NOT AN OFFICIAL UNCTAD RECORD. Oil refineries in Africa – issues and options. Lamon Rutten Officer-in-charge, Commodity Risk Management, Finance and Information. 9 th African Oil&Gas Trade and Finance Conference Maputo, 31 May - 3 June 2005. Overview. Current refinery structure
Less than 60,000 bpd
60,000 – 100,000 bpd
19 active refineries in sub-Saharan Africa, 19 in North Africa, almost all constructed before 1990 (except one in Egypt, one in Sudan).
Over 100,000 bpd
In sub-Saharan Africa, the only large refineries are in Nigeria and South Africa. The South African refineries are doing well. But the Nigerian refineries, suffering from lack of maintenance, are not – capacity utilization has been as low as 22% in 2000.
The Nigerian government has spent hundreds of millions of US$ to improve its refineries pre-privatization, and in some months, capacity utilization is up to 75%. But over the year, it still hovers around 50%. Nigeria imports around half of its fuel products.
Capacity utilization of Nigerian refineries
Current refining capacity is sufficient to meet current and even future demand, if only capacity were fully utilized.
Between 1980 and 2003, 10 refineries were closed in Africa. Pressure is large on some of the remaining refineries to close down (and convert into a storage terminal).
Nevertheless, some of the new refinery projects (particularly in Nigeria) envisage the creation of small refineries…
It is all a matter of economics.
Access to funds
Distance from sea
Small-refineries provide a practical, cost effective way of providing reliable source of oil products in remote, inaccessible regions.
Benefits of scale in processing. The difference in the per barrel fixed cost of output could be as much as 2.4 USD / barrel.
Benefits of scale in transport - 0.5 to 1 USD / barrel.
Suitable for de-regulation programmes. Nigeria: First private refinery(12000 b /d).
Can afford and accommodate sophisticated technologies, which is particularly important where there are strong environmental regulations.
Facilitates an independent model for oil or condensate producing regions.
Local demand conditions
Synergies (nearby production)
Refinery margins have improved, and are expected to remain above 4 $/barrel.
This is somewhat surprising. One of the principles in the downstream industry was:
quickly rising crude oil prices consistently erode refining margins and almost eliminate retail margins in the short term, while falling crude prices sometimes benefit refining margins but invariably expand retail spreads
Coupled with expanding production, this creates room for new refineries in Africa
In the 1990s, no new refineries.
In 2001, a new refinery in Khartoum, and in 2002, one in Egypt.
Now, many projects:
- New large refineries (e.g. Angola, Nigeria)
- New small refineries (e.g. Chad, Nigeria)
- Revamping mothballed refineries: case of Sierra Leone refinery (majority was held by Nigerian companies, but they have been selling out to a local group which wants to restart refinery operations)
The companies that received construction licenses have rather different models. E.g. the Amake Modular Refinery is a 12,000 bpd 29.8 mln $ project, while the Tonwei refinery in Bayelsa State is for 100,000 bpd, at an estimated cost of 1.5 billion $.
Financing is falling in place. For the Amake and the Total Support refineries, US ExImBank has provided loan guarantees.
An example of a financing structure:
September 2004; refinery to be onstream in 2006
of 6 local
60% (incl. payments to US suppliers)
85% loan guarantee
12,000 bpd refinery, US$ 100 mln, in Calabar Export Free Zone
Equipment & services
But better refinery margins may not be enough to survive. The US$ is low, and any new refinery in Africa will still compete with the large, specialized refinery companies in Europe and the Middle East. And can you do what they do?
Keep in mind that you have to compete with the large, specialized refinery companies in Europe and the Middle East. And can you do what they do?
Step 1: buy a second-hand refinery that is to be scrapped, and identify the relatively new parts that would be useful for your refinery. Cut them out and load them on really big trucks.
Pictures taken from a presentation by Petroplus at UNCTAD’s 8th African Oil&Gas Trade and Finance Conference, Marrakech 2004
Step 3: offload and install. Cost savings compared to buying new: tens of millions of $s.