Nigeria’s $20 billion Dangote refinery is poised to significantly alter international crude flows as it reaches full capacity. Since its launch in January, the refinery has already impacted trade, according to trading sources and ship tracking data.
As sub-Saharan Africa’s largest oil producer, Nigeria pumped 1.5 million barrels per day (b/d) in June. Until now, all Nigerian oil was exported due to a lack of refining capacity, with gasoline, diesel, and jet fuel imported for domestic use. In its first six months, the Dangote refinery has scaled to 400,000 b/d, delivering diesel, jet fuel, naphtha, and fuel oil to both domestic and export markets.
Petrol production in Nigeria is expected to commence by mid-August. The refinery has already influenced crude flows, keeping many Nigerian cargoes domestic and importing US WTI Midland crude, a comparable light, sweet grade. This shift could tighten the market for light, sweet crude.
The refinery has favored WTI Midland crude, signing long-term supply contracts for its competitive pricing. As of July 31, WTI Midland was assessed at $82.36/b, while Nigeria’s Bonny Light was $82.80/b. WTI Midland has accounted for 30% of the crude delivered to Dangote through 18 cargoes.
Domestically, Dangote has faced challenges, alleging that international oil companies charged a $6/b premium for crude in June. In response, Nigeria’s government is seeking to mandate local supply at market price and facilitate payments in naira.
Aliko Dangote, the refinery’s owner, announced plans to diversify feedstock sources with Libyan, Angolan, and Brazilian crude. Despite initial supply issues, the refinery remains committed to processing Nigerian crude and other similar grades.
The Dangote refinery’s operations have affected other markets, particularly Europe, the largest consumer of light, sweet Nigerian crude. European imports of Nigerian crude have declined since January, while imports from Brazil, Egypt, Libya, and Guyana have increased. The refinery has also led to a significant rise in WTI Midland imports to Nigeria, affecting its availability in Asia and Europe.
Nigerian crude exports have decreased, with exports falling from 1.5 million b/d in Q4 2023 to 1.24 million b/d in Q2 2024. Analysts are watching for the refinery to reach 600,000 b/d and start producing gasoline to fully assess its impact, but it is already leaving a mark on the light, sweet crude market.
“The refinery’s opening has certainly had an impact on trade flows, especially for Nigerian crudes and WTI,” ThisDay quoted Payam Hashempour, research associate director at Commodity Insights saying. “But, we should see the full impact on global trade flows once the refinery’s operation ramps up.”
