Nigeria’s Dangote refinery — a sea change in the Atlantic basin

Nigeria’s new Dangote refinery finally began operations less than six months ago and is already having a measurable impact on products flows and prices in the key Atlantic basin market. But the real test for the Atlantic basin products market is yet to come, with the plant’s gasoline and diesel production set to start imminently.

Dangote is a behemoth. With a capacity of 650,000 b/d, it is significantly larger than any asset in Europe — the biggest is Shell’s 404,000 b/d Pernis refinery in Rotterdam — and is the largest single-train refinery in the world, meaning that it has only one crude distillation unit, around which its processing operations are centred. The sheer scale and cost of the development left the industry somewhat dubious in recent years that it would ever come on line. But operations began in January this year — albeit having missed several previously touted start-up dates — and with it, the debate over whether Africa’s largest refinery would ever come on line came to an end.

The oil industry, however, does not appear to have learnt that lesson, as the debate has now moved on from whether the refinery would start up to if and when production will start at various refining units and for various refined products. And if that does start, whether output can be sustained.

But oil refineries are not built to sit idly, particularly when crude units must run at minimum rates of around 50pc — and Dangote has just the one that accounts for its 650,000 b/d nameplate capacity. Perhaps more importantly, returns are needed on what is a much-delayed, multi-billion-dollar investment.

Other units have followed relatively swiftly following the start of the crude unit in January. The refinery has already exported straight-run fuel oil, naphtha, gasoil and, more recently, jet fuel.
Products exports first left the port of Lekki, which serves Dangote, in March, with just over 3mn t leaving the site to date, according to Kpler data. Exports of straight-run fuel oil account for more than a third of the total, gasoil for around 800,000t, naphtha nearly 700,000t and jet fuel nearly 500,000t (see chart).

Buyers have been global, with products sailing for the US, Singapore, Nigeria, South Africa and South Korea, along with countries in northwest Europe — including the Netherlands and Spain (see chart). The same data show that refinery runs have been ramping up, with products exports in May rising to around 315,000 b/d, more or less half the refinery’s nameplate capacity and up from 238,000 b/d in April and 88,000 b/d in March. And that does not take into account exports leaving the refinery by truck for the Nigerian market. Exports have risen further still in June, Kpler data show, reaching 368,000 b/d in the first 10 days of the month.

Most of the products have been sold by tender, including jet fuel, which has arrived in Europe from the refinery in recent weeks. A sample dated 26 May seen by Argus shows the Dangote jet fuel now probably meets standard European specification A-1. The test contained 254ppm sulphur, far below the maximum 0.3pc content in jet A-1, and its freezing point was minus 57°C, stricter than the maximum European specification of minus 47°C. The arrivals have been a factor behind lower jet fuel cargo premiums to their diesel counterparts in recent weeks, according to European market participants, placing downward pressure on the jet complex in Europe, despite the fact that air travel activity and jet demand are rising as the peak summer season gets under way.

The next stage of Dangote’s ramp-up will centre on the products that typically require the use of secondary refining units, namely diesel and gasoline. The mild hydrocracker at the refinery has been approved to start by regulator the NMDPRA and will start imminently, given that chief executive Aliko Dangote has said diesel production will start in the week commencing 17 June. But gasoline production is being even more closely watched by the market, in light of west Africa’s, and in particular Nigeria’s, heavy dependence on imports of the fuel. Gasoline production at the refinery is now scheduled for 10-15 July, slipping slightly from a previous June start.

West Africa imported 18mn-19mn t of gasoline last year, with Nigerian imports accounting for the vast majority, Vortexa data show (see chart). Dangote has stated that at full tilt, gasoline output will be 1.1mn t/month, or 13.2mn t/yr. That would account for more than 70pc of west Africa’s import needs, and would dwarf last year’s imports from the Netherlands and Belgium, which encompass the key Amsterdam-Rotterdam-Antwerp hub — the heart of the European refining industry. 

That means that even with Dangote gasoline production at maximum capacity, imports will still be necessary to slake the region’s thirst — not least because demand for transport fuels is rising in Nigeria and west Africa. Gasoline imports to the region were also at a low ebb in 2023, as a sharp devaluation in the Nigerian naira made importing gasoline from Europe more expensive. 

Conversely, in Europe, demand for transport fuels is plateauing, and the region is already structurally oversupplied with gasoline. The substantial downsizing of one of Europe’s largest gasoline export markets means that those exports will have to become more price competitive if they are to continue to find a home, whether in west Africa or elsewhere.

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Author Elliot Radley, Editor, Argus European Products