Domestic Refining in Ghana: Likely Effects on the Cedi and Inflation

Published: 2026-09-07 | Kanari Intelligence

Domestic refining would help at the margin, but it would not remove Ghana’s dollar oil exposure or mechanically deliver cheaper fuel under the current pricing regime.

Executive Summary

Domestic refining would not eliminate Ghana’s petroleum-related demand for foreign exchange because crude oil feedstock remains a US-dollar commodity. The realistic foreign-exchange gain is the refining value-added retained onshore — the crack spread plus some logistics and service margins — not the full refined-product import bill 87. That distinction matters. Drawing on Ghana Statistical Service monthly trade data for mineral fuels and oils (HS27) from January 2021 to June 2025, Ghana imported an average of $365.3 million per month and exported an average of $343.2 million per month, leaving a modest average monthly deficit of about $22.1 million in that basket over the period. Imports were also more volatile than exports: monthly import volatility was roughly 33% of the mean, versus 29% for exports. In other words, the petroleum trade channel is material, but it is not large enough for domestic refining alone to transform the cedi’s trajectory.

The inflation story is similarly bounded. Under Ghana’s pricing system, pump prices are built on import parity and adjusted every two weeks, so domestic refining does not automatically translate into lower retail fuel prices unless the pricing formula is changed 32. As of 16 March 2024, the ex-refinery component was GHS 9.98 per litre, or 73.4% of the petrol pump price; taxes and levies added GHS 1.90 per litre, or 14.0%; regulated margins added GHS 1.32 per litre, or 9.7%; and marketers/dealers received GHS 0.40 per litre, or 2.9% 32. That means most of the pump price is indeed the tradable oil component, but a meaningful 26.6% is non-crude taxes, levies, and margins that domestic refining does not erase.

The execution constraint is decisive. Tema Oil Refinery’s operating history is one of low utilization, repeated shutdowns, feedstock shortages, and unresolved technical losses 43. So the realistic policy comparison is not “imports versus a fully efficient refinery,” but “imports versus a refinery system that may capture only part of the refining margin and may do so unreliably.” Under that more realistic lens, domestic refining would modestly reduce Ghana’s net dollar demand and modestly soften fuel-driven inflation pressure, but it would not by itself stabilize the cedi or materially reset headline inflation.

Key findings:

• The pump-price arithmetic is dominated by the tradable oil component, but not by crude alone: on 16 March 2024, petrol’s ex-refinery component was GHS 9.98/litre (73.4%), while taxes and levies were GHS 1.90/litre (14.0%), regulated margins GHS 1.32/litre (9.7%), and marketers/dealers GHS 0.40/litre (2.9%) 32.
• Ghana’s mineral-fuels trade position was only modestly negative on average: from Jan 2021 to Jun 2025, monthly exports averaged $343.2 million and imports $365.3 million, implying an average monthly deficit of about $22.1 million 6.
• The gross import bill overstates the FX saving from domestic refining: the relevant ceiling is the refining margin, not the full refined-import bill, because crude feedstock is still priced in dollars 87.
• The benchmark refining margin is real but narrow relative to the gross bill: over Dec 1999 to May 2026, US Gulf Coast jet fuel averaged $81.66/bbl against Brent crude at $67.20/bbl — an average crack spread of +$14.46/bbl (median +$12.63/bbl), positive in 99.4% of months, and unusually wide (median +$24.39/bbl) since 2022 13.
• Fuel-to-inflation pass-through exists, but it is not one-for-one: over May 2017 to Dec 2023, a sustained GHS 1.00/litre rise in ex-pump petrol prices is associated with about 293 basis points of headline inflation and about 464 basis points of transport inflation 36.
• The cedi remains the larger macro transmission channel: Ghana’s own empirical literature consistently finds exchange-rate pass-through to inflation is substantial but incomplete, with first-year estimates around 0.6 to 0.8 in several studies 11011.
• Execution risk is not theoretical: TOR’s operational losses were reported at about 9% of the import value of crude processed in 2019, and recent official reporting still points to idle core units and feedstock constraints 43.

