October 3, 2023 [S&P Global]- Africa will remain a major importer of refined products in the foreseeable future due to the lack of new refining projects on the continent, Anibor Kragha, Executive Secretary of the African Refiners and Distributors Association (ARDA), told S&P Global Commodity Insights Sept. 21.

Major refining projects due to come on stream include the Dangote refinery in Nigeria with a planned capacity of 650,000 b/d and Cabinda in Angola with capacity of 60,000 b/d.

Kragha said he expected phase one of the Dangote refinery to come on stream in the first quarter of 2024 at the latest and phase one of the Cabinda refinery by the end of 2024.

“So that would definitely be a boon for energy security for the continent because we would definitely reduce the imports to the continent, but we still need more refining capacity,” he said.

Devakumar Edwin, a senior Dangote executive who is overseeing the refinery, told S&P Global in a recent interview that it would start up in October at 370,000 b/d and begin ramping up to full capacity in Q4 2023.

Kragha said ARDA also supported other projects, including the Tema refinery in Ghana coming back on stream to further help security of supply in the region.

Total African refined product imports have been stable at around 2.3 million b/d in recent months, according to S&P Global Commodities at Sea data.

Beyond refining capacity, Kragha said there needed to be a strategic discussion on storage and distribution assets in Africa, and which projects should receive investment.

“As a perfect example, if you have a deepwater port in Africa that is 14 meters depth or larger, you save $15/mt on importing products because you can bring larger vessels in. When you start to look at countries like Nigeria with huge imports you start to see where you can make savings,” Kragha said.

He pointed to refineries closing in South Africa at a time when neighboring Namibia has discovered major crude reserves as indicative of issues that need to be addressed in conversations about strategy.

Cleaner fuels

African officials are also looking to include cleaner fuels in development plans for future processing capacity.

Kragha said that ways to do this include improving fuel standards, ensuring environmental, social and corporate governance is included in development plans, and making financing contingent on this.

“The bright spots we have are places like Cote D’Ivoire, places like North Africa, like Egypt that are trying to actually, one, maintain production capacity, and more importantly, to upgrade facilities to produce cleaner fuel,” he said.

ARDA has established a refining and specifications working group, which worked with the Societe Ivoirienne de Raffinage (SIR) refinery in Cote d’Ivoire.

“We’ve done a baseline study of the carbon emissions of the refinery and identified projects to reduce the carbon footprint of the refinery by 29%…those are the kind of things that we’re trying to promote to demonstrate opportunities for decarbonization, particularly of Scope 1 emissions within refineries on the continent,” Kragha said.

Investment priorities

Securing long-term investment is a key element in achieving cleaner fuel production.

ARDA is planning to include a one-day investment forum in its ARDA Week in Cape Town in April 2024, to bring together developers of projects across the continent with financiers.

Western investors are set to play a role in this, despite a previous trend for Western companies to exit African projects, particularly onshore crude assets, as part of plans to accelerate their transition to cleaner fuels. Russia’s invasion of Ukraine has increased the importance of energy security, leading some companies to turn back to Africa as a potential alternative to Russia.

“There’s interest now, but let’s take advantage of that to ensure that we get the right projects, and we get the right level of support for a unique inclusive energy transition road map for Africa and then match that with a finance plan to support it so that the projects can get executed as and when required,” he said.

Part of plans for new financing include the Africa Energy Bank, which is backed by Afreximbank and has starting capital of $5 billion. Afreximbank and the African Petroleum Producers’ Organization are seeking further financing for the bank from national oil companies, governments and sovereign wealth funds, particularly in rich Gulf states.

Kragha sees this as an important way to ensure that projects that benefit Africa are developed, rather than projects that meet external countries’ priorities.

“When you’re looking at energy transition, in Africa today, we talked about the need for LPG for clean cooking. That is more important to Africa right now than a hydrogen project. Not that we don’t want hydrogen. But right now, if we have more than 4 million premature deaths every year because of poor access to clean cooking, let’s address that,” he said.

Market instability in Africa is also an issue facing refiners and governments.

In Nigeria domestic gasoline prices recently skyrocketed following the removal of costly subsidies on imported gasoline.

Kragha said that removal of the subsidy means that it is now clear what real fuel consumption is in Nigeria, ending a booming illicit gasoline market in nearby countries like Togo, Benin and Niger where unscrupulous businesses allegedly sold subsidized Nigerian fuel.

“There was definitely incentive arbitrage given that the pricing in Nigeria was significantly lower than in neighboring countries. Now that it’s normalized…neighboring markets are having to face the reality that there’s no cheap fuel supply anywhere,” he said.

Security impact

A recent wave of military coups has raised security risks to oil production and refining in Africa. Kragha said he had not seen any impact on refining assets so far.

“If a country is managing security of its supply, and it can do so with a functional refinery on the ground, I would hope that whatever the issues are politically, they try to ensure that we maintain the security of supply,” he said.

Since 2020 seven African countries have experienced military coups, including OPEC member Gabon.

Beyond Africa, Russia’s invasion of Ukraine is impacting African oil products markets. There has been an increase in Russian oil products supplies to Africa since restrictions on Russian products imports to the EU and price caps came into force as part of sanctions imposed on Russia.

Kragha said that African imports are focused on sourcing products in the most cost-effective manner.

“I don’t know whether the [Russian] imports are going to go up, I can’t foresee the future. But what I would say is right now, I believe it’s the most expedient thing to secure as much supply as possible,” he said.

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