The recent removal of fuel subsidies in Nigeria has had a significant impact on one of Europe’s major markets for gasoline, putting pressure on European refiners. Historically, North America and West Africa (WAF), with Nigeria as a key player, have been top destinations for petrol exports from Europe. European refiners heavily rely on exports to support profit margins as they produce more gasoline than they consume domestically.
In recent years, European refining margins have faced challenges due to increased competition from the Middle East, the United States, and Asia. However, this trend reversed temporarily after fears of fuel supply shortages arose following Russia’s invasion of Ukraine. Despite this, the market remained steady, supported by demand from North America, disruptions in inland water levels, and local refinery outages.
The situation took a significant turn when Nigeria’s President Bola Tinubu decided to scrap the fuel subsidy at the end of May. The subsidy, although popular, was expensive and cost the cash-strapped government $10 billion in the previous year. As a result of the subsidy removal, petrol demand dropped by 28%, based on official data.
The decline in demand for gasoline was evident in onshore gasoline stocks in Nigeria, which climbed to 960,000 tonnes compared to an average of 613,000 tonnes between January and June. Additionally, the black market for smuggled Nigerian fuel in neighboring countries, Togo, Benin, and Cameroon, has collapsed, further reducing demand for shipments via Nigeria. Before the subsidy removal, estimates suggested that over a third of petrol could have been illegally sold abroad daily from state oil firm NNPC’s depots.
Consequently, average monthly West African (WAF) gasoline imports plunged by 56% in the second quarter compared to the first quarter. Refinitiv Eikon data revealed a decline in June loadings from the Amsterdam-Rotterdam-Antwerp (ARA) hub to West Africa, further exacerbating the situation.
As Nigeria, Africa’s largest crude oil producer, heavily relies on imports due to inadequate domestic refining capacity, the weakened naira and soaring inflation have made imports increasingly unaffordable. The Dangote refinery, expected to address the domestic supply shortfall, has faced numerous delays, with full 650,000 barrels per day production not expected before the second quarter of 2025.
Analysts speculate that demand may not fully recover and suggest alternative supplies, such as imports from the Middle East Gulf and Russia, which are cheaper and more appealing to Nigerian buyers. Despite the challenges faced by European refiners, it’s the newer Middle Eastern refineries that could potentially benefit from the reduced demand in WAF.
As the market adapts to the changes brought about by the subsidy removal, the dynamics of the gasoline market will continue to evolve. The competition for market share will likely intensify, with suppliers from the Middle East and Russia looking to expand their reach beyond traditional markets, including West Africa and the Americas. European refiners must navigate these shifting dynamics and explore new strategies to remain competitive in the changing global energy landscape.