1. Theoretical Framework

The economics of domestic refining in an oil-producing fuel importer are straightforward. Refining onshore can reduce the imported component of the final fuel price only to the extent that it replaces foreign refining margins, some shipping and insurance costs, and some imported logistics services. It does not remove the need to pay world prices for crude oil in US dollars 87. That is why the true foreign-exchange saving is the refining value-added — the crack spread — rather than the gross refined-product import bill.

This distinction also shapes the exchange-rate channel. If Ghana refines domestically, the country still either imports crude or forgoes exporting crude that could have earned dollars abroad. The cedi therefore benefits only from the net dollar demand avoided on the refining-and-logistics slice, not from the full value of petroleum products consumed locally 8. In macro terms, that is a second-order improvement, not a regime shift.

The inflation channel is similarly partial. Ghana’s empirical literature shows that exchange-rate pass-through to prices is substantial but incomplete, and that oil-price shocks feed into inflation mainly through transport and other tradable-cost channels rather than through a permanent one-for-one effect on the entire CPI basket 191011. Domestic refining narrows the imported-fuel component only on the margin. It does not insulate Ghana from crude-price shocks, and it does not remove the exchange-rate sensitivity of the crude feedstock itself 87.

What this means: domestic refining can improve Ghana’s inflation and FX position, but only by capturing a slice of the petroleum value chain. The policy debate should therefore be framed around “how much of the refining margin can Ghana reliably retain?” rather than “can Ghana eliminate fuel-related dollar pressure?”

2. Pricing Regime and the Pump-Price Build-Up

Ghana’s downstream pricing system is built on import parity and adjusted in biweekly pricing windows, not on a cost-plus pass-through of local refinery costs 32. That institutional fact is central: under the current regime, domestic refining does not automatically lower the retail pump price.

Table 1 shows the levies embedded in the petrol pump price as of 16 March 2024, and Table 2 shows the regulated margins for the same pricing window 32.

Table 1. Petrol pump-price levies, Ghana, 16 March 2024

Source: 3

Table 2. Petrol pump-price regulated margins, Ghana, 16 March 2024

Source: 3

Using the same National Petroleum Authority pricing window, the full petrol build-up was: ex-refinery cost GHS 9.98/litre (73.4%), taxes and levies GHS 1.90/litre (14.0%), regulated margins GHS 1.32/litre (9.7%), and marketers/dealers GHS 0.40/litre (2.9%) 32. The non-ex-refinery portion therefore totals 26.6% of the pump price.

That structure yields two hard conclusions. First, domestic refining cannot remove the tax-and-margin wedge. Even a perfectly efficient refinery would leave more than one-quarter of the pump price untouched unless government also changed taxes, levies, or regulated margins 312. Second, because the ex-refinery benchmark itself is import-parity based, any savings from local refining would need an explicit policy decision to be passed through to consumers rather than retained elsewhere in the value chain 38.

What this means: domestic refining can only lower pump prices materially if two conditions hold at once: the refinery is genuinely efficient, and the pricing formula is revised so that efficiency gains reach consumers. Without those two changes, the retail price effect is modest by design.

3. Petroleum Trade Exposure and the Real FX-Saving Ceiling

Drawing on the Ghana Statistical Service’s monthly merchandise trade data for January 2021 to June 2025, Figure 1 shows Ghana’s mineral-fuels exports and imports in USD over the full available monthly window 6.

Figure 1. Ghana Mineral Fuels Trade: Exports and Imports, Jan 2021-Jun 2025

Over this 54-month period, mineral-fuels exports averaged $343.2 million per month, while imports averaged $365.3 million per month 6. The average monthly gap was therefore about $22.1 million in deficit. Exports ranged from a low of $142.5 million in April 2025 to a high of $657.6 million in March 2022, while imports ranged from $125.5 million in February 2021 to $788.6 million in September 2022 6. Import volatility was roughly 33.1% of the mean, versus 29.4% for exports — meaning the import side swings more violently than the export side.

