NIGERIA’S colossal Dangote oil refinery, which commenced production in January, is poised to disrupt Europe’s lucrative gasoline trade with Africa, potentially ending a trade route valued at $17bn annually, according to analysts and traders.
With an investment of $20bn, the Dangote refinery has emerged as a game-changer, capable of refining up to 650,000 barrels per day (bpd). Once it reaches full capacity, expected either this year or the next, it will become the largest refinery in both Africa and Europe.
‘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 US specification,’ noted Eugene Lindell, head of refined products at consultancy FGE, referring to the more stringent environmental standards of other markets.
Analysts warn that as much as 300-400,000 bpd of refining capacity in Europe is now at risk of closure due to rising global gasoline production, creating significant pressure on refining margins.
A European refinery executive, speaking anonymously, highlighted the vulnerability of coastal refineries geared for exports, suggesting that closures and conversions to storage terminals might become inevitable in the challenging market environment.
According to Andon Pavlov, an analyst at Kpler, UK’s Grangemouth and Germany’s Wesseling refineries could be among the first to close ahead of schedule due to looming gasoline oversupply later this year.
‘The energy transition, causing demand for fossil fuels to dwindle, is one of the reasons behind our decision to shut down Grangemouth next year,’ Petroineos CEO Franck Dema told Reuters.
The Dangote refinery, spearheaded by Africa’s wealthiest individual, Aliko Dangote, has been strategically designed to produce up to 53 million litres of gasoline per day, approximately 300,000 bpd. Its emergence coincides with new environmental regulations in Northwest Europe, further complicating the future of European refineries.
As West African imports decrease, European refineries face the challenge of reconfiguring operations, seeking new markets, or confronting potential closures. However, the path to refinery upgrades is fraught with difficulties, including financing hurdles amidst a global push towards renewable energy.
‘Even if you find a bank which will fund a European refinery upgrade project, rates will be too high to make it work,’ noted an executive at a major US bank specialising in oil company lending.