Dangote Petroleum Refinery will most likely put pressure on at least 90 European refineries, which are at risk of closure from heightened competition, according to findings by BusinessDay.
For decades, European refiners have enjoyed a lucrative market in Nigeria as an unreliable power supply from the national grid forces companies across Africa’s fourth biggest economy to rely heavily on imported refined products with a net value of $17 billion annually.
Read also: Dangote Refinery/NNPC standoff exposes broken economy – Kingsley Moghalu
Traders and shipping data seen by BusinessDay showed Nigeria’s new Dangote refinery is ramping up gasoil exports to West Africa, capturing market share from European refiners.
“As much as 300-400,000 barrels per day (bpd) of refining capacity in Europe is at risk of closure because of rising global gasoline production,” Andon Pavlov, an analyst at Kpler, a global trade intelligence platform, said in a note.
Kpler’s data revealed that European Union and UK gasoil exports to West Africa fell to a four-year low of 29,000 bpd in May, while Russian exports to the region dropped to an eight-month low of 87,000 bpd in the same month. Analysts say European refineries’ loss of market share to Lagos-based Dangote Refinery will be problematic for them.
“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,” Eugene Lindell, head of refined products at FGE, a global energy consultancy said, referring to more stringent environmental standards for other markets.
This development is coming on the heels of Aliko Dangote, president of Dangote Group’s dispute with regulatory authorities in Nigeria’s oil sector over the supply of crude oil to his 650,000-barrels capacity oil refinery and the quality of products from the company.
To date, Dangote has exported six cargoes of jet fuel/kerosene, all of which were delivered to Senegal, Togo, or Ghana.
“Upside potential for higher production levels from Nigeria’s Dangote refinery, coupled with strong flows from the Middle East and new supplies from the Mexican’s Olmeca refinery, will likely exert pressure on North West Europe (NWE) gasoil performance in the mid-term,” Organisation Petroleum Exporting Countries (OPEC) said in its latest monthly Oil Market Report for June 2024.
Read also: Dangote refinery seen accelerating closure of Europe’s existing 90 refineries
S&P Global Commodity Insights projected that when the 650,000 Dangote refinery finally ramps up refining activities, it could reduce West Africa’s reliance on import of petrol from Europe by as much as 290,000 bpd, making it a dominant supplier in the sub-region.
S &P described the ongoing level of downstream activities as a ‘flux’, stressing that the Dangote Refinery may also reduce the amount of cargo that often sits off the coast of West Africa.
“If you’ve ever been to Lagos, you see these enormous queues of refined products tankers waiting there. Now, one thing that I think people thought might relieve some of the pressure and, as I said, redress the imbalance somewhat would be the Dangote refiner,” stated Joel Hanley, a director at S&P.
He added, “And it’s finally got going, not fully up to speed perhaps, but we started to see a cargo coming out, which is exciting.”
Hanley further said that while the ramp-up is important, it is also important for the firm to look at ‘where the money is.’
Another analyst at S&P, Matthew Tracey-Cook, noted that: “Russia has completely cut off exports to West Africa, which saw some other regions that we haven’t previously seen take some space in the total export pool.”
Other experts said the drop in West African imports will coincide with new environmental laws in North-West Europe that will force plants to reconfigure, seek new markets for lower-quality petrol or close down.
Yaping Wang, senior refining analyst at Klper, said refining plants that have funds to reconfigure could direct petrol exports to the United States or South America.
But upgrading refineries is also difficult because banks are wary of lending money to fossil fuel projects.
“Even if you find a bank which will fund a European refinery upgrade project, rates will be too high to make it work,” said an executive at a major US bank that lends to oil companies.
Around 30 European refineries have shut down since 2009, data from refining industry body Concawe showed. And many more – up to 90- could go with Dangote Refinery, analysts say.
Dangote’s & Nigerian authorities
In the past few months, Dangote Group has been engaged in a row with Nigerian authorities and International Oil Companies over the supply of crude oil to the refinery and the quality of its products, especially the Automotive Gas Oil (AGO) diesel.
This came to a climax Thursday when the chief executive of the Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Farouk Ahmed, alleged that the diesel quality from the Dangote Refinery is of poor quality and further accused the group of seeking to monopolise the energy sector in the country.
However, the president of Dangote Group, Aliko Dangote, rejected the accusation and further dropped plans of investing in the country’s steel sector, noting that Dangote Group might be accused of monopoly in the future.
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