Abstract
Nigeria’s downstream petroleum sector is undergoing a profound structural transition driven by large-scale domestic refining investments, most notably the Dangote Refinery. While domestic refining expansion promises reduced import dependence and enhanced supply reliability, it simultaneously introduces new risks associated with market concentration and monopoly power in a strategic sector. This paper argues that the core policy challenge facing Nigeria is not personality conflict between regulators and dominant market actors, but the political economy of market capture. It contends that unchecked monopoly power, even when initially efficient, poses long-term risks to competition, energy security, and economic stability. The paper further argues that current regulatory responses relying on product importation as a competitive counterweight are structurally flawed and risk reproducing the inefficiencies that plagued Nigeria’s pre-reform downstream sector. Instead, the paper proposes a structural competition framework centred on domestic refining pluralism, strategic privatisation of state-owned refineries, feedstock security, and crude production expansion.
1. Introduction
Debates surrounding Nigeria’s downstream petroleum sector have increasingly been framed through the lens of regulatory confrontation, corporate dominance, and alleged institutional failure. However, such framings obscure the deeper structural dynamics shaping the sector. When examined beyond personalities and episodic regulatory disputes, the central issue confronting Nigeria is one of market capture in a strategic energy market.
Monopoly power, when left unchecked, naturally tends toward expansion and dominance. This tendency is not inherently malicious; rather, it is a rational outcome of scale efficiencies, capital intensity, and market incentives. In energy markets, where infrastructure costs are high, substitution is limited, and national security considerations are paramount, the risks associated with market capture are magnified. Consequently, the challenge for policymakers and regulators is not to resist efficiency or scale, but to ensure that competition remains viable, sustainable, and structurally embedded.
2. Monopoly Dynamics and the Role of the Regulator
In liberalised energy markets, the role of the regulator is not to inhibit success but to prevent anti-competitive dominance. This includes safeguarding against scenarios where a single actor becomes the supplier of last resort, thereby acquiring disproportionate influence over pricing, supply stability, and policy outcomes.
Nigeria’s downstream regulator operates within this tension. While regulatory institutions have historically focused on compliance, licensing, and administrative oversight, dominant private actors have pursued long-term strategic positioning through vertical integration, logistics control, financial insulation, and supply chain optimisation. This asymmetry has allowed private capital to move faster and more decisively than regulatory frameworks designed for a different era.
The result is a widening gap between regulatory intent and market reality. This gap does not reflect regulatory malice or incompetence; rather, it highlights the limitations of reactive regulation in the face of proactive, capital-intensive industrial strategy.
3. Energy Security and the Risk of Supplier Dominance
The emergence of large-scale domestic refining capacity introduces a paradox. On one hand, it strengthens national energy security by reducing import dependence, foreign exchange exposure, and supply volatility. On the other hand, excessive concentration of refining capacity in a single private entity risks substituting one form of vulnerability for another.
If a dominant refinery becomes Nigeria’s primary or sole reliable source of refined petroleum products, the nation’s energy security becomes implicitly tied to the operational, financial, and strategic decisions of a single private actor. Over time, such dominance can translate into pricing rigidity, reduced innovation, political leverage, and diminished regulatory authority. Historical experience demonstrates that monopolies often begin as efficiency solutions but eventually evolve into structural constraints.
This dynamic mirrors criticisms historically directed at Nigeria’s former national oil company prior to the Petroleum Industry Act (PIA). Without deliberate structural counterweights, private monopolies risk reproducing the same inefficiencies and distortions previously associated with state monopolies.
4. Importation as a False Competitive Strategy
In response to concerns about market dominance, regulatory reliance on refined product importation has re-emerged as a tool for maintaining price competition. However, this approach is fundamentally flawed.
Nigeria’s historical dependence on imports produced systemic inefficiencies, including foreign exchange volatility, subsidy manipulation, inflated consumption figures, arbitrage opportunities, and macroeconomic distortions transmitted through fuel pricing. Importation does not create genuine competition; it merely postpones structural reform while externalising costs.
Framing import liberalisation as competition risks recreating the very vulnerabilities that domestic refining was intended to resolve. Short-term price relief achieved through imports undermines long-term market development, weakens local capacity, and perpetuates fiscal and monetary instability.
5. Structural Competition as the Only Sustainable Solution
The appropriate response to monopoly risk in capital-intensive energy markets is not administrative control or punitive regulation, but structural competition. Competition must occur at the refinery stage itself, not at the point of product distribution.
Policies, incentives, and regulatory frameworks that enabled the emergence of the Dangote Refinery should be extended uniformly to other large-scale refining projects, including proposed mega-refineries such as BUA. Equal access to tax incentives, infrastructure support, feedstock assurance, and regulatory certainty is essential to ensure parity of opportunity rather than preferential advantage.
In parallel, Nigeria’s government-owned refineries should be fully or substantially privatised, with the state retaining only non-controlling equity interests where strategically necessary. Private ownership and commercial governance would enable these assets to operate efficiently while contributing meaningful refining capacity to the market. When combined with new private investments, such reforms could generate total domestic refining capacity sufficient to counterbalance any single dominant player.
6. Feedstock Security and Crude Production Expansion
Refining competition is ultimately constrained by crude oil availability. Nigeria’s proven reserves, estimated at over 36 billion barrels, stand in stark contrast to persistent domestic energy poverty. This disconnect reflects underinvestment in production capacity, infrastructure insecurity, and regulatory bottlenecks.
As domestic refining capacity expands, competition for crude feedstock will intensify. Without a corresponding increase in crude production, dominant refiners may outbid smaller competitors, further consolidating market power. Nigeria must therefore prioritise crude production expansion, licensing of additional fields, infrastructure security, and operational efficiency with a target production range of 3–4 million barrels per day.
Feedstock security is not merely a commercial issue; it is a foundational requirement for market stability, competition, and international credibility.
7. The Emerging Chokehold Scenario
Future projections suggest that Nigeria’s refining capacity may soon approach or exceed national crude production levels. If a single refinery scales to 1.7 million barrels per day while national production remains near current averages, the domestic crude market risks becoming captive.
Such a scenario would raise fundamental questions: Why export crude when domestic refiners can absorb total production? How would Nigeria meet international supply obligations? What would be the implications for foreign exchange inflows and OPEC coordination? Without careful planning, the pursuit of domestic self-sufficiency could inadvertently undermine macroeconomic stability and external commitments.
8. Conclusion
The central challenge confronting Nigeria’s downstream petroleum sector is not corporate ambition or regulatory intent, but structural imbalance. Market capture is a predictable outcome of scale without counterweights. Importation is a temporary and costly substitute for competition, not a solution.
Sustainable energy security requires deliberate policy design that multiplies domestic refining capacity, privatises inefficient state assets, secures crude feedstock, and expands production. Only through structural competition can Nigeria preserve market efficiency, regulatory authority, and national energy sovereignty in the long term.
This is not an argument against private capital or industrial success. It is an argument for a competitive architecture that ensures no single actor, public or private, can dominate a strategic sector upon which the nation depends.
