The removal of the petrol subsidy by President Bola Tinubu is taking a toll on European refiners, according to Reuters.
Citing Refinitiv Eikon data, the news agency reported that average monthly West African (WAF) fuel imports plummeted by 56 per cent in the second quarter compared with the first.
It revealed that both North America and West Africa, with Nigeria at the top, have been the top two destinations for petrol exports from Europe (which produces more petrol than it uses).
The data further disclosed that benchmark profit margins for petrol popularly known as gasoline in northwestern Europe have floated at around $27 a barrel.
“They have been supported by demand from North America, a shortage of high quality blending materials, disruption caused by low water levels inland and local refinery outages.”
“But analysts say the reduction of flows following the upheaval in Nigeria will increase pressure on European refiners, and any winners are likely to be newer Middle Eastern refineries,” the report read.
Tinubu, in his inaugural speech, on May 29, 2023, announced that the petrol subsidy regime was over and this took petrol demand to drop by 35 per cent, according to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
Speaking about the decline in demand, Jeremy Parker, Head of Business Development, CITAC consultancy, which focuses on Africa’s downstream energy industry, said onshore petrol reserves in Nigeria have increased to 960,000 tonnes from an average of 613,000 tonnes between January and June.
“Meanwhile, the black market for smuggled subsidised Nigerian fuel in Togo and neighbouring Benin and Cameroon has collapsed, further reducing demand for shipments via Nigeria,” Reuters said.
“There is no reliable data on how much fuel was smuggled out of Nigeria under the subsidy regime, but a comparison of estimates from official and independent sources indicate more than a third of petrol could have left state oil firm NNPC’s depots every day to be sold illegally abroad.
“Without the subsidy, the financial incentive for smuggling disappears.”
Corroborating the report on the effect of the subsidy removal on European refineries, Refinitiv lead oil analyst, Raj Rajendran, said, “The key point is demand from West Africa is drying up.”
“Imports, however, are increasingly unaffordable as Nigeria’s naira has weakened to record lows since the central bank removed currency restrictions in June. At the same time, inflation is near two-decade highs.”
“The huge, much-delayed Dangote refinery was designed to address the domestic supply shortfall, but full 650,000 barrel per day production is unlikely before the second quarter of 2025, CITAC estimates.”
Meanwhile, the analysts told Reuters that it is possible that petrol demand would not fully recover in Africa’s most populous country.
