The decision by Nigeria’s President Bola Ahmed Tinubu to remove the very popular but expensively scandalous fuel subsidies has reduced the demand for petrol in the West African country and also removed incentives for smugglers. Nigeria had been a popular destination for refined fuel from the EU, and with the current development, the EU refiners need to look elsewhere to break even.
One of Europe’s main markets for gasoline has shrunk, threatening to squeeze European refiners, after Nigeria removed fuel subsidies, which destroyed much of the country’s domestic demand and a regional market for smuggled fuel.
North America and West Africa (WAF), with Nigeria at the helm, historically have been the top two destinations for petrol exports from Europe, which produces more gasoline than it uses, meaning its refiners rely on exports to support profit margins.
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.
At the end of May, Nigeria’s President Bola Tinubu scrapped a popular but expensive subsidy on the fuel, which cost the cash-strapped government $10 billion last year. Petrol demand in response fell by 28%, official data showed.
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.
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.
Average monthly West African (WAF) gasoline imports fell by 56% in the second quarter compared with the first, according to Refinitiv Eikon data.
“The key point is demand from West Africa is drying up,” said Refinitiv Lead Oil Analyst Raj Rajendran.
Seasonally, June loadings from the Amsterdam-Rotterdam-Antwerp (ARA) hub to West Africa fell to 629,000 tonnes this year from 895,000 tonnes last year and 1.2 million tonnes in 2021, Refinitiv data showed. Loadings dropped to 627,000 tonnes in July so far this year from 1.5 million tonnes last year and 1.4 million tonnes at the same time in 2021.
Nigeria Subsidy Removal Puts Pressure On EU Refineries – Politics – Nigeria (nairaland.com)