Tracking data, according to S&P, indicates that when the Dangote refinery reaches full capacity, it will change the world’s crude flows. After starting operations in January, Nigeria’s $20 billion Dangote refinery is expected to have a significant impact on global crude flows when it achieves full capacity, according to trading sources and ship tracking data.
Nigeria is the biggest oil producer in sub-Saharan Africa, producing 1.5 million barrels per day in June, according to S&P Global Commodity Insights’ Platts OPEC Survey.
Due to a shortage of refining capacity, all of the nation’s oil was exported up until this year, with petrol, diesel and jet fuel imported for domestic consumption.
According to company sources and ship tracking data, the factory scaled to 400,000 b/d in its first six months and supplied diesel, jet fuel, naphtha, and fuel oil to both domestic and export markets.
Nigeria should start producing petrol in the middle of August.
However, the S&P assessment revealed that the refinery has already impacted crude flows, with numerous Nigerian cargoes still being in the nation and the importation of US WTI Midland, a similar light, sweet quality.
Thus, the market for light, sweet crude could get tighter due to the mega-refinery.
A West African crude dealer told Commodity Insights, “Its diet is WTI and the lighter Nigerian [crudes] so if you were chasing those barrels you’d probably feel it quite keenly.”
“‘Severely disrupted’ (will be) the headline once they reach 650,000 b/d without any WTI Midland.”
Initially, WTI Midland oil was the preferred feedstock to augment Nigerian supplies; the refinery entered into long-term supply agreements for the US grade, observing its favourable cost. WTI Midland entering Rotterdam was recently valued by Platyts, a division of Commodity Insights, at $82.36/b on July 31. On the same day, Nigeria’s Bonny Light was valued at $82.80/b.
Through 18 voyages, 30% of the petroleum supplied to Dangote was of the US grade.
Domestically, Dangote has claimed that in June, IOCs were allegedly charging it $6/b more for crude, which prompted Nigeria’s government to try and compel local supply at the “market price” and enable currency payments for crude.
Owner Aliko Dangote announced on July 14 that the plant would use more feedstock, including Brazilian, Angolan, and Libyan oil.
“The refinery was constructed in Nigeria to process and value Nigerian crude oil.” “Why should we stray from that focus?” a Dangote official asked, adding that while the refinery was still open to any and all chances “to supplement it,” the problems with the crude supply were “getting resolved.”
The Dangote Refinery is equipped to handle various light and medium-grade crude oils, such as Nigerian grades, according to Rasool Barouni, Associate Director and Head of Refining at S&P Global Commodity Insights.
“Other comparable grades, such as WAF grades, might be an option.”
The Dangote refinery’s fluctuations in crude output have an impact on other markets, particularly Europe, which is Nigeria’s biggest buyer of light, sweet oil.
Only US oil imports have decreased more than Nigerian crude imports in Europe since January, according to S&P Global Commodities at Sea statistics. In the meantime, supplies to Europe have increased from Brazil, Egypt, Libya, and Guyana. Refinery maintenance and other factors might have contributed, analysts warn.
Since the refinery’s opening, Nigeria, a country that has not previously imported crude, has had the biggest growth in WTI Midland imports worldwide.
Asia and Europe, the primary export markets for US oil that has recently become known as a “swing” quality, may be impacted by an increasing demand for WTI Midland.
In order to fill the void left by the sanctions against Russian oil, Europe has increased WTI Midland imports by 20% for the past two years.
Macroeconomically speaking, Nigerian exports have decreased throughout the past quarters since last year. According to CAS data, Nigeria’s exports decreased from 1.5 million b/d in Q4 2023 to 1.4 million b/d in Q1 2024 and 1.24 million b/d in Q2 2024.
Analysts observe that the facility is already having an impact on the light, sweet complex, but they won’t fully evaluate it until it reaches 600,000 b/d and begins manufacturing petrol.
“Trade flows have undoubtedly been impacted by the refinery’s opening, particularly for Nigerian crudes and WTI,” Commodity Insights research associate director Payam Hashempour stated.
“But, once the refinery’s operation ramps up, we should see the full impact on global trade flows.”