REFINING CAPACITY IN AFRICAN COUNTRIES: SAME SIDE OF
DIFFERENT COINS
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Africa has
never actually lived up to expectation in that segment of the downstream sector;
traditionally relying on crude product export to Europe, America and the Middle
East, where refineries compete better in many aspects. That traditional
dependence has now come under severe criticism and recent events are
challenging the practice. Rising Oil and Gas production in Africa, tighter
product specifications, international pressure on market liberalization and
forecasts about rising energy demands (both in domestic markets and the global
market) are contributing to a common pool of forces that challenges the status
quo in African refining business.
Thankfully, stakeholders
are now awake to the deafening call to grow and improve refining capacity, in
order to compete better and to drive regional economic growth. In 2006, African
Refiners Association (ARA) was formed to achieve the needful and lead in the
creation of a common voice and tool to reposition the segment.
The sad outlook: The
problem with the numerous refineries in African countries is almost the same
and the pressures they face are the same side of different coins. Following the
completion of the El Nasr refinery in Egypt in 1913, about 55 other refineries
have been built in Africa; 21 in North Africa and 19 in Sub-Saharan Africa
(SSA). Many new refineries are also proposed in various countries such as
Nigeria (Dangote Refinery/Petrochemical and Fertilizer plant, valued at $9.0b with
a capacity of 400,000 bpd) Angola (Lobito Refinery in Benguela with a capacity
of 200,000 bpd and expected in 2018) Uganda and Sudan have proposed projects
too.
However, the
older refineries’ performances are far from optimal. This is in spite of huge regional/global
market potential and favorable conditions such as increasing population growth
that will drive urbanization/rise in vehicle usage. Others include, regional economic
growth forecasts and rising per capita income (in many African nations), all
coupled to the dwindling fortune of many refineries in Europe (OGJ’s 2013
survey, shows a global drop in refining capacity in both number and volume -10
and 900,000b/cd - respectively; mostly in Europe and Asia)
In Response to
the numerous challenges, ARA conducted a joint report with the World Bank in
2009 to evaluate the future investment needs of SSA refineries. The report
found that SSA refineries’ operation are inefficient and have massive need for investments
to enable them improve productivity and efficiency. The report suggested that the
health benefits and macro-economic derivatives of such investments in
refineries’ upgrade, largely outweighs the cost. What are the issues?
Low
Complexity/Utilization: most refineries in Africa have low capacity and
complexity relative to the refineries in Europe, Middle East and America. Refineries
in these regions process upward of 200,000 bpd and frequently possess cracking
capacity. In contrast, of the twenty one
(21) refineries in North Africa only eight (8) have a capacity of 100,000 bpd
or more and only one (1) has cracking units (MIDOR in Alexandria, Egypt) In Sub-Saharan
Africa, seven (7) refineries have capacities greater than 100,000 bpd and ten (10)
have cracking units. In spite of the relatively low As-Built potential, these
facilities normally operate below capacity due to many reasons. Some of which
are operational and maintenance negligence, investors’ unwillingness (or inabilities)
to support upgrade initiatives, low power supply and frequent pipeline
vandalism (for example in Nigeria).
The low
complexity, make some of these refineries unable to take economic advantage (import
parity pricing) of refining local products (when they are sour crude). This is
because additional functional units required for processes such as desulfurization
are lacking. This is the case of SoNaRa Refinery in Cameroon and its local Kole
terminal products, as well as, SIR in Ivory Coast and its Baobab and Espoir fields.
They prefer Nigeria’s Forcados and Bonga light crude products, to minimize both
desulphurization needs and the production of large volumes of low-fuel oil.
Political/Fiscal
Uncertainties:
Product subsidies and a regulated petroleum products
market which is common in most African markets is also a problem. African
nations are increasingly coming under pressure from the international community,
through the IMF and the World Bank to liberalize markets and deregulate
products.
The response
has been slow from many African leaders. However, the challenge is that
government imposed prices on refined outputs make domestic price artificially
low (where the primary market is domestic). This discourages a market driven
private sector participation and encourages corruption. In circumstances where governments
delay in paying subsidies to these refineries, cash flows are negatively
impacted leading to enterprise problems that may be cascaded throughout the
plants’ operations.
Tighter Product
Specifications:
adapting to the need for tighter product specifications
is a big challenge for most African refineries. The move to unleaded gasoline
proved herculean for many of these facilities. Other specification changes such
as the lowering of sulphur levels in both gasoline and gas oil are proving to
be very big hurdles for them to cross too. Upgrading to meet these new challenges and the
provision of additional units will require huge sums that are either not available
due to dwindling margins or are impossible due to other internal considerations.
These challenges
are valid threats to continued operation and they make majority of the
refineries unprofitable/uncompetitive with those in other regions of the globe.
Unless Africa’s refiners - through ARA - and the leadership of African nations
come together to collectively chat a way forward, this segment may experience
even more threats.
Through valid
policies and collaboration with all stakeholders, strategies and action plans
may be crafted that holds the promise of salvaging the segment. Only then can
the positive economic indices in Africa and the promises which its resource endowment
holds for the people, be actualized.
Originally published in Sweetcrudereports
*Chijoke K. MAMA is a Senior Oil and Gas Analyst in
Lagos, Nigeria. Chijioke.mama@yahoo.com | 070-6101-3333
Sources of Information
African Refiners Association | CITAC Africa LLC | Richard Augood (Downstream focus) |Final Report: Sub-Saharan Africa Refinery
Project (Africa Refiners Association and the World Bank) | Dangote Group | Oil and Gas Journal (OGJ
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