Nigeria’s newly operational Dangote oil refinery, established by Aliko Dangote, is making significant inroads into the West African gasoline market. By increasing gasoil exports, the refinery is capturing market share traditionally held by European refiners. This strategic manoeuvre has notable implications for both regional and international markets.
The $20 billion Dangote refinery produces a lower grade of gasoil than initially anticipated. This is due to the ongoing restart of certain units required to produce cleaner fuels. Consequently, the refinery has turned its attention to neighbouring West African markets for its gasoil sales.
In May 2024, the refinery’s gasoil exports surged to nearly 100,000 barrels per day (bpd), almost doubling the export levels of April, as reported by analytics firm Kpler. Most of these exports were directed towards other West African countries, with one shipment reaching Spain.
Despite a sharp decline in preliminary June gasoil volumes, the overall export of oil products, including fuel oil, naphtha, and jet fuel, remained relatively high at 225,000 bpd.
Impact on European and Regional Markets
The increased output from the Dangote refinery is reshaping the balance of supply in West Africa, subsequently impacting European markets. Reuters reports that a European distillates trading source noted that the refinery’s activities have altered the market dynamics in the region.
In May, EU and UK gasoil exports to West Africa plummeted to a four-year low of 29,000 bpd, while Russian exports to the region dropped to an eight-month low of 87,000 bpd.
Despite facing challenges, including a dispute with local fuel retailers over the sale of high-sulphur gasoil, the refinery continues to supply the Nigerian market with its current production. This situation arises amidst Nigeria’s regulatory changes.
A 2021 oil law mandated a maximum sulphur content of 50 parts per million (ppm) for gasoil, aligning with the ECOWAS standards adopted in 2020. However, to facilitate the transition, the regulator allowed the sale of gasoil with up to 200 ppm sulphur content until June 2024.
Future Prospects
As European countries, including Belgium and the Netherlands, enforce stricter regulations on high-sulphur gasoil exports, Dangote’s refinery has found a receptive market in regions with more lenient motor fuel standards. A trading source familiar with the refinery’s specifications revealed to Reuters that it has been producing and exporting gasoil with a sulphur content ranging from 800 to 1,300 ppm, significantly above the 200 ppm limit.
Nevertheless, Dangote Refinery is actively working towards meeting the new standards. According to Davakumar Edwin, an executive at the refinery, the necessary equipment has been commissioned, and the refinery aims to achieve a gasoil sulphur content of 10 ppm within two weeks.
An analytical viewpoint
Dangote’s decision to explore and expand into the West African gasoline market is a strategic response to the current production capabilities and market conditions. By leveraging its proximity to neighbouring countries with less stringent fuel standards, the refinery can maintain and increase its export levels despite the lower grade of gasoil produced.
This approach helps capitalise on immediate market opportunities and positions Dangote Refinery as a key player in the regional oil market. The refinery’s impact on reducing European and Russian gasoil exports to West Africa signifies a shift in market dynamics, potentially leading to more competitive pricing and supply options for regional buyers.
As the refinery progresses towards meeting stricter sulphur content standards, it will likely enhance its competitiveness further, opening up additional markets and solidifying its presence in the global oil industry.
Dangote’s strategic entry into the West African gasoline market reflects a well-calculated move to optimize its production capabilities and capture market share amidst evolving regulatory landscapes.