End of Nigerian fuel subsidy set to squeeze Europe’s refiners

End of Nigerian fuel subsidy set to squeeze Europe’s refiners

The removal of fuel subsidies in Nigeria has led to a decrease in one of Europe’s main markets for gasoline, which could have negative implications for European refiners. Nigeria, along with North America and West Africa (WAF), has historically been a top destination for petrol exports from Europe. However, the removal of fuel subsidies in Nigeria has significantly reduced domestic demand and the regional market for smuggled fuel.

European refiners heavily rely on exports to support their profit margins, as Europe produces more gasoline than it consumes. In recent years, European refining margins have been declining due to increased competition from the Middle East, the United States, and Asia. However, profits were boosted after Russia’s invasion of Ukraine, which led to fears of fuel supply shortages. Currently, benchmark profit margins for gasoline in northwestern Europe remain steady at around $27 a barrel.

The demand for gasoline in Europe has been supported by factors such as demand from North America, a shortage of high-quality blending materials, disruptions caused by low water levels inland, and local refinery outages. However, the reduction in flows following the removal of fuel subsidies in Nigeria is expected to increase pressure on European refiners. The winners in this situation are likely to be newer Middle Eastern refineries.

In May, Nigeria’s President Bola Tinubu eliminated the expensive fuel subsidy, which cost the government $10 billion last year. As a result, petrol demand fell by 28%. Onshore gasoline stocks in Nigeria have increased, indicating a fall in demand. Additionally, the black market for smuggled Nigerian fuel in neighboring countries has collapsed, further reducing demand for shipments via Nigeria.

The removal of the fuel subsidy has eliminated the financial incentive for smuggling. As a result, average monthly West African gasoline imports have decreased by 56% in the second quarter compared to the first. This decline in demand from West Africa is concerning for European refiners.

Gasoline stockpiles in the Amsterdam-Rotterdam-Antwerp (ARA) hub are higher than they have been since 2003, as U.S. exports from the region have not fully compensated for the lower exports to West Africa. Nigeria heavily relies on imports due to its inadequate domestic refining capacity. However, imports have become increasingly unaffordable due to the weakening of Nigeria’s currency and high inflation. The Dangote refinery, which was designed to address the domestic supply shortfall, is not expected to reach full production until the second quarter of 2025.

Analysts believe that demand may not fully recover and there could be a baseline decrease in demand for barrels into West Africa. Alternative supplies from the Middle East Gulf and Russia are becoming more attractive to Nigerian buyers due to their lower costs. While the volumes of these alternative supplies are still relatively small, they are not insignificant.

Russian gasoline flows into West Africa have been increasing since January, but cumulative volumes are still small. However, the challenge for European refiners is not just from Russia, but also from new refineries in the Middle East that are expanding their market to include West Africa and even the Americas.

In conclusion, the removal of fuel subsidies in Nigeria has significantly impacted the European market for gasoline. European refiners are facing increased pressure as demand from West Africa decreases. Alternative supplies from the Middle East Gulf and Russia are becoming more attractive to Nigerian buyers. The situation highlights the challenges faced by European refiners in an increasingly competitive global market.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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