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How $20 Billion Dangote Refinery will Challenge Europe’s Oil Market – OPEC

Published by Tope Fakinlede on August 9th, 2024.

How $20 Billion Dangote Refinery will Challenge Europe’s Oil Market – OPEC

OPEC has highlighted that the world’s largest single-train Dangote Refinery in Nigeria will significantly impact Europe’s oil sector, particularly affecting the Northwest Europe (NWE) gasoil market. According to OPEC’s June 2024 Oil Market Report, the Dangote Refinery, which is a $20 billion project, is expected to pressure Europe’s oil industry, alongside strong supply increases from the Middle East and the new Mexican Olmeca refinery.

The report notes that Europe, a major importer of refined petroleum products, has been relying on supplies from Asia and the US following the EU’s ban on Russian diesel. The Dangote Refinery, which has already begun affecting international crude flows since its launch in January, is now targeting the European market after losing some crude oil suppliers.

Dangote Industries Limited’s Vice President of Oil and Gas, Devakumar Edwin, recently announced that the refinery had exported its first jet fuel cargo to Europe and plans to expand production rapidly. To date, the refinery has shipped 90 percent of its 3.5 billion liters of jet fuel and diesel to Europe, reportedly due to insufficient support from the Nigerian government.

OPEC’s report also indicated that the jet/kerosene crack spread in Rotterdam showed a slight decline in June, despite improving air travel. European demand for jet/kerosene is expected to rise as aviation consumption increases in the coming months.

In its initial six months of operation, the Dangote Refinery reached a production capacity of 400,000 barrels per day (b/d), supplying diesel, jet fuel, naphtha, and fuel oil to both domestic and export markets. The refinery is also anticipated to begin gasoline production by mid-August.

The refinery’s impact on crude flows is evident, with a significant portion of Nigerian crude staying within the country and increased imports of US WTI Midland, a comparable light sweet crude. The Dangote Refinery’s use of WTI and lighter Nigerian crudes may disrupt the light sweet crude market, particularly as it ramps up to its full capacity of 650,000 b/d.

The refinery has signed long-term contracts for WTI Midland due to its competitive pricing. Recent assessments place WTI Midland at $82.36 per barrel and Nigeria’s Bonny Light at $82.80 per barrel.

Aliko Dangote, President of Dangote Group, has stated that the refinery was designed to utilize Nigerian crude and enhance its value domestically. While the facility is open to diversifying feedstock sources, including Libyan, Angolan, and Brazilian crudes, it remains focused on Nigerian oil. Rasool Barouni of S&P Global Commodity Insights notes that the refinery can process various light and medium crude grades, including those from West Africa.

Nigeria, the largest oil producer in sub-Saharan Africa, produced 1.5 million b/d in June, according to the Platts OPEC Survey by S&P Global Commodity Insights.