Why 2023 will be a transformational year for Africa’s fuel supply security

2022 has been a point of no return for sub-Saharan Africa's downstream industry and the continent is poised to witness significant transformations in its fuel supply security this year, shows a new Hawilti report.

Africa imports over half of the petroleum products it needs to meet the demand of its developing economies and growing populations. While large refining hubs are operational in North Africa, sub-Saharan Africa imports almost all its fuel and remains heavily vulnerable to global commodity prices fluctuations. With soaring oil prices throughout 2022, most African nations have been left grappling with unbearable import bills putting pressure on state coffers, rendering fuel subsidies unsustainable, and fueling inflation.

In response, several African nations are trying to fast-track the development of new refineries, or seeking to upgrade, modernise, and expand existing facilities. For others, the solution is simply to expand import and storage infrastructure and develop new regional supply links.

A Positive Outlook in West Africa

West Africa is notably on the verge of change as new capacity is expected to come on stream in 2023. The region already houses the largest refining capacity in sub-Saharan Africa, although only 23 percent of it is currently operational.

The long-awaited Dangote Refinery, a 650,000 bpd single-train crude refining facility that has been a decade in the making, is finally expected to start production this year. Its commissioning is already sending hopes that it could finally start rebalancing Nigeria’s trade deficit.

With all state-run refineries undergoing rehabilitation, Nigeria imports all its petroleum products, and heavily subsidizes gasoline. It needs the Dangote Refinery to decrease imports, generate currency savings, fight inflation, and ultimately improve its macroeconomic outlook.

Africa’s biggest oil producer has also embarked on the rehabilitation of its three state-owned refineries in Port Harcourt, Warri, and Kaduna - totaling some 445,000 bpd of refining capacity. Tecnimont continues to make progress on bringing Port Harcourt’s complex back to 90 percent of its capacity while Daewoo E&C was selected in 2022 to execute two “quick fix” projects at both Warri and Kaduna.

Both the opening of the Dangote Refinery and the rehabilitation of state-owned refineries have the potential to make Nigeria Africa’s biggest refining hub by 2025. But the market is also driven by private oil producers and asset developers who are building modular refineries next to oilfields in the Niger Delta. Historic crude theft throughout 2022 has provided additional incentives for field owners to develop refining facilities and monetise their oil themselves instead of injecting it into third party export pipelines. 2023 could see movement on several of them, including expansion plans at existing facilities.

“Modular technology solutions are on the rise in Africa, and especially in Nigeria because they offer producers the opportunity to set up a refinery in approximately 13+ months from inception to start of refining. Modular refineries also have a quick return on investment of approximately 2 years, enabling developers and their investors the ability to recoup their invested capital in a short period of time. In Nigeria, modular refineries also mitigate the risk of pipeline sabotage as these refineries become an evacuation system that is completely independent of pipelines,” explained Souheil Abboud, Managing Director of modular process equipment manufacturer VFuels LLC.

“Nigeria is the market to watch this year not only because of the opening of the Dangote Refinery, but because of its upcoming change of administration and the strategic decision that must be made on ending fuel subsidies. A politically courageous move to lift gasoline subsidies would have a profound impact on Nigeria’s economy and on fuel supplies across the whole sub-region,” added Mickael Vogel, Director & Head of Research at Hawilti.

Finally, Ghana will also play its role in shaping the region’s outlook this year as it expects to finally re-open its 45,000 bpd Tema Oil Refinery. A Chinese developer is also commissioning a 40,000 bpd refinery this year, which will be the first phase of a much larger complex expected to reach 100,000 bpd by 2025 at a cost of $3 billion.

Ghana spent $1.8 billion to import Premium and Gas Oil in the first half of 2022 alone, data from its Central Bank shows. With the reopening of its Tema Refinery, it will already be able to meet a third of its monthly diesel consumption, and all its requirements for aviation turbine kerosene (ATK) and fuel oil.

Strategic Decisions Ahead in Southern and Eastern Africa

Meanwhile, Southern Africa is also expected to see supply constraints easing this year, shows Hawilti. This will especially be the case in South Africa, where Astron Energy is in the process of re-opening the 100,000 bpd CALTEX Refinery after it was shut down in July 2020 following a deadly explosion.

However, Hawilti notes that most South African refineries are closed (Engen, Sapref, Mossel Bay) and that the country’s refining outlook remains heavily uncertain. By 2025, Angola could have overtaken South Africa as the region’s biggest refiner based on existing and upcoming projects.

Last year, Angola already completed the rehabilitation and expansion of its 65,000 bpd Luanda Refinery, where capacity has more than tripled. It also made good progress on the construction of the 30,000 bpd Cabinda Modular Refinery, whose crude distillation column was successfully delivered by VFuels.

But Angola has higher ambitions as it relies on the private sector to develop two new refineries of 100,000 bpd in Soyo and 200,000 bpd in Lobito. While the tender for the Soyo facility was already awarded, the one for Lobito should be announced in 2023, marking the start of the country’s biggest refining venture to date.

Angola intends to leverage on its future refining capacity to position itself as a regional supply hub, with several pipelines in discussions with its neighbours, including Zambia. Further north, a strategic investment decision is expected in Uganda where the 60,000 bpd Albert Graben Refinery needs to reach FID if it is to be commissioned on time to process domestic oil in 2025.

Sustainability Matters

However, Africa must also put its downstream industry on the path of sustainability and ensure that existing and new facilities can meet increasingly stringent clean fuels requirements. This cannot be done without costly upgrades, many of which are deemed uneconomical by refiners.

“We estimate that $16 billion is required to modernise and upgrade refining facilities in Africa, including Naptha Hydrotreater (NHdT), Diesel Hydro-desulphurisation (DHDS), Benzene Extraction and Sulphur & Hydrogen units,” says Anibor Kragha, Executive Secretary at the African Refiners and Distributors Association (ARDA).

The ability of African refineries to restructure their debt and raise fresh capital will dictate their future and their role in the African energy transition. In that regard, 2023 will be an important year for some of the continent’s oldest facilities like Gabon’s SOGARA or Cameroon’s SONARA that are both in need of restructuring. Meanwhile, other well-established refineries have already embarked on modernisation plans, including Côte d'Ivoire’s SIR Refinery, Senegal’s SAR Refinery, and Congo’s CORAF Refinery.

“The sustainability of African refining infrastructure will not only depend on the refineries’ capacity to produce cleaner fuels for consumers, but also on their overall environmental footprint. In that regard, quick gains can be made with the installation of solar PV and improvement in water treatment systems, which we expect to start seeing on the continent this year,” concluded Souheil Abboud.