The opening of the Dangote oil refinery is set not only to reshape the African energy industry but also to shake up European refineries, bolstering Nigeria’s ambitious energy independence project.
Representing a colossal investment of $20 billion, the refinery, which commenced operations in January, boasts a staggering capacity to refine up to 650,000 barrels per day (bpd). This monumental project marks a pivotal moment for Nigeria, Africa’s most populous nation and top oil producer, long hampered by a lack of refining capacity that forced it to rely heavily on fuel imports.
Reuters reports that analysts are predicting that the commencement of operations at the Dangote refinery could signal the demise of the decades-old gasoline trade from Europe to Africa, valued at a staggering $17 billion annually. Quoting data from Kpler, the report notes that approximately one-third of Europe’s average gasoline exports in 2023, totaling 1.33 million bpd, found their way to West Africa, with Nigeria emerging as a primary destination.
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Eugene Lindell, head of refined products at consultancy FGE, notes the vulnerability of European refineries in the face of intensified competition.
“The loss of the West African market will be problematic for a small set of refineries that do not have the kit to upgrade their gasoline to European and U.S. specification,” he said.
Andon Pavlov, an analyst at Kpler, goes further, estimating that as much as 300-400,000 bpd of European refining capacity is now at risk of closure due to the impending gasoline oversupply. Refineries such as the UK’s Grangemouth and Germany’s Wesseling are among those most vulnerable to premature shutdowns.
The challenges facing the European refining sector extend beyond competition from burgeoning African refineries. Since 2009, around 30 refineries in Europe have shuttered their operations, grappling with competition from newer, more advanced plants in the Middle East and Asia. The COVID-19 pandemic further exacerbated these challenges, leading to demand destruction and additional closures.
According to data from the consultancy IIR, since 2016, Europe has experienced a loss of 1.52 million barrels per day (bpd) in operational crude distillation capacity. Currently, Europe’s operational crude distillation capacity stands at 13.93 million bpd. This decline highlights shifts and changes within the European crude oil refining industry over the specified timeframe.
Additionally, the transition towards renewable energy sources is placing further pressure on fossil fuel refineries. Companies like Petroineos and Shell have cited this transition as a driving force behind their decisions to shutter plants like Grangemouth and Wesseling.
A European refinery executive who spoke to Reuters anonymously said that refineries near the coast, which are geared towards exports, are more at risk, while inland refineries are less vulnerable as they rely on local demand.
“The changes won’t happen overnight, but they could ultimately lead to closures of refineries and their conversion to storage terminals,” he added, referring to the challenging market environment.
Despite the impending challenges, the Dangote refinery’s emergence as a regional powerhouse in gasoline production is poised to coincide with the implementation of new environmental regulations in Northwest Europe. These regulations are expected to compel refineries to either adapt to stringent standards or face closure, further complicating the European refining industry.
Amidst these seismic shifts, West Africa’s role as a primary outlet for gasoline that fails to meet European standards is set to undergo a fundamental transformation.
European refineries face a challenge in meeting regional diesel demand while producing an excess of gasoline, relying on exports to balance supply. In contrast, the Dangote refinery, backed by Africa’s wealthiest individual, Aliko Dangote, was designed to address this disparity by focusing on gasoline production. Capable of producing up to 53 million liters of gasoline per day, equivalent to about 300,000 barrels per day (bpd), the refinery aims to meet local gasoline needs and potentially reduce Africa’s reliance on gasoline imports.