Table 3 and Table 4 give the quarterly pattern within that same window 6.

Table 3. Ghana quarterly mineral-fuels exports, 2021–2025

Values in USD millions.

Source: 6

Table 4. Ghana quarterly mineral-fuels imports, 2021–2025

Values in USD millions.

Source: 6

The quarterly pattern matters because it shows that Ghana’s petroleum external position is episodically stressed rather than steadily catastrophic. The trade basket widens sharply in oil-price and exchange-rate stress periods, then narrows again. That is consistent with a country exposed to imported fuel costs, but not one whose entire balance of payments is determined by refined-product imports alone.

The crucial economic point is that replacing refined-product imports with domestic refining does not save the full $365.3 million average monthly import bill. Crude feedstock still has to be paid for at world prices in dollars, either as an import or as an export opportunity cost 87. The realistic FX saving is the local refining value-added retained onshore.

Figure 2 puts a ceiling on that value-added by comparing Brent crude with a benchmark refined-product price over the long matched monthly sample 13.

Figure 2. Brent Crude, US Gulf Coast Jet Fuel, and the Crack Spread, Dec 1999-May 2026

Over the 318 matched months from December 1999 to May 2026, US Gulf Coast jet fuel averaged $81.66/bbl against Brent at $67.20/bbl 13. The refined product traded above the crude feedstock in 99.4% of months, with an average crack spread of +$14.46/bbl and a median of +$12.63/bbl. Both legs were highly volatile — annualized volatility was roughly 30.9% for Brent and 35.2% for jet fuel — and the spread itself swings hard: it has been unusually wide since 2022, with a post-2022 median of +$24.39/bbl, reflecting the global refining-capacity squeeze 13. Jet fuel is used here as the clean long-sample benchmark; the exact spread differs by product and period, and a Ghana refinery's realized margin would be a product-mix blend net of its own costs.

The implication cuts both ways. The refining margin is real — roughly $12-14 on a $67 barrel at the median — so onshore refining does retain genuine dollar value-added. But it is a narrow slice of the gross product value, and it can compress sharply in weak-margin years. The maximum FX retained by domestic refining is that slice, not the full import bill.

What this means: the cedi would benefit from domestic refining only to the extent that Ghana captures the refining spread and some logistics savings. That helps, but it is too small and too volatile to be a stand-alone exchange-rate strategy.

4. Pass-Through to Pump Prices and Inflation

4.1 Exchange rate and world-oil transmission into domestic fuel prices

Ghana’s own empirical literature consistently finds that exchange-rate pass-through to inflation is substantial but incomplete, with several studies placing first-year pass-through in the 0.6–0.8 range 11011. In plain language, a 10% cedi depreciation tends to raise domestic prices meaningfully, but not one-for-one.

The historical domestic fuel-price evidence points in the same direction, though with an important caution on sample timing. Figure 3 places the cedi (monthly average of the daily interbank rate, March 2016 to September 2026) against headline month-on-month inflation over their common window; the overlap is directional evidence rather than a single unified pass-through model 6.

Figure 3. Ghana Cedi per US Dollar and Headline Month-on-Month Inflation (Dual Axis)

The cedi moved from GHS 3.8304 per US dollar in March 2016 to GHS 11.3755 per US dollar by 6 September 2026, and it peaked at GHS 18.8126 per US dollar in October 2024 6. That scale of depreciation is large enough that even incomplete pass-through matters materially for inflation.

Figure 4 shows Ghana’s ex-pump petrol and diesel record across the three pricing regimes the data covers: the historical actual series (January 1989 to June 2015), the NPA indicative ex-pump series (2017 to March 2024), and the published NPA price floors (mid-2024 to August 2026) 3. The regimes are deliberately kept as separate series — they measure related but distinct things, and splicing them silently would overstate continuity.

