UK’s jet fuel demand creates opportunity for Nigeria

UK’s dependence on foreign imports of jet fuel is increasing at an accelerated pace as domestic refining capacity continues to dwindle in the face of stiffening international competition. Data from Eurostat, the statistical arm of the EU, has shown four consecutive years of growth in non-European jet imports, with the rate of growth also rising in each of those years.

In 2014, the UK imported 7.52 million mt of jet fuel from non-European nations, an increase of almost 9 percent over 2013 and 21 percent over 2010 as capacity rationalization in the European downstream segment has reduced the availability of regional volumes. Jet fuel imports as a percentage of domestic consumption have jumped sharply in recent years.

In 2013, the UK’s jet fuel imports comprised 73 percent of total consumption versus 58.7 percent in 2012, a comparison of data from Eurostat. With December data not yet available, the number stands at 70.69 percent through the first 11 months of 2014.

With Europe facing significant headwinds from a paradigm shift in the global refining segment, many market participants have openly acknowledged a need for refinery closures, project cancellations and throughput reductions, even as strong European cracking margins in recent months, on the back of a weakened crude complex, have provided some temporary relief.

Coupled with the US tight oil boom and subsequent increase in transatlantic oil product flows, the planned construction and expansion of large complex refineries in the Middle East, Asia and Russia is expected to place European refining margins under severe pressure over the coming years.

Refinery shut-ins

The UK has been no stranger to this painful process of rationalization. At present, only six domestic refineries remain operational, less than a third of the 19 seen in 1975. Recently, Patrick Pouyanne, Total CEO announced that the French company would shut a 100,000 b/d crude distillation unit at its Lindsey refinery in Lincolnshire on the east coast of England. This followed the news in November that Murphy Oil’s Milford Haven refinery in Wales would permanently close after an expected sale to Klesch Group fell through.

Essar Energy also announced the closure of one of the CDUs at its Stanlow refinery in northwest England in September, while the Coryton refinery in Essex was closed in 2012 after its Swiss owner Petroplus went bankrupt.

Royal Vopak, Greenergy and Shell now plan to turn the old Coryton refinery site into an import and storage location known as Thames Oilport, as the UK increasingly looks beyond its shores for security of supply.

Middle East positioning to take advantage

With the UK’s import requirement growing, the Middle East looks particularly primed to fill the domestic supply deficit, especially as its new distillate-configured refineries gradually come online.

Of the top five jet fuel exporters to the UK in 2014, Kuwait, Saudi Arabia, South Korea, India and the United Arab Emirates, all are located East of Suez. The Netherlands, Qatar, Singapore, Russia and the US rounded out the top 10.

While the Middle East remains the UK’s major source of supply for jet fuel, the country also imported small volumes in 2014 from an eclectic collection of nations including Cuba, Japan, Ireland, Oman, Curacao, and Egypt, among others.

Nigeria should seize the opportunity

In 2014, about 900 million litres of jet fuel was sold in the country and it is expected that jet fuel market would achieve an average of 1.1 billion litres sales this year. With the growing local consumption of jet fuel in addition to increased demand from UK, there is an opportunity for the country to focus on its refining capacity.

Organisation of Petroleum Exporting Countries, (OPEC), has blamed the dismal refining capacity in Nigeria for its inability to weather the plunge in global crude oil prices. It also pointed the huge refining gap within the continent, even as it notes that the region is lagging behind in implementation of refinery projects.

Nigeria presently has four refineries and two located in PortHarcourt (old and new) while others are in Warri and Kaduna with a total refining capacity of 455,000 barrels per day. However, issues like corruption and mismanagement have greatly impaired several government efforts to implement Turn Around Maintenance (TAM).

A former General Manager of the Warri Refinery and Petrochemical Company, Babajide Soyode, recently stated that Nigerian refineries would have the capacity to process one million barrels of crude oil per day from Nigerian refineries which have about 445,000 barrel per day capacity, while Dangote is also putting up 500,000 barrel per day refinery in Lekki which is expected to come on stream by first quarters of 2018.

FRANK UZUEGBUNAM