S&P: Nigeria May Pay More for Fuel Imports on EU Countries‘ Decision to Raise Export Quality

Emmanuel Addeh in Abuja

Nigeria could pay more to import petrol and diesel in the coming weeks, following the decision of Netherlands and Belgium, where the country gets most of its fuel supply, to raise the specification and quality of their exports, S&P Global, has said.
The countries, THISDAY had reported early November, are taking new environmental measures to suspend low-quality motor fuel exports to Nigeria and other West African countries.

However, a team led by the S&P’s Global Director, Crude and Fuel Oil Markets, Joel Hanley, has suggested that Nigeria may need to look for alternatives to the Netherlands and Belgium or be prepared for a rise in product prices at the pumps as the European countries erase the double standard in terms of fuel quality.
The Amsterdam-Rotterdam-Antwerp (ARA) hub is the world’s leading petrol exporting region and hosts some of Europe’s largest oil refineries, including plants operated by TotalEnergies and Exxon Mobil.

In February 2022, a large consignment of imported petrol from Antwerp in Belgium, had to be withdrawn from the market in Nigeria, after it was found to have excessive levels of methanol, which was causing engine damage in vehicles.
Available data shows that in 2021, Nigeria imported $11.3 billion in refined petroleum, becoming one of the largest importers of refined petroleum in the world.
Nigeria’s imports of refined petrol during the year were: Netherlands ($3.62 billion), Belgium ($1.78 billion), Norway ($1.2 billion), India ($992 million), and United Kingdom ($760 million).

While Nigeria has in recent years cut sulphur content allowances for imported fuels, its current specification for petrol remains at 150 Sulphur Parts Per Million (PPM), three times above Belgium’s proposed limits. The maximum allowed sulphur content for petrol sold in the European Union (EU) is 10ppm.
On the impact that the new regulations could have and how the markets may react, S&P predicted that Nigeria could either decide to stomach the new prices or look to get dirtier fuels at cheaper prices from other parts of the world, including Russia and the Middle East.

Aside the reduction in sulphur, Belgium has now closed the door on its exports of low spec fuels out of the country, thereby reducing Benzene content to a maximum of 1 per cent and manganese to two milligrams per litre.
According to the research and analytics firm, this may have a significant impact on how much Nigeria pays for its import of the product since it now has a tighter specification, requires more catalysts, more pressure, more heat, or may even need a different crude oil type altogether.

“So, one of the big question marks here is whether West Africa will be prepared to stomach these higher costs which will be associated with better specification fuel  that needs to be exported as a result of these measures, or it will instead see a pivot to alternative suppliers or alternative blending hubs.
“Recently, we’ve seen Belgium being responsible for around 45 per cent of exports happening to West Africa. Whether that then shifts to alternative locations is something that we’ll need to monitor,” it added.

According to S&P, Nigeria and other West African countries had recently heightened their awareness of the health implications of high particulate matter associated with the lower spec fuels.
“But these European controls are more likely to be more market-moving, because previous measures that we’ve seen put in place have been largely ineffective, and there’s still a lot of opacity in the West African market.

“So for example, we’ve seen countries like Nigeria, the largest importer, set out to reduce sulphur limits from what was previously in the 1000s to subsequently 500 PPM and most recently, something in the level of 150 to 200 ppm for gasoline.
“But when we look at studies about the observed sulphur levels of gasoline in the country, that’s still sitting at something around 500 PPM when it comes to sulphur content.

“So measures put in place to try and tighten up regulations around the products that we are seeing in the country haven’t been able to reduce those flows or reduce the uptake of high sulphur content product.
“ Whereas in Europe, when we saw the Netherlands put these measures in place back in April, the flows of low sulphur gasoline actually seized up quite significantly from Rotterdam and Amsterdam.

“So the measures that have been put in place by Belgium are more likely to be market-moving because you have that compliance and trusted regulatory process that goes alongside it,” it added.
It argued that the Middle East may not provide a good alternative if Nigeria decides to jettison Europe because the region may not have the flexibility that Europe offers in terms of storage capacity, its deepwater ports, use of smaller blenders, among others.

Since Netherlands reduced exports to West Africa, S&P stated that Belgium’s share of African petrol exports across the  Amsterdam-Rotterdam-Antwerp axis have increased from about 42 per cent in Q2 to 58 per cent in Q3.
In the short to medium terms, the firm stated that looking to Russia to supply Nigeria petrol will not also be easy, but failed to rule out the Middle East and Russia as being likely candidates for new exports to West Africa.

“ It’s entirely possible that West Africa will have to start importing at a higher specification and there could be a real desire for that,” it added.
Nigeria currently imports almost all its fuels, as its refineries have since packed up due to years of mismanagement. The facilities in Port Harcourt, Warri and Kaduna are currently undergoing rehabilitation.