OPEC predicts Dangote refinery will pressure Europe’s oil industry

The Organisation of Petroleum Exporting Countries (OPEC) has forecasted that Nigeria’s Dangote Refinery will significantly impact Europe’s oil industry, particularly in the Northwest Europe (NWE) gasoil market.

The world’s largest single-train refinery, situated in Lagos, is expected to disrupt traditional diesel and jet fuel suppliers, exerting considerable pressure on Europe’s refined petroleum product market.

In its June 2024 Oil Market Report, OPEC identified the Dangote Refinery as a key new player among global suppliers, with potential production increases expected to challenge Europe’s reliance on established sources.

“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 Olmeca refinery, will likely exert pressure on NWE gasoil performance in the mid-term,” OPEC stated.

The $20 billion refinery, owned by Africa’s richest man, Aliko Dangote, began operations in January 2024 and has already started influencing global oil flows.

According to Standard & Poor Global, the refinery’s full capacity could significantly reshape international crude markets. “Nigeria’s $20 billion Dangote refinery would shake up international crude flows when it reaches full capacity, having already made an impact since coming online in January,” S&P Global noted.

The refinery, with a capacity of 650,000 barrels per day, has its sights set on the European market after international oil companies ceased supplying it with Nigerian crude.

Devakumar Edwin, vice president of oil and gas at Dangote Industries Limited, recently confirmed the refinery’s first successful export of jet fuel to Europe.

“It is good to note that from the start of production, more than 3.5 billion litres, which represents 90 percent of our production, have been exported,” Edwin said.

“BP is currently transporting its first jet fuel cargo to Rotterdam from Dangote, after being awarded part of a 120,000 metric tonnes tender offered for the end of May,” S&P Global reported.

However, the refinery’s rapid expansion has not been without challenges. It has faced difficulties securing adequate crude supplies from within Nigeria, leading to the importation of U.S. WTI Midland crude.

This has begun to tighten the global market for light, sweet crude oils like Nigeria’s Bonny Light. “Its diet is WTI and the lighter Nigerian [crudes], so if you were chasing those barrels, you’d probably feel it quite keenly,” a West African crude trader told Commodity Insights.

Aliko Dangote has addressed concerns regarding the refinery’s crude sourcing strategy, reaffirming its primary focus on Nigerian crude.

“The refinery was built to use Nigerian crude and add value to it within Nigeria. Why should we deviate from that focus?” Dangote said. He acknowledged that while crude supply issues are being resolved, the refinery remains open to sourcing from other regions, including Libya, Angola, and Brazil.

S&P Global Commodity Insights has observed that the refinery’s operations are already impacting crude flows, particularly in Europe, the largest consumer of light, sweet Nigerian crude.

The U.S. WTI Midland crude has accounted for 30 per cent of the crude delivered to Dangote Refinery through 18 cargoes. “Once they get to 650,000 b/d without any WTI Midland, ‘severely disrupted’ [will be] the headline,” the crude trader added.

As the Dangote Refinery continues to scale up, it is expected to further disrupt the global oil market, with significant implications for both European refiners and Nigeria’s position in the global energy landscape.