Figure 4. Ghana Ex-Pump Petrol and Diesel Prices Across Three Pricing Regimes, 1989-2026

Over that historical window, petrol rose from GHS 0.00606/litre to GHS 3.47/litre, while diesel rose from GHS 0.005509/litre to GHS 3.369999/litre 3. Those are nominal prices, so they reflect both world oil conditions and domestic inflation over time. The longer-run co-movement with world prices is visually strong, but the econometric evidence in changes is much weaker: levels correlations are high, while short-run correlations in monthly changes are negligible. There is no evidence of a stable long-run cointegrating relationship between world jet fuel prices and Ghana’s ex-pump petrol or diesel prices in the matched historical sample, and VAR results do not show significant predictive linkage in either direction over that sample 3.

The formal econometric specification used in the historical pass-through work is a first-difference VAR of the form:

$\begin{aligned} \Delta \ln(P^{fuel}_t) &= \alpha_1 + \sum_{i=1}^{7}\beta_{1i}\Delta \ln(P^{fuel}_{t-i}) \\ &\quad + \sum_{i=1}^{7}\gamma_{1i}\Delta \ln(P^{world}_{t-i}) + \varepsilon_{1t} \\ \Delta \ln(P^{world}_t) &= \alpha_2 + \sum_{i=1}^{7}\beta_{2i}\Delta \ln(P^{world}_{t-i}) \\ &\quad + \sum_{i=1}^{7}\gamma_{2i}\Delta \ln(P^{fuel}_{t-i}) + \varepsilon_{2t} \end{aligned}$

where $P^{fuel}_t$ is Ghana’s ex-pump petrol or diesel price and $P^{world}_t$ is the world benchmark price. The series were treated as non-stationary in levels and modeled in first log differences; the lag length selected was 7 months, and the reported model diagnostics supported valid use of the differenced VAR in that sample. The practical result is not “no relationship,” but “no stable short-run predictive rule strong enough to support one-for-one pass-through claims” 3.

What this means: Ghana’s fuel prices are clearly exposed to the exchange rate and world oil conditions, but the pass-through is filtered by pricing rules, taxes, margins, and timing. Domestic refining would trim that exposure only on the refining slice, not on the crude-price core.

4.2 Fuel-price transmission into headline inflation

The strongest direct quantitative result in the evidence is the distributed-lag pass-through from domestic fuel prices to inflation. Using monthly data from May 2017 to December 2023, a sustained GHS 1.00/litre rise in ex-pump petrol prices is associated with about 293 basis points of headline inflation and about 464 basis points of transport inflation 36.

The underlying regression can be written as:

$\begin{aligned} \pi_t &= \alpha + \beta_0 \, Fuel_t + \beta_1 \, Fuel_{t-1} + \cdots + \beta_k \, Fuel_{t-k} + \varepsilon_t \end{aligned}$

where $\pi_t$ is monthly inflation and $Fuel_t$ is the ex-pump petrol price in GHS per litre. In the long-run distributed-lag estimate, the long-run coefficient is about 2.929 percentage points of headline CPI per GHS 1/litre increase, with a 95% confidence interval of roughly 0.75 to 5.11 percentage points; the short-run coefficient is about 1.193, and the in-sample fit is moderate at $R^2 = 0.60$ 36. For transport inflation, the long-run coefficient is about 4.636 percentage points per GHS 1/litre, with stronger fit at $R^2 = 0.732$ 36.

Those are economically meaningful effects. They say that if domestic refining could durably lower the pump price by, say, GHS 0.50/litre, the implied headline inflation relief would be about 146.5 basis points, and the transport inflation relief about 232 basis points, all else equal. If the pump-price reduction were only GHS 0.20/litre, the headline effect would shrink to about 58.6 basis points. This is exactly why the size of the pump-price saving matters more than the symbolism of refining itself.

By contrast, simple correlations between diesel prices and inflation components over the longer historical sample are weak and often not economically meaningful 6. That is not a contradiction. Correlation asks whether two series move together mechanically month by month; the distributed-lag estimate asks whether a sustained fuel-price shock accumulates into inflation over time. For policy, the second is the more relevant question.

