UPDATE 2-Nigeria 'no longer in the business of fixing' fuel prices, oil minister says

* Prices will fluctuate freely, with govt as “umpire”

* Sylva says govt will save 1 trillion naira/year

* Govt will launch plan to convert cars to LNG, LPG or CNG

* Nigeria pumping 1.412 mln bpd - Sylva (Adds detail on PPMC pricing and Nigeria’s oil output figure)

LAGOS, Sept 3 (Reuters) - Nigeria is “no longer in the business of fixing” fuel prices, Timipre Sylva, the minister of state for oil, said on Thursday.

Africa’s largest oil producer had been spending 1 trillion naira ($2.63 billion) a year subsidising petrol prices but the global oil price crash had made removing the subsidies “inevitable”, Sylva told an online briefing.

“It is about the survival of our country, the economic survival,” he said. “There are certain things that the country can ill-afford at this time.”

In March, the government announced a new pricing mechanism that it said would maintain its control, but allow prices to move with the market and eliminate subsidies.

Sylva said prices would now fluctuate freely with international markets, and the ministry would become an “umpire” rather than a price-setter.

“Our duty now is to ensure the public is not cheated,” he said.

On Wednesday, state-owned Pipelines and Product Marketing Company set its ex-depot gasoline price at 151.56 naira ($0.3981) a litre, which would put pump prices above the previous record of 145 naira a litre.

Sylva said private importers could now compete with PPMC and sell fuel at other prices. However, if PPMC sets its price below market, state oil company NNPC could in effect remain the primary supplier; price caps had previously made it unprofitable to import fuel, and NNPC had been importing more than 90% of Nigeria’s gasoline.

Sylva added that the government is also launching initiatives to convert cars to run on liquefied natural gas (LNG), liquefied petroleum gas (LPG) and compressed natural gas (CNG) that will give Nigerians alternative fuel choices.

He added that the nation was producing 1.412 million barrels per day (bpd) of crude oil. Its output has been closely watched for compliance with an OPEC-led supply cut agreement.

$1 = 380.7000 naira Reporting by Libby George; Writing by Paul Carsten; Editing by William Maclean and Lisa Shumaker