BusinessDay
NigeriaDecides2023

Dangote refinery leads Africa’s $30bn downstream investment push

Dangote’s 650,000 barrels per day refining project in Nigeria, which is expected to start up in late 2022 is leading the charge for $30 billion investment push in Africa’s logistics, distribution, storage terminals, import facilities and retail marketing of the downstream sector. Other projects can be found in Egypt, Algeria, Côte d’Ivoire, South Africa, Morocco, Uganda and Angola according to African Refiners and Distributors Association (ARA).

Africa’s largest refiner, Egyptian General Petroleum Corporation (EGPC) outlined a massive investment programme for its 8 refineries in addition to the imminent start-up of the privately financed $4.5 billion project at the Egyptian Refining Company. Algeria has also been investing heavily in upgrading its refining system, while the Uganda refinery is fast progressing.

Abdourahmane Cissé, Côte d’Ivoire energy minister, during the recent ARA conference in Cape Town presented a-€600 million new finance package for the SIR refinery in Abidjan and announced the planning for upgrades to meet the ARA’s AFRI-4 specifications which will guarantee unified product standard across the region, ease of intraregional petroleum product trade, reduction in bulk transportation costs and optimisation of regional infrastructure.

The existence of a fragmented petroleum products market within Africa with different product specifications, sulphur content and emission requirements remains a huge stumbling block to accessing the benefits that can accrue from intra-regional trade in the sector.

Africa’s demand for gasoline and diesel is expected to increase by about 4 percent a year. This is far above the projected overall global energy demand projected to increase at 1.3 percent a year as a result of increases in energy efficiency according to BP’s Global Energy Outlook.

Analysts are particularly bullish on the continent’s oil retail and storage sector, saying population growth will support rising demand, but they remain wary of how government policies could blunt this effect.

“The main challenge is the government’s potential ability to damage the sector through subsidies or poor regulation. Subsidies have generally reduced, and we support this move,” Paul Eardley-Taylor, Standard Bank’s head of oil and gas for Southern Africa, said.

The continent as a whole has struggled to keep up with the rest of the world in terms of refining capacity. Delays to projects and the lack of committed financing has stifled progress in the past, but the investment environment now looks more favorable.

Africa’s population and economic output is set to boom in the coming decades, supporting energy demand, while elsewhere in the world energy demand is maturing.

In 2017, ARA confirmed its commitment to the 2020 clean fuel policy, which outlined a plan for vehicle emission controls and standards to achieve all the benefits of clean air quality. However, facing the reality of the 2020 objective, countries should consider a time-limited waiver allowing refineries to meet the clean fuel specification requirement at a later date where clear finance and action plans have been communicated,” the association had said in a statement.

ARA further noted that, with the difficulty in raising the required funds for large capital investments, refineries must rigorously evaluate the financial return on such investments, the benefits of clean fuels on air quality and public health and the benefits of a refinery over a product import terminal as determined by the Wood MacKenzie study undertaken on behalf of the ARA in 2014.

Nigeria’s Anibor Kragha replaced outgoing ARA president Hilaire Kaboré of Burkina Faso to become the ARA president for 2019/20. Kragha said he is “looking forward to strengthening the ARA to assist its members, both refiners and distributors, to respond to the rapid growth in African demand”.

 

FRANK UZUEGBUNAM

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