Nigeria’s new Dangote oil refinery is rapidly disrupting the landscape of gasoil exports in West Africa, significantly impacting European refiners.
The $20 billion refinery, heralded as a game-changer for Nigeria’s oil industry, is capturing market share from European suppliers despite facing substantial domestic challenges.
According to traders and shipping data cited in a report by Reuters, the refinery has been producing a lower grade of gasoil than initially planned, as it awaits the restart of units essential for cleaner fuel production. However, this delay has not stopped the refinery from finding eager buyers in neighboring West African markets.
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In May, gasoil exports from the refinery surged to nearly 100,000 barrels per day (bpd), almost double the exports of April, with most shipments directed to other West African countries and one shipment reaching Spain. Preliminary June data indicates a decline in gasoil volumes, although total oil product exports, including fuel oil, naphtha, and jet fuel, remained robust at 225,000 bpd.
Shifts in West African and European Markets
The Dangote refinery has shifted market dynamics in West Africa, reducing the region’s dependency on European refiners. According to Kpler data, EU and UK gasoil exports to West Africa plummeted to a four-year low of 29,000 bpd in May. Simultaneously, Russian exports to the region dropped to an eight-month low of 87,000 bpd.
A European distillates trading source told Reuters, “The refinery has shifted the balance in West Africa,” noting the significant impact on European markets.
The Dangote refinery’s ability to produce and export substantial volumes of gasoil is expected to continue altering trade flows.
While Dangote has been selling some high-sulfur gasoil within Nigeria, a dispute has arisen with local fuel retailers over responsibility for the distribution of this dirtier fuel. The Petroleum Industry Bill 2021 mandates a sulfur content of 50 parts per million (ppm) to align with sub-regional ECOWAS standards adopted in 2020. However, the regulator allowed the sale of gasoil with sulfur content above 200 ppm locally until June 2024, giving local refineries and importers time to meet the new standards.
As European countries, including key hubs like Belgium and the Netherlands, enforce stricter regulations on high-sulfur gasoil exports, the Dangote refinery has found markets in regions with more lenient fuel standards. This strategic adaptation enables the refinery to maintain high export levels despite regulatory challenges.
Domestic Challenges: Sourcing Crude Oil
The ambitious project, however, faces significant domestic hurdles, particularly in sourcing crude oil. Nigeria’s oil production has been plagued by inefficiencies and disruptions, creating a substantial obstacle for the Dangote refinery. Despite its vast capacity, the refinery has struggled to secure a steady supply of crude oil, a critical component for its full operational capability.
Nigeria, once a leading oil producer, has seen its production levels decline due to a combination of aging infrastructure, theft, vandalism, and regulatory uncertainties. These issues have exacerbated the refinery’s difficulties in sourcing sufficient crude oil to ramp up operations to full capacity. Consequently, the refinery’s plans for full-scale operations have been delayed, impacting its potential to meet both local and regional demand comprehensively.
Aliko Dangote, Chairman of the Dangote refinery, stated in May that the refinery’s capacity is designed to supply products not just to Nigeria but to West and Central African countries, given its scale. This capacity aligns with reports suggesting that the refinery could significantly reduce the continent’s $17 billion oil import bill and potentially lead to the closure of some European refineries.
In 2023, West Africa emerged as the largest regional recipient of Europe’s gasoline exports, accounting for about one-third of the continent’s average exports of 1.33 million bpd.
While the refinery is pushing its ambition to export refined petroleum beyond West Africa, the region alone has been described by analysts as a huge market that could sustain the refinery’s plan for economic growth, if it successfully tackles the challenge of insufficient crude oil supply.