European refiners squeezed in Africa by rising U.S exports
* U.S. gasoline exports to West Africa surge in July
* European sales to West Africa down 10 pct so far this year
LONDON, July 22 (Reuters) - A sharp increase in U.S. gasoline exports to West Africa is threatening to undercut European refiners' dominance of that market, further darkening the outlook for an industry that has already been shrinking.
A surge in U.S. refinery runs and strong incentives to export fuel products due to renewable ethanol credits, known as RINs, have led to an unprecedented wave of U.S. shipments to well established outlets in Latin America as well as to secondary markets such as West Africa (WAF).
"This could be another turn of the screw against European refineries if the U.S. manages to establish more of a foothold in that WAF market, further limiting European product demand destinations," Simon Newman, head of tanker research at ICAP Shipping, said.
Europe's refining industry has in recent years been hit by declining domestic demand, which has forced a painful consolidation, and by growing competition from Russia, where new modern refineries are ramping up output.
Independent refiners in Europe such as Saras and OMV are facing pressure from tight margins. U.S. firm Murphy Oil is reported to be trying to sell its Milford Haven plant in England, and Philips 66 has put Ireland's only refinery on the market.
European gasoline exports to West Africa averaged 175,000 barrels per day (bpd) in 2012 but have declined by around 10 percent so far this year, traders said.
By contrast, U.S exports have shot up in July to around 45,000 bpd from an average of around 6,000 bpd in 2012, according to trading sources and U.S. Energy Information Administration data.
"If the volumes imported from the U.S. back out European barrels, then Europe will be in trouble. Exports to West Africa have been supporting Europe for a while," a European trader said.
The completion of mega refineries in the Middle East starting later this year will deprive Europe of other outlets in the eastern Mediterranean, the Middle East and Asia.
EUROPEAN CARGOES DIVERTED
West African demand for gasoline averaged 260,000 bpd in 2012, of which around 230,000 bpd went to Nigeria, and was expected to rise this year, according to traders.
But at least four tankers, amounting to over 150,000 tonnes of gasoline, are heading or are planned to leave the U.S. Gulf to West Africa in July, according to shipping data, seven times higher than the 2012 monthly average.
While Nigeria, the most populous country in the region, absorbs most of the exported volumes, at least one vessel from the United States is also heading further south towards Namibia.
U.S. refineries have benefited in recent years from abundant and cheaper shale oil, which also favours increased production of gasoline.
But for European refiners and traders, a steady decline in exports to the U.S. East Coast, historically their main gasoline outlet and a support for margins, has made WAF a more important destination.
The tough competition in West Africa would leave Europe with few places to sell an excess of gasoline, even though more European cargoes have gone to Latin America recently, partly to cover refinery outages.
"Gasoline from Europe is being diverted to Asia, which is a longer route, and that will be happening more often as the market undergoes a structural re-balancing. That is not so good for European refiners that have to incur more freight costs and as a result lower product prices," oil analyst Patrick Kulsen said.
Europe's refining margins, or cracks, averaged $6.18 a barrel over the past year, compared with $21.17 a barrel in the United States.