As the start up of Nigeria's 650,000 b/d Dangote refinery approaches, the local crude market could shift away from being purely export-focused, leaving it less exposed to the fluctuations of global demand.
Typically, the bulk of west African exports is taken by refiners in Asia-Pacific and Europe, and price differentials for Nigerian and Angolan grades swing according to those markets' seasonal needs. The emergence of Dangote as a third regular outlet could bring some price stability.
For Nigeria, Africa's largest producer, Europe is likely to continue as the top destination for its crude in 2024. Nigerian exports to Europe are on track to increase in 2023 to 671,000 b/d — nearly 49pc of the total 1.38mn b/d — from 611,000 b/d in 2022, according to the latest data from Vortexa.
Chinese demand should continue to be the key factor driving the crude prices of Angola, the continent's second largest producer, and Congo (Brazzaville). Combined crude exports to China, their main outlet, are on course to rise to 743,000 b/d in 2023 from 652,000 b/d in 2022. However, the figure is far from the 902,000 b/d in 2021.
West African crude in general has lost market share in Asia-Pacific in the face of the stiff competition posed by discounted Russian crude, specifically light sweet grade ESPO Blend that has dented the market share of both Angolan and Nigerian exports in their traditional respective outlets of China and India.
A third way
Sellers of Angolan crude tend to adapt their offers faster to the demand picture than those of Nigerian crude sellers, market sources say.
This is partly because of a disparity in the length of time it takes for the crude to reach a final destination. A tanker carrying Angolan crude to China takes more than a month, while a tanker laden with Nigerian supplies takes around 20 days to reach a European terminal. This allows Nigerian cargoes destined for Europe to be traded closer to their loading dates than China-bound cargoes from Angola.
As the trading cycle for crude cargoes loading in January 2024 was coming to an end most Angolan cargoes had been placed, while at least half the Nigerian supplies were still looking for a buyer. Dangote may change this by the end of 2024.
Although it is unclear when the refinery will reach full operational capacity, it has received the first of six crude shipments, totalling 6mn bl, which will support the start-up requirement of 350,000 b/d. When fully operational, the refinery aims to provide all of Nigeria's gasoline needs, thereby redrawing the region's market for both this and other products, of which the country is currently a net importer.
Industrial conglomerate Dangote Group, which operates the refinery with an 80pc stake, has said that although the facility has been designed to run solely on Nigerian crude, it has the flexibility to process other grades, including most African crudes, Saudi Arab Light and US light grades.
It remains to be seen whether the Dangote refinery will eventually reduce the availability of west African crude in the global market. Market sources have said that having fewer cargoes available for export could add value to some grades.
