The Organisation of Petroleum Exporting Countries (OPEC) in a recent report, has indicated that the Dangote Refinery in Nigeria is set to disrupt Europe’s oil and gas industry. The world’s largest single-train refinery, which began operations in January 2024, is expected to exert pressure on the performance of Europe’s oil sector, particularly the Northwest Europe (NWE) Gasoil market.
OPEC’s monthly Oil Market Report for June 2024 identifies the Dangote Refinery as a key player among top diesel and jet fuel suppliers that will impact Europe’s oil and gas landscape. This development is anticipated to have positive implications for the Nigerian economy, according to industry experts.
The report comes on the heels of earlier predictions by Standard & Poor Global, which suggested that the $20 billion Dangote refinery would significantly alter international crude flows once it reaches full capacity. The refinery has already made its presence felt in the global market since coming online at the beginning of the year.
OPEC’s analysis reveals that the potential for increased production from the Dangote refinery, combined with strong flows from the Middle East and new supplies from Mexico’s Olmeca refinery, is likely to put pressure on NWE gasoil performance in the medium term. This shift underscores the changing dynamics in global energy supply chains and highlights the growing influence of emerging markets in shaping international oil trade patterns.
It stated further “Europe is one of the world’s largest purchasers of refined petroleum products and relied on imports from Asia and the US after the European Union banned the use of Russian diesel in the bloc.”
The 650,000bpd capacity refinery, which is owned by Africa’s richest man, Aliko Dangote, is eyeing the wider European market after International oil companies stopped supplying its crude oil.
Vice President of Oil and Gas at Dangote Industries Limited, Devakumar Edwin announced the company had earlier exported its first jet fuel cargo to Europe as it rapidly scales production.
The refinery is said to have exported 90 percent of its 3.5 billion litres of jet fuel and diesel to Europe over alleged lack of support from the Nigerian government.
“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 stated.
BP is 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, according to S&P Global.
According to OPEC, “In June, the jet/kerosene crack spread in Rotterdam against Brent showed a slight decline, influenced by supply-side dynamics. Despite signs of improving air travel activities, subdued jet fuel demand from the aviation sector weighed on the product market.
“Going forward, European jet/kerosene demand is expected to see upward pressure as consumption levels from the aviation sector continue to pick up in the coming months.”
S&P had noted that Dangote Refinery in its first six months, scaled to 400,000 b/d and delivered diesel, jet fuel, naphtha, and fuel oil to both domestic and export markets, with Gasoline, Nigeria’s primary fuel type, being expected to be produced from mid-August
Notwithstanding, the refinery has already affected crude flows, with dozens of Nigerian cargoes remaining in-country and US WTI Midland, a comparable light, sweet grade, being imported.
The mega-refinery could therefore tighten the light, sweet crude market. “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. “Once they get to 650,000 b/d without any WTI Midland, ‘severely disrupted’ [will be] the headline.”
WTI Midland crude initially emerged as the favoured feedstock to supplement Nigerian supply, with the refinery signing long-term supply contracts for the US grade and noting its competitive pricing. Platyts, part of Commodity Insights, last assessed WTI Midland into Rotterdam at $82.36/b on July 31, while Nigeria’s Bonny Light was assessed at $82.80/b on the same day.
Crude flows in and out of the Dangote refinery have been felt in other markets, especially in Europe, the largest consumer of light, sweet Nigerian crude. The US grade has accounted for 30% of crude delivered to Dangote, through 18 cargoes
President of Dangote Group, Aliko Dangote said the facility would broaden its feedstock sources with Libyan, Angolan, and Brazilian crude.
“The refinery was built to use Nigerian crude and add value to it within Nigeria. Why should we deviate from that focus?” said Dangote, adding that the crude supply issues were “getting resolved”, but that the refinery remained open to all opportunities “to supplement it”.
“Dangote refinery is designed to process a range of light and medium grades of crude oil, including Nigerian grades,” said Rasool Barouni, Associate Director and head of Refining at S&P Global Commodity Insights. “Other similar grades including other WAF grades could be an option.”
Nigeria is sub-Saharan Africa’s largest oil producer, pumping 1.5 million bpd in June, according to the Platts OPEC Survey from S&P Global Commodity Insights. Until this year, all of its oil was exported due to the lack of refining capacity, with gasoline, diesel and jet fuel imported for domestic use.