The inauguration of Nigeria’s Dangote oil refinery marks a pivotal moment in the global energy landscape, potentially ending a decades-long $17 billion annual gasoline trade from Europe to Africa. This development puts European refineries, already teetering on the brink due to stiff competition, under further pressure. The refinery, which started production in January after a $20 billion investment, has the capacity to refine up to 650,000 barrels per day (bpd), setting the stage to become the largest in both Africa and Europe upon reaching full capacity either this year or the next.
Nigeria, Africa’s most populous nation and leading oil producer, has historically been reliant on imported fuel due to a significant lack of refining capacity. This reliance has made Nigeria, and West Africa more broadly, a key market for Europe’s gasoline exports, with about a third of Europe’s 1.33 million bpd average gasoline exports in 2023 destined for West Africa, according to Kpler data.
The Dangote refinery’s entry into the market could significantly disrupt this dynamic. “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,” noted Eugene Lindell, head of refined products at consultancy FGE. This situation is exacerbated by the impending risk of closure facing 300-400,000 bpd of refining capacity in Europe due to the rise in global gasoline production.
European refineries, especially coastal ones geared towards exports, find themselves particularly vulnerable. An executive from a European refinery highlighted the stark reality: “The changes won’t happen overnight, but they could ultimately lead to closures of refineries and their conversion to storage terminals.” The looming oversupply of gasoline and the resultant squeeze on refining margins could precipitate the early closure of facilities like the UK’s Grangemouth and Germany’s Wesseling refineries.
The backdrop to these developments is the broader trend of refinery closures across Europe, driven by competition from newer, more complex plants in the Middle East and Asia, and compounded by the coronavirus pandemic’s impact. Since 2016, Europe has seen a reduction of 1.52 million barrels per day in operational crude distillation capacity. The Dangote refinery’s emergence comes at a time when European refineries are grappling with an excess production of gasoline and a deficiency in diesel, relying heavily on exports to manage surplus supply.
The refinery’s capacity to produce up to 53 million liters of gasoline a day, approximately 300,000 bpd, signifies a monumental shift. The decline in West African imports of European gasoline, coupled with incoming environmental regulations in Northwest Europe, necessitates a strategic pivot for many plants. While some may have the financial backing to reconfigure for new markets, the challenge of securing funding for such upgrades looms large, with banks increasingly hesitant to back fossil fuel projects.
The Dangote refinery not only heralds Nigeria’s stride towards energy independence but also underscores the shifting dynamics within the global refining industry. As European refineries face the reality of adapting to a changing market or facing closure, the global energy sector stands at a crossroads, with sustainability and economic viability at the forefront of the discourse.
