SHEL

ANALYSIS-Nigeria's Dangote oil refinery could accelerate European sector's decline

Credit: REUTERS/Temilade Adelaja

By Ahmad Ghaddar and Robert Harvey

LONDON, March 27 (Reuters) - Nigeria's giant Dangote oil refinery could bring to an end a decades-long gasoline trade from Europe to Africa worth $17 billion a year, heaping pressure on European refineries already at risk of closure from heightened competition, analysts and traders said.

It has long been touted as the turning point for Nigeria's quest for energy independence. Nigeria is Africa's most populous nation and its top oil producer, yet it imports almost all its fuel due to lack of refining capacity.

About a third of Europe's 1.33 million bpd average gasoline exports in 2023 went to West Africa, a bigger chunk than any other region, with the majority of those exports ending up in Nigeria, Kpler data shows.

"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," consultancy FGE's head of refined products Eugene Lindell said, referring to more stringent environmental standards for other markets.

As much as 300-400,000 bpd of refining capacity in Europe is at risk of closure because of rising global gasoline production, according to Kpler's analyst Andon Pavlov.

A European refinery executive who declined to be identified said coastal refineries that are geared for exports will be more exposed while inland refineries are less vulnerable because they rely on local demand.

"The changes won't happen overnight, but they could ultimately lead to closures of refineries and their conversion to storage terminals," he added, referring to the challenging market environment.

Petroineos CEO Franck Dema flagged the energy transition which is causing demand for fossil fuels to dwindle as one of the reasons behind his company's decision to shut down Grangemouth next year. Shell SHEL.L said its decision to shut down Wesseling next year was part of its drive to reduce carbon emissions.

Petroineos did not respond to a request for comment and Shell declined to comment about whether its plant could close ahead of schedule.

SHRINKING SECTOR

Around 30 European refineries have shut down since 2009, data from refining industry body Concawe show, 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 because of the impact of the coronovirus pandemic.

Most of the decrease took place in 2021 and 2022 as demand destruction during the COVID-19 pandemic forced shutdowns.

European refineries don't produce enough diesel to meet regional needs but produce too much gasoline and rely on exports to clear excess supply.

West Africa has long been the main outlet for gasoline that doesn't meet stricter environmental restrictions in Europe on sulphur and metals content.

That trade accounted for $17 billion in 2023, according to price data from Argus Media and Reuters calculations.

The Dangote refinery, funded by Africa's richest man Aliko Dangote, was configured to produce as much as 53 million litres of gasoline a day, about 300,000 bpd.

Plants that have funds to reconfigure could direct gasoline exports to the U.S. or South America, Kpler senior refining analyst Yaping Wang said.

"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 U.S. bank which lends to oil companies.

European gasoline exports https://reut.rs/49cA0Ig

(Additional reporting by Dmitry Zhdannikov and Ron Bousso in London, and Isaac Anyaogu in Lagos; Editing by Dmitry Zhdannikov and Elaine Hardcastle)

((Ahmad.Ghaddar@thomsonreuters.com; +442075424435; Reuters Messaging: ahmad.ghaddar.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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