Viewpoint: European gasoline trade in for a shake up

Gasoline flows out of Europe are likely to change in 2024 as traders seek to find an outlet for the region's growing oversupply in the face of tightening regulations and the long-awaited emergence of west African refining capacity.

Europe is structurally oversupplied with gasoline, and relies heavily on exports to clear its overhang. Theoretically, this requirement will be increasing as European refineries use lighter slates in the absence of Russian Urals. Light sweet crudes — which yield a greater volume of light products like gasoline — accounted for around 41pc of European imports in 2023, compared with 36pc last year, according to Vortexa data.

West Africa is Europe's primary outlet, accounting for around 28pc — or 13.2mn t — of European gasoline exports in 2023. Trade between Europe and west Africa underwent rapid change from April, as the export of cargoes migrated rapidly away from the Netherlands to Belgium, following the Netherlands' decision to tighten its export regulations on fuel quality in April (see table).

In the first quarter of the year, over 42pc of exports to west Africa originated from the Netherlands, with 30pc from Belgium. But from April to December that flipped, with 48pc of exports leaving Europe from Belgium, and only 21pc from the Netherlands.

The Netherlands had been looking to create a level playing field by encouraging its neighbours to implement similarly stringent regulation. Belgium's energy and environment ministers have outlined plans to bring the country into line with the Netherlands' stricter export regulations, and the Belgian government told Argus that the law could be adopted in the first quarter of 2024.

When this happens, exports to west Africa from Europe's largest blending and exporting hub, Amsterdam-Rotterdam-Antwerp (ARA), will have to be of higher quality, cutting into blending and refining margins as lower quality streams will be left over and have no clear outlet.

Traders have mixed views on the consequences of homogenised ARA regulation. West African demand could still be met by European cargoes that arrive via another jurisdiction. Ports in the west Mediterranean, such as Gibraltar and Algeciras, or ports in north Africa like Skhira, Tunisia, could be short-term solutions for blending. Other territories along the route like the Canary Islands could emerge as blending hubs.

The market could be in for a wider shake-up too. The Mideast Gulf may take some of Europe's market share in west Africa as new refineries such as al-Zour and Duqm continue to ramp up. Traders have also hinted that more US Gulf coast gasoline could find a home in west Africa, while gasoline that previously flowed from the Gulf coast to the US Atlantic coast could be replaced with cargoes from northwest Europe.

Latent Lagos, until now?

To add another layer of complexity and uncertainty — after years of waiting — refining capacity in Nigeria appears to be on track to grow in 2024.

Dangote is expected to start up, albeit at a lower throughput than its 650,000 b/d nameplate capacity indicates. At the same time, the 210,000 b/d Port Harcourt plant is also due to restart, having been offline since April 2021.

Dangote is due to receive six cargoes of crude totalling 6mn bl in December and early January, to support the plant's start-up requirement of 350,000 b/d. At full capacity the refinery will produce 326,000 b/d of gasoline, conforming to Euro V specifications. Traders are more tentative about the projected timeline for its start-up, and expect teething issues. But regardless, any refining capacity that results in lower volumes being exported to Europe's largest export outlet will see greater supply remaining in Europe, weighing on gasoline prices.

Regulatory hurdles in northwest Europe and increasing supply in west Africa will mean that the long-established trade route between the regions will experience swift and profound change in 2024.

By Jonah Sweeney

European gasoline exports to west Africa