Stalled Africa refinery plans offer Europe hope: analysis


Only a tiny portion of the planned refinery projects in sub-Saharan Africa will be on-stream by 2015 because of a lack of foreign funding, offering battered European refiners a glimmer of hope.

While Africa is a growing crude oil producer and demand for transport fuels is booming, the continent is still trapped in the pattern of exporting crude oil and importing refined products and nothing looks to change.

News of stalled African refining projects could act as a fillip for the ailing European refining business facing the twin challenges of weak domestic demand for its products and fading export opportunities.
“In sub-Saharan Africa, all the projects are challenged. There are lots of existing and new refining projects that will compete for these deficit markets,” said Alan Gelder, head of downstream consulting at Wood Mackenzie.

Europe will be well placed to meet sub-Saharan Africa’s growing demand for transport fuels, especially if the planned switch to cleaner fuel specifications takes place, analysts said.

Many sub-Saharan African refineries are small, with no desulphurisation capacity and only limited ability to upgrade to lighter transport fuels.

The region currently imports about 1.4 million barrels per day (bpd) of refined products, excluding fuel oil, downstream African consultancy CITAC said.

Arbitrage appeal

For complex refineries in Europe now finding themselves new to the downstream relegation zone, sub-Saharan Africa is exactly the type of market it requires, offering the benefits of relative proximity and a demand portfolio skewed towards gasoline.

African oil product consumption will grow by 40 % by 2020 to 4.3 million bpd with most new demand for diesel and gasoline, according to CITAC.

The West African market already a key export route will grow by 60 % over the same period, it said.

The loss of other export routes means that it is no longer just small, landlocked refineries in Europe at risk of closure as complex refineries struggle to find outlets for their surplus gasoline.

Earlier this month, Chevron Corp put its 210 000 barrel a day complex UK Pembroke refinery up for sale.

Analysts estimate European gasoline exports to the United States will fall to 850 000 barrels a day this spring, from 1 million in 2008 due to weaker demand and higher ethanol blending.
“If demand for gasoline imports into the United States diminishes, Europe will find West Africa an important outlet for excess production,” said consultant Elitsa Georgieva at CITAC.

The risk of US sanctions on those supplying gasoline to Iran could also eventually snuff out a further 150 000 bpd market, based on the size of the spot market last month.

A handful of major oil companies and trading firms operating in Europe including Shell, BP and Glencore have already halted supplies to the Islamic Republic.

Chinese investment

The only projects that look set to go ahead in sub-Saharan Africa before 2015 are those funded by the Chinese, according to two analysts.

Wood Mackenzie expects only two 20 000 bpd projects funded by China National Petroleum Corp (CNPC) in Chad and Niger to be built by then.

This represents less than 2 % of the planned projects amounting to 2.3 million bpd, according to Reuters estimates. A second consultancy, JBC Energy, also said these two projects were the only ones it expects to come on-stream by 2015.

While analysts said there are sound reasons to boost African capacity, the risk of operational disruptions in some countries act as a deterrent. Nigeria’s four state-owned refineries have never run at full capacity because of both sabotage and irregular maintenance.

For others, the huge investment required to reconfigure refineries that are often not equipped to handle even domestic crude grades is simply not worth it given the vast number of other international suppliers.

Even in the best case scenario where the refinery projects in Angola, Chad and South Africa are all funded and built before 2015, sub-Saharan Africa will still need to import 1.26 million bpd of clean products, CITAC said.