Fueling stability: Hedging, Dangote Refinery, and how Nigerian businesses can outsmart global energy shocks

With global energy markets facing increased volatility, Nigerian businesses are once again being affected by the rippling effects of events beyond their borders. The US-EU $750 billion energy deal, a monumental agreement that committed the EU to purchase unprecedented volumes of US oil and gas over the course of three years, has rocked global pricing. For Nigeria, where the price of Premium Motor Spirit (PMS) is pegged to international oil benchmarks, the implications are severe for businesses grappling with currency depreciation, supply lines, and inflation.

In this exclusive sit-down, award-winning business development consultant, CEO of Sure-fire Investments limited and Africa Regional Director for Squared Financial, Temitope George Ijibadejo explains what this deal signifies for Nigeria’s PMS market, why hedging is still an underappreciated tool, and importantly, how both SMEs and larger corporates can adapt to weather the storm.

The US–EU Deal and PMS Prices: Short- and Medium-Term Impact

Ijibadejo didn’t mince words when questioned about the impact of the US–EU energy agreement on Nigeria’s PMS market.  “We’ll definitely see prices climb initially,” he stated plainly. “The agreement will create excess global demand, which will cause everyone to compete for supplies. Because Nigeria’s PMS pricing depends on worldwide oil prices, landing costs will increase almost right away. Shipping costs and foreign exchange issues only make the problem worse.”

He cautioned that prices might stay elevated over time. “We could experience high prices, unless the supply increases significantly. Watch global oil prices, growth in US exports, and, most importantly, the Naira’s stability for indications.”

Can Local Interventions Help? Dangote’s Role in the Equation

Dangote Refinery’s recent reduction in PMS prices has brought some comfort. Ijibadejo described it as “a safeguard—reducing reliance on imports and vulnerability to freight and FX fluctuations.” However, he lowered expectations. “The refinery still purchases crude oil, so prices will increase if global rates rise. Nonetheless, smaller transport and production costs allow SMEs some flexibility. Consistent crude supply at fair prices and rivalry in refining are needed to maintain that advantage.”

Why Nigerian Businesses Aren’t Hedging

According to Ijibadejo, the lack of hedging techniques in Nigeria’s fuel-reliant economy is puzzling.

“Awareness is a big deal. Instead of seeing hedging as protection, most leaders still view it as speculation. The tools—futures, swaps, and options—seem too technical, and they’re written off as too difficult without internal risk specialists.”

Hedging premium is a further challenge. “Businesses that prefer to have cash available for essential activities may find initial fees or margin needs burdensome. SMEs usually value quick cash flow over preparing for long-term instability.”

A Practical PMS Hedging Plan for Mid-Sized Firms

Ijibadejo’s first move if he were advising a Nigerian logistics firm today would be to “map your risk—treat PMS use like a trading position and estimate exposure per litre.” He next advises establishing a profit-safe zone with definite price triggers and matching them to currency hedges or energy-linked contracts and leverage by opening margin-based positions to cover full exposure with less upfront cash, freeing capital for operations.

“You need stability, but also the capacity to gain if prices drop,” he advises matching fuel supply agreements with adaptable positions. “And don’t ‘set and forget’—active oversight of energy trends is critical.”

Ijibadejo advised that being proactive, rather than reactive can be the ultimate factor to determine the continued existence or extinction of a business. Nigerian businesses ought to learn from the aviation industry —Southwest Airlines saved over $1billion during high oil price periods by locking in lower fuel prices through Futures and Options; Delta Airlines went as far as buying a refinery to control their fuel supply and costs.

“The secret is alignment— choose instruments whose price moves perfectly reflect your PMS expenses. And don’t over-hedge; covering 30–60% of your exposure safeguards margins without shutting you out of price declines.”

Balance of premium prices with protection —- The price of hedging premiums often offends business owners. Ijibadejo compares them to insurance. “Measure your PMS exposure, establish a budget as a percentage of total fuel expenses, and hedge some of your use. Timing is crucial—locking in during low-volatility times can lower premiums.”

While effective hedging is not the only defense. “Through improved fleets, optimized routes, and maintenance, fuel efficiency directly lowers PMS consumption,” Ijibadejo argues. “Diversifying energy sources—hybrids, alternative fuels, even solar—also lowers reliance.”

Financial resilience counts, he notes: FX buffers, flexible supplier terms, and robust cash reserves can be the difference between surviving a price increase and collapsing under pressure.”

Are Nigerian Banks Ready to Offer PMS Hedging?

“They don’t have the right tools for the job. Access to global energy derivatives is limited, local commodity trading infrastructure is weak, and regulatory frameworks for commodity risk are minimal,” Ijibadejo reacts.

For now, many firms rely on international brokers. “Until our local financial institutions build both capacity and market access, we’ll keep seeing that gap.”

Collaboration as a Strategy— Ijibadejo also champions collective action. “Joint procurement pools, cross-industry hedging clubs, shared storage—these spread risk and reduce costs. Businesses can negotiate better terms, access bigger contracts, and even invest in infrastructure otherwise out of reach.”

Ijibadejo calls for regulatory clarity on commodity-linked derivatives, stronger market infrastructure with liquidity and capacity building in banks and corporations. “The volatility isn’t going away,” he concludes. “The sooner we normalise proactive protection like hedging, the stronger and more competitive Nigerian businesses will be.”

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