By Gideon Osaka
Significant changes are expected in the global fuel supply market when the 650,000 Dangote refinery fully ramps up refining activities; according to Valuechain projections, with insights from traders and shipping data.
Even as the Dangote plant, the world’s largest single-train refinery, is operating at 85% capacity with plans to reach full capacity next year, the refinery’s output is already reportedly putting pressure on a number of European refineries, which are at risk of shutting down due to heightened competition.
The Refinery began processing crude in January into products including diesel, naphtha and jet fuel and started processing petrol in September. Once fully operational, most gasoline from the plant is expected to be retained for domestic markets but the majority of diesel and jet fuel are likely to be exported.
In February, the refinery achieved a significant milestone with the successful shipment of its first jet fuel cargo to Europe. The 45,000 metric tons of jet fuel cargo export, marked another first for the complex since its launch in April 2023.
According to Valuechain’s findings, diesel and jet fuel shipments to Europe and other parts of the world have since accelerated.
Vortexa data showed that fuel oil cargoes from the refinery were shipped to the US from March until late April, followed by exports to the Caribbean and Europe in mid-May. Fuel oil cargoes have also been heading East of Suez to hubs such as Fujairah and Singapore.
Additionally, naphtha cargoes have also been moving both east and westward from the refinery. From the beginning of March to late June, the refinery exported seven cargoes to Europe, mainly to Antwerp, and five to Northeast Asia, mostly South Korea.
The refinery’s entry into the global market is already causing ripples. Its strategic location on the Atlantic coast allows for easy access to international shipping routes, making it a competitive supplier to Europe, South America, and parts of Asia. Analysts predict that the refinery’s high-quality products, compliant with Euro-V standards, are a challenge to traditional suppliers, particularly in Europe, where stricter environmental regulations are reshaping demand.
Dangote’s inroad into Africa
For decades Africa has been a net importer of refined petroleum products despite being rich in crude oil. The continent’s refining capacity has been hampered by outdated infrastructure, political instability, and underinvestment. For decades, European refiners have enjoyed a lucrative market in Nigeria as the lack of supply from the local refineries forced Nigeria to rely heavily on imported refined products with a net value of $17 billion annually.
However, the emergence of Dangote Refinery is set to change this narrative, particularly for West Africa.
Since the commencement of operations, the Dangote refinery has been ramping up gasoil exports to West Africa, capturing market share from European refiners. Kpler’s data revealed that European Union and UK gas oil 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 refinery could reduce West Africa’s reliance on the import of petrol from Europe. About a third of Europe’s 1.33 million barrels per day (bpd) average gasoline exports in 2023 went to West Africa, a bigger chunk than any other region, with a majority of those exports ending in Nigeria, according to Kpler data.
In what was described as a landmark move for regional energy integration, Dangote Refinery in December exported its first-ever consignment of petrol to Cameroon with plans to establish a reliable supply chain that will create new economic opportunities across the region.
The refinery had between April and May, shipped six cargoes of jet fuel/kerosene to Senegal, Togo, or Ghana, according to CAS data.
Ghana is set to buy petroleum products from the refinery once the facility is operating at full capacity, cutting more expensive exports from Europe.
Implications for Europe
At least 90 European refineries are at risk of closure from heightened competition with upstarts in other parts of the world.
Gunvor Group recently announced it was temporarily halting its Rotterdam oil refinery, the latest sign plants in the continent were struggling to compete. With a processing capacity of 75,000 barrels a day, the plant is relatively tiny, but it joins a growing list of other European refineries with plans to either halt or downsize operations.
Scotland’s last remaining oil refinery, the Grangemouth Refinery, is scheduled to cease operations by June 2025, and Germany’s Wesseling refineries could close as a result of looming gasoline oversupply and consequent pressure on refining margins.
In October, American multinational energy company Phillips 66 announced plans to shut down a Los Angeles-area refinery by the end of 2025, citing market concerns. The refinery which accounts for about 8% of California’s refining capacity, said it was shutting down operations due to uncertainty and market dynamics.
Around 30 European refineries have reportedly shut down since 2009, data from refining industry body Concawe showed, with nearly 90 plants of various sizes and complexities still in operation.
Closures have been brought on by competition with newer and more complex plants in the Middle East and Asia and more recently, Nigeria’s giant new Dangote refinery. The rival fuel makers can send what they make to Europe and also compete for market share elsewhere in the world.
The Dangote Oil Refinery is a 650,000 barrels per day (BPD) integrated refinery situated in the Lekki Free Zone near Lagos, Nigeria. It is Africa’s biggest oil refinery and the world’s biggest single-train facility.
The pipeline infrastructure at the Dangote Petroleum Refinery is the largest anywhere in the world, with 1,100 kilometres to handle three billion standard cubic feet of gas per day.
Since 2016, Europe has lost 1.52 million barrels per day of operational crude distillation which currently stands at 13.93 million bpd, consultancy IIR’s data showed, Reuters reported.
According to OPEC’s 2024 Oil Market Report, the supply of diesel and jet fuel from the Dangote Refinery is poised to disrupt distillation in Europe.
With Europe being one of the world’s largest purchasers of refined petroleum products, the entry of the Dangote Refinery into this market is expected to have far-reaching consequences.
The refinery has already made a significant impact, with the Dangote refinery exporting 90 per cent of its 3.5 billion litres of jet fuel and diesel to Europe.
“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 reported by Bloomberg.
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.
The Dangote Refinery is set to become a major force in the global oil industry, challenging established markets and redefining Nigeria’s role in the international energy landscape. As production ramps up and the refinery expands its reach, the world will be watching closely to see how this ambitious project reshapes the dynamics of global oil supply and demand.
Whether it’s disrupting traditional markets, reshaping regional economies, or setting new benchmarks for industrial projects in Africa, the Dangote Refinery is poised to be a transformative force in the global fuel refining market.