What this means: the inflation payoff from domestic refining is real only if it lowers the pump price persistently. A small, temporary saving will produce a small, temporary inflation benefit.

5. Historical Context: TOR’s Operating Record and Scenario Analysis

5.1 TOR’s operating history

Tema Oil Refinery’s history is not one of stable domestic substitution. Official and sector reporting points to repeated shutdowns, feedstock shortages, non-operational key units, and a long cycle of rehabilitation efforts without sustained turnaround 43. The refinery’s nameplate capacity is about 2 million tonnes per year, but actual crude processed fell as low as 61,800 tonnes in 2015, and domestic refinery output has remained far below national consumption requirements 4. SIGA and ACEP reporting also point to operational losses equivalent to about 9% of the import value of crude processed in 2019 4.

The chronology is clear. TOR’s debt distress prompted a recovery framework as far back as the early 2000s 5. By the mid-2010s, throughput had collapsed relative to capacity 4. By late 2025, reporting still pointed to an idle crude distillation unit and feedstock constraints, even as private refining capacity emerged elsewhere in the market 34.

What this means: Ghana’s refining question is not just about economics; it is about execution. A refinery that runs intermittently cannot deliver steady FX savings or stable inflation relief.

5.2 Realistic domestic-refining scenarios

Three scenarios summarize the likely macro effect.

Scenario A: Pricing formula unchanged, TOR unreliable.
Under the current import-parity framework, domestic refining does not mechanically reduce the ex-refinery benchmark 32. Any savings are likely to be absorbed within the value chain or offset by inefficiency. In this case, the cedi effect is negligible and the inflation effect is negligible.

Scenario B: Partial substitution, efficient operations, savings partly passed through.
In this middle case, Ghana captures part of the refining margin and some logistics savings, and a portion reaches the pump price. The cedi benefits modestly because some dollar demand is displaced from foreign refining and logistics services to domestic value-added. The inflation effect is also modest: every sustained GHS 1.00/litre reduction in pump prices would lower headline inflation by about 293 basis points and transport inflation by about 464 basis points 36, so a smaller and more plausible pump-price gain delivers proportionately smaller disinflation.

Scenario C: High utilization, explicit pass-through, competitive refining.
This is the upside case. Ghana would need reliable feedstock, high plant availability, low technical losses, and a pricing rule that passes local efficiency gains to consumers. Even then, the cedi benefit is bounded by the refining spread rather than the gross import bill 87, and the inflation benefit is bounded by the actual pump-price reduction that survives taxes and margins 32. This is a useful efficiency reform, not a macro silver bullet.

Data Sources and Methodology

This report draws on five evidence blocks.

First, it uses National Petroleum Authority pricing documentation and downstream reporting for Ghana’s pump-price build-up and pricing regime, including the 16 March 2024 petrol pricing window and the biweekly import-parity framework 32.

Second, it uses Ghana Statistical Service monthly merchandise trade data for mineral fuels and oils (HS27), covering January 2021 to June 2025, to measure the scale and volatility of petroleum-related imports and exports in USD 6. The descriptive statistics cited here are sample means, minima, maxima, and volatility measures over that exact monthly window.

Third, it uses long monthly benchmark price series for Brent crude and US Gulf Coast jet-fuel spot prices from the US Energy Information Administration (retrieved via FRED), covering the 318 matched months from December 1999 to May 2026 for the spread analysis 13. The crack-spread discussion is intentionally framed as a ceiling on retained value-added rather than as a precise product-by-product refinery margin for Ghana.

Fourth, it uses historical NPA ex-pump petrol and diesel price series for January 1989 to June 2015, together with the Ghana cedi per US dollar series from March 2016 to September 2026 and Ghana Statistical Service monthly inflation series from February 1998 to January 2026, to assess pass-through patterns 36. Where econometric results are reported, the specifications are stated explicitly:

• Differenced VAR for world-price and domestic-fuel linkage: a two-equation VAR in first log differences with 7 lags, used because the price series are non-stationary in levels and the evidence does not support a stable long-run cointegrating relationship in the matched sample 3.
• Distributed-lag OLS for fuel-to-inflation pass-through: monthly inflation regressed on current and lagged ex-pump fuel prices over May 2017 to December 2023, with the long-run coefficient interpreted as the cumulative inflation effect of a sustained GHS 1/litre fuel-price increase 36.

