After Nigeria abolished fuel subsidies, which destroyed much of the country’s internal demand and a regional market for smuggled fuel, one of Europe’s primary markets for gasoline shrank, endangering European refineries.
North America and West Africa (WAF), with Nigeria at the leadership, have historically been the top two destinations for European petrol exports. Europe produces more gasoline than it consumes, so refiners rely on exports to maintain profit margins.
A continuous drop in European refining margins in recent years, as competition from the Middle East, the United States, and Asia increased, was reversed during Russia’s invasion of Ukraine when fears of fuel supply shortages boosted profits.
According to Refinitiv Eikon statistics, benchmark profit margins for gasoline in northwestern Europe have remained stable at roughly $27 per barrel thus far.
They have been aided by North American demand, a scarcity of high-quality blending materials, disturbance from low water levels inland, and local refinery outages.
However, analysts believe that the slowdown in flows as a result of the Nigerian unrest will raise pressure on European refiners, with any winners likely to be newer Middle Eastern refineries.
Nigeria’s President Bola Tinubu abolished a popular but costly fuel subsidy at the end of May, costing the cash-strapped government $10 billion last year. Official figures showed that in response, gasoline demand plummeted by 28%.
Onshore gasoline stocks in Nigeria have risen to 960,000 tonnes, up from an average of 613,000 tonnes between January and June, according to Jeremy Parker of the CITAC consultancy, which focuses on Africa’s downstream energy industry.
Meanwhile, the underground market for smuggled subsidised Nigerian fuel in Togo and neighbouring Benin and Cameroon has collapsed, lowering demand for shipments through Nigeria even further.
According to sources, more than a third of petrol may have fled the state oil firm NNPC’s depots every day to be illegally sold abroad. Without the subsidy, there is no financial incentive to smuggle.
According to Refinitiv Eikon statistics, average monthly West African (WAF) gasoline imports decreased by 56% in the second quarter compared to the first.
“The key point is that demand from West Africa is drying up,” said Raj Rajendran, Lead Oil Analyst at Refinitiv.
Seasonally, June loadings to West Africa from the Amsterdam-Rotterdam-Antwerp (ARA) hub fell to 629,000 tonnes this year, down from 895,000 tonnes last year and 1.2 million tonnes in 2021, according to Refinitiv data.
Loadings fell to 627,000 tonnes in July so far this year, down from 1.5 million tonnes last year and 1.4 million tonnes in 2021.
According to analysts, demand may not entirely rebound.
“Demand for barrels into WAF may be lower right now as the market adjusts to life after subsidies.” According to Sparta Commodities gasoline market analyst Philip Jones-Lux, “There may simply be a baseline decrease in demand.”
Jones-Lux recommends imports from the Mideast Gulf and Russia as alternatives that are less expensive and so more appealing to Nigerian shoppers. “The volumes appear small still, but not insignificant,” he remarked.
Sparta reports that petroleum from the Mideast Gulf is $35-$50 per tonne cheaper than ARA imports, over doubling last week’s difference, implying higher Middle Eastern fuel quantities into West Africa.
Nigeria, Africa’s largest crude oil producer, is heavily reliant on imports due to insufficient domestic refining capability.
Imports, on the other hand, are becoming increasingly pricey as the naira has fallen to record lows since the central bank relaxed currency restrictions in June. Simultaneously, inflation is nearing two-decade highs.
The massive, long-delayed Dangote refinery was intended to fill the local supply gap, but a full 650,000 barrel per day output is unlikely before the second quarter of 2025, according to CITAC.