Expert Describes Dangote Refinery 'A Potential Game-Changer'

A report by Platts Analytics has described Dangote refinery in Nigeria will be a “potential game-changer” once it comes online.

The plant, which has a capacity to process 650,000 barrels of crude oil, has been described by Dangote Industries Limited as the largest single-train refinery in the world.

The Director of EMEARC Consulting at Turner, Mason & Company, Jonathan Leitch, was quoted by S&P Global Platts that following the start-up of the Dangote refinery, West Africa “which is a huge trading outlet for Europe will likely disappear.”

More European refinery closures and conversions are expecting in 2021 after dominating the sector in 2020 when the COVID-19 pandemic led to plunging demand for most oil products, with very weak margins and new capacity weighing on the sector next year.

For European refiners, COVID-19 only exacerbated structural weakness due to surplus gasoline production and competition from new capacity elsewhere in the world, according to Leitch.

“[But] the redundancies that arise from closures are difficult to accept politically,” he said.

READ MORE: Dangote Refinery To Begin Operation 2021

However, prolonged poor margins could speed up that process.

European margins are expected to remain “very weak” in Q1, according to Platts Analytics. It added that despite potential improvement during the gasoline season, they will “likely remain well below average levels.”

Meanwhile, new refineries are starting up. While Europe is unlikely to feel the impact of new plants in Asia which will mostly meet surging local demand, new export-oriented refineries in the Middle East will be ‘targeting’ Europe as an outlet, said Leitch.

Two new refineries in the Middle East, Jazan and Al-Zour, are due to start up at the beginning of next year, while several upgrading projects are nearing completion.

Platts Analytics expects that increasing Middle East refinery runs in 2021 will result in ‘increasing product exports to Africa and Europe’.

Modernisation at Russian refineries, albeit continuing at a slower pace, will further boost Russia’s significant diesel exports to Europe and could also turn Russia into a gasoline exporter.

Although Russia is not expected to pose significant challenges, Leitch said it ‘all adds together’.