Tankers: West Africa Oil Trade Shifting

The crude and product tanker trades in the West Africa are about to change, after the recent inauguration of the Dangote refinery in Nigeria. In its latest weekly report, shipbroker Gibson said that “the long-awaited massive 650kbd Dangote refinery in Nigeria was inaugurated in late May, following years of delays caused by logistical problems and pandemic related disruptions. The refinery is expected to begin operations this summer, although industry experts warn that commisioning is a very complicated process, not least due to the sheer size of the refinery and so is likely to take additional time. Energy Aspects believes there is a good chance that Dangote will reach 50-70% of operational runs in 2024, whilst the IEA assumes the refinery to be fully operational by mid-2024. An increase in crude deliveries into Lekki will signal the start of operations; however, so far this has not been witnessed. Similarly, we are yet to see any major decline in Nigerian seaborne crude exports”.

“Nonetheless, it was also recently reported that the Nigerian National Petroleum Corporation (NNPC), which acquired a minority equity stake at the plant and agreed to supply 300 kbd into the facility, has started to wind down crude swap contracts with traders and will pay cash for gasoline imports. These crude oil swaps, known as Direct Sale Direct Purchases (DSDP) have been in place since 2016, allowing NNPC to import gasoline from international and local trading companies and to repay them with crude. The company’s CEO also said that NNPC’s monopoly in gasoline supplies was ending and that private companies could start importing soon. The winding down of crude swaps contracts could be a sign that changes are approaching fast. The recent removal of fuel subsidies is another indication, as with subsidies in place, Dangote will not be able to complete in the domestic market”, said Gibson.

According to the shipbroker, “full scale operations at the plant are bound to lead to a further decline in West African crude exports. According to Kpler, regional shipments averaged 3.4mbd so far this year, down from a peak of 4.8mbd in 2015. Nearly 35% of regional barrels have been destined for the UK Continent/Mediteranean, 44% have been shipped East of Suez, whilst 12% have been exported across the Atlantic, mainly to the US and Canada. Crude exports are also vulnerable to anticipated further decline in West African crude production, with the latest IEA medium term report suggesting that supply could fall by 500 kbd between 2022 and 2028. The combination of declining crude output and full runs at Dangote mean that West African crude exports could potentially fall by over 1 mbd over the next five years, negatively impacting VLCC and Suezmax demand both into Europe and into developing Asia. Yet, providing that European crude intake does not fall off a cliff over the next five years, Europe will have to replace West African barrels with longer haul shipments from the US Gulf, Middle East and Latin America”.

The shipbroker added that “product tanker flows are also bound to transform. So far in 2023 West Africa imported circa 1mbd of clean products and these flows will also decline. However, with the EU ban on Russian products now in place, more and more Russian CPP is heading to West Africa. Direct Russian CPP shipments have accounted for 16% of total imports since March, up from just 4% on average last year. Ironically, it could make more economic sense for West African countries to buy discounted Russian products for the domestic market and re-sell Dangote output internationally at market values. The same could also be applied to crude. Yet, a lot here depends on the freight element and ability of international financers to intefere with trading decisions. Only time will tell what actually happens, but one thing is certain – Dangote will bring a transformational shift in both crude and product tanker flows to West Africa”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide