There’s a surge in Atlantic Basin refining activity. The Dangote refinery in Nigeria is currently operating at around 60% capacity and aims to reach full capacity. Additionally, the Port Harcourt, Warri, and Kaduna refineries are increasing their run rates, amongst others in West Africa. Another major challenge for Northwest Europe refineries is the higher input costs compared to two years ago, particularly due to the loss of Russian Urals crude, which was previously a key supply source before the invasion of Ukraine. European refiners are having to source crude from alternative locations, adding complexity and cost. Compounding these challenges are new environmental regulations, including stricter EU ETS emissions standards for shipping and the Fuel EU Maritime initiative, both of which will add extra costs to transportation. Additionally, from May 1st, in the Mediterranean, the ECOZONE is coming into play, which will alter fuel consumption patterns and refinery mix strategies as we head into the second half of 2025.
Could we see shipping back to ‘normal’ in the Red Sea this year?
Right now, there’s no full-scale effort to resume shipping through the Red Sea because the Houthis still hold the cards, and I don’t think shipping companies are willing to take that risk just yet. Tankers and dry bulk carriers would likely be the first to test the waters, some already have, despite higher insurance rates and the need for armed security on board. Container ships, on the other hand, will face greater logistical challenges in reverting to previous routes. Once supply chains adjust to alternative paths, changing them back is a massive undertaking. Companies risk losing customers who have adapted to the new logistics. Yes - sailing through the Suez Canal instead of around Africa saves two weeks, but right now, that’s a high-risk two weeks. A fully loaded container ship is a large, visible target compared to a tanker or dry bulk carrier, which have lower profiles. I don’t think we’ll see a full return to pre-crisis shipping patterns, but there will likely be a gradual increase as companies assess how the Houthis respond to maritime activity.