptions around the Strait of Hormuz, and the Russia-Ukraine war as factors affecting the movement and availability of petroleum products.
“It has been challenging with aviation fuel, especially in terms of pricing. The war currently happening between Iran and Israel, as well as the tensions involving Israel and the United States, have also been a challenge because of the closure of the Strait of Hormuz,” Egbadon said.
He added that instability in other parts of the Middle East and disruptions to shipping routes had further complicated the movement of petroleum products into Africa.
“You can also see what is happening between Russia and Ukraine. That is another major factor. What we see today is that many of the countries that produce these products are engaged in one conflict or another,” he said.
