The Organisation of Petroleum Exporting Countries (OPEC) has forecasted that Nigeria’s Dangote Refinery, the largest single-train refinery in the world, will put significant pressure on Europe’s oil market, particularly on Northwest Europe’s (NWE) gasoil sector.
In its June 2024 Oil Market Report, OPEC highlighted Dangote Refinery as a major player set to disrupt Europe’s oil and gas industry. This shift is expected to have a positive effect on Nigeria’s economy, according to industry experts.
Standard & Poor’s Global had previously predicted that the $20 billion Dangote refinery would alter global crude oil flows once it reaches full capacity. Since commencing operations in January, the refinery has already made a noticeable impact, as confirmed by trading sources and ship tracking data.
OPEC’s report noted that “the potential for increased production from Nigeria’s Dangote refinery, combined with robust flows from the Middle East and new supplies from Mexico’s Olmeca refinery, is likely to pressure NWE gasoil performance in the near term.”
The report added that Europe, one of the largest consumers of refined petroleum products, had relied on imports from Asia and the US following the EU’s ban on Russian diesel. The 650,000 barrels per day (bpd) capacity refinery, owned by Africa’s wealthiest man Aliko Dangote, is now targeting the European market after international oil companies halted crude oil supplies to it.
Devakumar Edwin, Vice President of Oil and Gas at Dangote Industries Limited, revealed that the refinery had exported its first jet fuel cargo to Europe as it ramps up production. The facility has reportedly exported 90 percent of its 3.5 billion liters of jet fuel and diesel to Europe, citing inadequate support from the Nigerian government.
S&P Global reported that BP is currently transporting its initial jet fuel shipment to Rotterdam from Dangote, following its successful bid for part of a 120,000 metric-tonne tender at the end of May.
OPEC also stated that “in June, the jet/kerosene crack spread in Rotterdam against Brent experienced a slight decline due to supply-side dynamics. Although air travel activities showed some improvement, subdued jet fuel demand from the aviation sector impacted the market.”
The report forecasted that European demand for jet/kerosene would rise as aviation consumption increases in the coming months.
S&P Global noted that within its first six months, Dangote Refinery scaled up to 400,000 b/d and delivered diesel, jet fuel, naphtha, and fuel oil to both domestic and export markets. Gasoline, Nigeria’s primary fuel type, is expected to start production by mid-August.
The refinery’s operations have already influenced crude flows, with numerous Nigerian cargoes remaining in-country and U.S. WTI Midland, a comparable light sweet crude, being imported.
The large-scale refinery is expected to tighten the market for light, sweet crude. A West African crude trader noted that WTI Midland, which initially supplemented Nigerian supply, is likely to face disruption as the refinery reaches its full capacity of 650,000 b/d.
WTI Midland crude was initially preferred due to its competitive pricing, with Platts assessing it at $82.36 per barrel on July 31, compared to Nigeria’s Bonny Light at $82.80 per barrel.
The impact of Dangote Refinery’s crude flows has been felt across various markets, particularly in Europe, which is a major consumer of light, sweet Nigerian crude. The U.S. grade has made up 30% of the crude delivered to Dangote, through 18 cargoes.
Aliko Dangote, President of Dangote Group, stated that the refinery will diversify its feedstock sources to include Libyan, Angolan, and Brazilian crude. He emphasized that while the refinery was designed to process Nigerian crude, it remains open to all opportunities to supplement its supply.
Rasool Barouni, Associate Director and Head of Refining at S&P Global Commodity Insights, added that the refinery is equipped to process a range of light and medium crude grades, including other West African grades.
Nigeria, the largest oil producer in sub-Saharan Africa, produced 1.5 million b/d in June, according to the Platts OPEC Survey. Until this year, Nigeria relied on imported gasoline, diesel, and jet fuel due to its lack of refining capacity.