Fifth, it uses documentary evidence from the Energy Commission, Ministry of Finance, and sector studies on TOR’s utilization, shutdowns, debt overhang, and operational losses 458.

Limitations

The main quantitative limitation is that Ghana’s pump-price record is split across three regimes: the single-definition historical ex-pump series ends in mid-2015, the NPA indicative ex-pump series covers 2017 to March 2024, and only published price floors exist thereafter 3. The differenced-VAR results on world-price linkage are estimated on the historical regime and are informative about the structure of transmission, not a decision-grade estimate of post-2022 pass-through; the modern-period fuel-to-inflation link rests instead on the May 2017 to December 2023 distributed-lag model reported in Section 4.2. The exchange-rate series extends to September 2026 and the inflation series to January 2026 6. The scenario conclusions are therefore best read as bounded estimates: directionally strong, numerically disciplined, but conditional on refinery efficiency and on whether pricing rules actually pass local savings through to consumers.

Policy Implications

For Government

Domestic refining should be treated as a micro-efficiency and FX-smoothing reform, not as a substitute for exchange-rate stabilization policy. The data show that the cedi’s inflation effect is large 11011, while the refining margin is only a slice of the petroleum bill 87. That means the first-order macro lever remains exchange-rate credibility, not refinery ownership.

If government wants consumers to benefit, it must revise the pricing framework explicitly. Under today’s import-parity system, lower local refining costs do not automatically reduce pump prices 32. A transparent rule should specify how any verified domestic-refining efficiency gain is shared among consumers, the tax base, and refinery balance-sheet repair.

The operational priority is reliability, not symbolism. TOR’s history shows that low utilization and technical losses can erase the theoretical gain from local refining 4. The correct sequence is governance reform, feedstock security, metering and loss control, and only then scale-up.

For Investors

The investment case is stronger in midstream and logistics efficiency than in a simple “refining equals cheap fuel” thesis. The pump-price build-up shows that margins, levies, and distribution costs remain meaningful even when crude dominates the price 32. Investors should therefore focus on storage, blending, pipeline, and distribution assets that can capture stable local value-added even when crack spreads compress.

Any refinery-linked investment should be underwritten against throughput risk, not just margin assumptions. TOR’s history demonstrates that utilization is the key variable 4. A refinery that runs at half-speed does not earn half the upside; it can destroy the economics entirely.

For Development Partners

The strongest development case is institutional reform plus operational diagnostics, not blanket financing of refining capacity. The inflation benefit from lower fuel prices is real and socially relevant, especially through transport costs 79, but it depends on whether savings are passed through and sustained.

Support is best directed toward pricing transparency, refinery governance, metering and loss reduction, and credible pass-through rules. Those reforms determine whether any local value-added becomes a public macroeconomic gain rather than a private or quasi-fiscal leakage.

References

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2. Ghana Petroleum Industry Report — Chamber of Bulk Oil Distributors (CBOD) [link]
3. Petroleum pricing, price build-up and downstream statistics — National Petroleum Authority (Ghana) [link]
4. National energy statistics and sector reports — Energy Commission (Ghana) [link]
5. 2021 Reconciliation Report on the Petroleum Holding Fund — Ministry of Finance (Ghana) [link]
6. Statement on Inflation — Ghana Statistical Service [link]
7. The Distributional Implications of the Impact of Fuel Price Increases on Inflation (IMF Working Paper 2021/271) — International Monetary Fund [link]
8. Ghana’s fuel payment strategy works for now: how to fix longer term problems — The Conversation [link]
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13. Spot prices: US Gulf Coast kerosene-type jet fuel and Brent crude (EIA series, retrieved via FRED) — US Energy Information Administration / FRED [link]