The removal of fuel subsidies in Nigeria is having far-reaching implications, impacting refineries in Europe and squeezing European refiners. As a result of this development, the average monthly West African gasoline imports have plummeted by 56 per cent in the second quarter compared to the first quarter, according to Refinitiv Eikon data. Historically, North America and West Africa, with Nigeria as the top destination, have been major recipients of petrol exports from Europe.


European refiners have been experiencing benchmark profit margins for gasoline around $27 a barrel, supported by demand from North America, a shortage of high-quality blending materials, disruptions caused by low water levels inland, and local refinery outages.


However, the upheaval in Nigeria due to the fuel subsidy removal is expected to intensify pressure on European refiners. The reduction of fuel flows following the Nigerian situation is anticipated to benefit newer Middle Eastern refineries.


The decision to remove the petrol subsidy in Nigeria was announced by President Bola Tinubu at the end of May, leading to a 35 per cent drop in petrol demand, as reported by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). Additionally, onshore petrol reserves in Nigeria have increased to 960,000 tonnes from an average of 613,000 tonnes between January and June, indicating a decline in demand.


The removal of the subsidy has also impacted the black market for smuggled subsidized Nigerian fuel in neighboring countries such as Togo, Benin, and Cameroon, leading to a collapse in demand for shipments via Nigeria. The elimination of the subsidy has eliminated the financial incentive for smuggling.


The drop in demand for petrol from West Africa is a significant concern. Nigeria, being Africa’s largest crude oil producer, heavily relies on imports due to its inadequate domestic refining capacity. However, the weakening of Nigeria’s naira and soaring inflation have made imports increasingly unaffordable.


The much-anticipated Dangote refinery, designed to address domestic supply shortfalls, is facing delays, with full production of 650,000 barrels per day estimated to occur only in the second quarter of 2025, as per CITAC estimates.


While petrol consumption in Nigeria may not fully recover, the removal of the subsidy and its subsequent impact on demand have raised concerns and uncertainties in the country’s fuel market.