After six months, Dangote's impact revolutionizes world oil markets

Dangote's $20 billion refinery is set to shake up international crude oil flows since its commissioning in January. With a planned capacity of 600,000 barrels per day (b/d), the facility could transform the energy landscape not only in Nigeria, but on a global scale.

Background and importance of the refinery

Nigeria, as the largest oil producer in sub-Saharan Africa, extracts around 1.5 million barrels a day. However, due to a lack of refining capacity, the country used to export its entire production while importing refined products such as gasoline, diesel and kerosene. The new Dangote refinery, built by Africa's richest man, Aliko Dangote, aims to reverse this trend and make Nigeria self-sufficient in fuel.

The problem of subsidies and the illicit market

Costly gasoline subsidies have encouraged a thriving black market in smuggled fuels in neighboring countries. The Dangote refinery, with its 600,000 b/d capacity, was designed to meet domestic demand, reducing dependence on imports and mitigating illicit trade.

Initial impact and capacity

Since its commissioning, the refinery has reached a capacity of 400,000 b/d, supplying diesel, kerosene, naphtha and fuel oil to national and international markets. Production of gasoline, the main fuel used in Nigeria, is scheduled for mid-August.

Effects on crude oil flows

The refinery's influence on crude flows is already noticeable, with a significant reduction in Nigerian crude exports and the import of US WTI Midland, a comparable light, sweet crude. This could tighten the market for light, sweet crude, as one West African crude trader pointed out: "Once they hit 600,000 b/d without any WTI Midland, 'severely disrupted' [will be] the stock."

Start-up challenges

The refinery, although designed to process mainly Nigerian crude, encountered supply difficulties. The Nigerian National Petroleum Company (NNPC), initially a 20% shareholder, had agreed to supply 300,000 b/d, but failed to meet this commitment, leading to tensions between the refinery and Nigeria's energy regulators.

Diversification of raw materials sources

To date, the refinery has received around 170,000 b/d of Nigerian crude, supplemented by US Midland WTI representing 30% of crude delivered. However, difficulties in accessing foreign currency have led to delays and uncertainties over the reliability of this supply stream. In response, the refinery is exploring other sources of crude, notably from Senegal, Libya, Angola and Brazil.

Impact on international markets

The impact of the Dangote refinery is already being felt in European markets, traditionally large consumers of Nigerian crude. European imports of Nigerian crude have plummeted, replaced in part by supplies from Brazil, Egypt, Libya and Guyana. Nigeria, which previously imported no crude, has seen a sharp rise in imports of WTI Midland since the refinery's inauguration.

Long-term consequences

Nigerian exports fell from 1.5 million b/d in Q4 2023 to 1.24 million b/d in Q2 2024. Growing interest in Midland WTI could also have an impact on Asian and European markets, the main buyers of US crude.

The Dangote refinery is destined to play a pivotal role in transforming crude oil flows and international oil markets. Although start-up challenges remain, the facility is poised to redefine Nigeria's energy self-sufficiency and reshape global trade dynamics. Reaching its full capacity of 600,000 b/d and the start of gasoline production will be crucial milestones in assessing its full impact.