A case for a refining hub for West Africa

The slump in oil prices, analysts say is not leading to decreasing price of refined products for West Africa because the sub region largely depends on imported refined products which take critical investment away from Africa

According to data from McKinsey, the whole of Africa has a total of 42 refineries, with a total name-plate capacity of 3,217,600 barrels per day (bpd). The major refining countries are Egypt with 9 refineries (774,900 bpd); Algeria with 5 refineries (303,700 bpd); Libya with 5 refineries (380,000 bpd); South Africa with 4 refineries (545,000); and Nigeria with 4 refineries (445,000 bpd).

More than half of Africa’s refining capacity is in North Africa and most of the refineries are State-Owned (59 percent). 29 percent are based on joint ownership with government and 12 percent are joint-venture arrangements between International Oil Companies (IOC’s).

West Africa with 16 countries has 8 refineries according to the data accessed from the world refinery list. There are four in Nigeria while Cote d’Ivoire, Mauritania, Senegal, and Ghana have one major refinery each. These refineries have a combined capacity of close to 800,000 barrels per day.

Meanwhile, West Africa has only four countries with significant amount of crude oil production; Nigeria, Ghana, Mauritius and Cote d’Ivoire. This shows that much of West Africa’s energy needs are satisfied through imports of refined products.

The current slump in oil prices have not reduced demand for refined products but rather the prices of refined petroleum products continues to rise. This makes a case for creating a refining hub for West Africa.

Path to achieving West Africa’s refining hub

Nigeria is the closest to a refining hub for ECOWAS. It is Africa’s biggest oil producer with daily production reaching about over 2 million barrels. Nigeria has second largest oil reserve Africa next to Libya with estimates of about 37 billion barrels of proven oil reserves and 187 trillion standard cubic feet of gas. Nigeria’s crude is premium quality with low sulphur high yield for high value white products.

After over 50 years of oil exploration, Nigeria also has the most indigenous experienced manpower though there are legitimate concerns about skill gap and technology transfer.

The geographical position of Nigeria close to the Gulf of Guinea affords easy access to regional markets. Nigeria also has a large domestic market with a population of over 170 million out of ECOWAS population of over 340 million.

Even if Nigeria chooses to meet her domestic energy need in the short-term to fill her refining gap, it is the highest petroleum products consumer in ECOWAS: 63 percent (306,810bpd) of 487,000bpd.

Through Nigerian National Petroleum Corporation (NNPC), the country has built vast refining infrastructure, the largest in the West African sub region. Nigeria’s four refineries have a combined capacity of 445,000bpd. The country also has about 6,000 km of crude & products pipelines, 1,422,000 cubic meters of storage capacity in 22 depots strategically located across the country.

However, for too long, the country’s strength has been its weaknesses. Rather than diversify away its economy from oil, the resource accounts for governments over 70 percent revenue. The oil curse has set in violent militancy in the Niger Delta where locals accuse the international oil companies of ruining their ecology and economy through their activities. Locals blow up oil assets in violent protests. Massive corruption and oil theft in Nigeria’s corrosive waters also pose serious threats.

Ghana is another strong contender for a refining hub for West Africa. It is the 11th and largest oil manufacturer in Africa. The country’s Jubilee oil field, discovered in 2007, came online in 2010. Ghana now produces 106,000 barrels daily from the Jubilee field, which has about 3 billion barrels oil reserves.

John Mahama, Ghana’s president says his ambition is to turn the country into a refining hub of petroleum in the West African sub-region. This is fueled by the current operation and storage capacity of the Bulk Oil Storage and Transportation Company Limited (BOST) as well as the revamped Tema Oil Refinery (TOR).

Mahama states that the BOST’s contract with neighboring Cote D’Ivoire will see Ghana supply about 35, 000 of petroleum products. He commended the turn-around success story of TOR in which the then defunct company is now refinancing its debts and repairing its storage facilities for the resumption of petroleum storage and its related products.

Ghana’s Tema Oil Refinery (TOR) recently announced $800,000 profit between February 16, and April 2016. The feat comes after seven (7) years of inactivity and inability to make profit by the state oil refinery, forcing government to encourage the importation of refined petroleum products into the country. Before the success, TOR was marked by debts and inconsistencies, forcing government to impose TOR recovery debts on petroleum products, thereby making life difficult for Ghanaian fuel consumers.

Two other West African countries that process petroleum products can support any hub created in West Africa. Mauritania is the 18th largest oil producer in Africa. Oil was discovered in the country at the Chinguetti oil field in 2001. Oil production started in February 2006, and Mauritania now produces about 6000 barrels of oil a day. Mauritania’s crude oil reserves are estimated at around 600 million bpd

Cote d’Ivoire is Africa’s 15th largest oil producer. It produces approximately 37,000 barrels daily. The government expects its energy drive to boost oil production to 200,000 barrels a day by 2020. The country has a functional refinery that could well serve ECOWAS region.

To achieve a crude oil refining hub is no mean feat as the cost of setting up a refinery poses the most critical challenge. McKinsey study finds that in the past 20 years, only three Greenfield refineries have been constructed in Africa. These were built in Adrar, Algeria with 13,000bpd capacity and Khartoum, Sudan with 100,000 bpd capacity. The refineries were built with China National Petroleum Company (CNPC) in partnership with the governments of the countries.

Capital cost for constructing a 100,000 bpd refinery is about $1.5billion, while a modular refinery with capacity of 24,000 bpd is estimated to be $250 million two years ago. The time frame for construction range between 3 – 4 years for a plant with 100,000 bpd capacity and about 18 – 20 months for a modular refinery. Structured increments can see the size of modular refineries increased to 100,000 in structured increments.

Financing challenges can be death with through joint venture partnerships with international oil companies and assessing cheap funds from Middle East countries. Other kinds of partnerships could be arranged.

Energy security for West Africa can be achieved through a refining hub to serve the sub-region. It will help site infrastructure close to crude oil source thereby eliminating huge shipping costs taking West Africa’s oil to Europe and Asia. Maximum exploitation of refined products will increase revenue and act as catalyst to galvanize other sectors of the sub region’s economy.

ISAAC ANYAOGU