Band Wendell Roelf, Julia Payne and Bate Felix
CAPE CAPE/LAGOS/DAKAR, June 1 (Reuters) – A shortage of oil refineries in sub-Saharan Africa, coupled with soaring crude prices due to war in Ukraine, has left countries dangerously short of fuel supplies, disrupting airlines and causing queues at service stations.
Soaring prices come with soaring cost of food after Russia sent troops to Ukraine, hitting tens of millions of people already living in precarious conditions, as well as government and agency budgets help.
Refineries in sub-Saharan Africa combined can process 1.36 million barrels of oil per day (bpd), in theory, but with lots of shutdowns only 30% of that capacity was used last year, the firm says independent consultant CITAC.
Refineries in Cameroon, Ghana and Senegal are closed, as well as four in South Africa. Africa’s largest oil producer, Nigeria, pumps more than 1.3 million barrels a day, but the two private plants still operating there can only process 1%.
The African Export-Import Bank and the African Petroleum Producers Organization signed an agreement in May to create a multi-billion dollar “energy bank” to stimulate private investment in the sector, but analysts say there are a few quick fixes on the horizon.
Fuel shortages are also hitting Western countries, but the impact in Africa is expected to be more long-lasting as governments and businesses are generally less able to afford the exorbitant cost of imported fuel or find the millions of dollars needed to secure fuel. refineries. run again at full speed.
“The situation is likely to get worse in the short term,” Anibor Kragha, director of the African Refiners and Distributors Association (ARDA), told Reuters.
Major Western oil companies have withdrawn from refinery projects in Africa in recent years and local investors and governments have largely failed to fill the gap, leading to a chronic lack of investment in upgrading facilities.
The result is that despite the continent’s 125 billion barrels of oil reserves and 600 trillion cubic feet of natural gas, African countries rely almost exclusively on imported petroleum products to fuel their economies.
Even major crude oil exporters, Nigeria and Angola, depend on imports for nearly 80% of their domestic fuel needs, according to government officials.
Governments are now scrambling to keep refineries running amid growing dissatisfaction with price spikes.
Ghana’s 45,000 bpd Tema refinery, for example, has been out of service since an explosion in January 2017. Ghanaian President Nana Akufo-Addo said “intense efforts” were being made to rehabilitate the refinery to cope with the soaring fuel prices.
However, bringing the refinery online would require $40 million in new investment, industry sources said, which the country can ill afford as it faces a mounting mountain of debt and a budget deficit. two digits.
It’s a similar story in Cameroon.
The 42,000 bpd Limbe refinery has been closed since a fire in 2019, but a directive from the president’s office seen by Reuters asked the finance minister on April 22 to quickly put in place plans to reorganize the heavily indebted plant.
Africa’s richest man, Aliko Dangote, a businessman who made his fortune in cement, is building a vast refinery in Nigeria that will have a capacity of 650,000 barrels per day, putting it just outside the five first refineries in the world.
But its long-awaited launch has been pushed back to next year and the overhaul of Nigeria’s Port Harcourt refinery, which will take years, has only just begun after two decades of talks.
Angola, which is Africa’s second largest oil producer with around 1.1 million bpd, intends to build more refineries in addition to its sole 65,000 bpd plant in Luanda.
Diesel and jet fuel in particular have been in short supply as refiners drastically cut production during the pandemic when travel restrictions grounded planes while volumes of Russian diesel have plummeted since the start of the war in Ukraine.
Nigerian airlines threatened to suspend domestic flights due to soaring jet fuel prices before backtracking. The country subsidizes high-cost gasoline, but not diesel or jet fuel.
Scheduled maintenance also reduces supplies.
Senegal’s 27,000 bpd SAR refinery in Dakar has been out of service since November for repairs and the country’s diesel supply was down to three days at the end of April, causing long waits for motorists at the pump.
In South Africa, where four refineries are down, including one of the largest in the region, the 180,000 bpd Sapref plant in Durban, some airlines have been forced to pull away from one of the airports the busiest in Africa due to kerosene shortages.
While some North African countries are particularly exposed to the fall in grain exports from Ukraine, the region’s refineries are in better condition than those south of the Sahara, operating at 80% capacity a year. last, according to CITAC data.
ROPE OF SANCTIONS
In the absence of refining capacity, oil majors and commodity trading companies have for years been sending petroleum products from the Middle East and Far East floating in large tankers off Togo in South Africa. ‘West, where they can then be split into smaller volumes. for last minute deliveries.
But with immediate delivery prices so high and an unusually volatile market, the big players have backed off. Higher trade costs and additional expenses due to credit problems with small independent African importers compound the problem.
In recent tenders to buy diesel or jet fuel, traders said only two or three companies responded, compared to six or more before Russia’s invasion of Ukraine, which Moscow calls a “military operation special”.
Ghana has so far been spared shortages, but importers say daily price increases mean each purchase is more expensive than the last. Retail diesel prices rose more than 90% year-on-year in April, according to the Ghana Statistical Service.
“These terms mean you effectively need double the credit you would have needed last year,” said Senyo Hosi, director of the Ghana Chamber of Bulk Oil Distributors.
With prices for immediate delivery so high compared to months ahead – a market phenomenon known as backlog – there is little incentive to stock produce for future sale.
“High outright prices and steep discounting reduce incentives to hold discretionary or unsold inventory, leaving spot or short-notice buyers vulnerable to shortages,” said Jamie Torrance, head of distillates and biofuels at the trading firm. of Trafigura raw materials.
Physical jet fuel prices hit record highs in April in Europe and the United States, while inventory levels fell to their lowest level in two years at Europe’s main oil hub ARA in the week to the 12 may. ARA/
Diesel, fuel oil and other Russian products were previously stored and blended at ARA (Amsterdam-Rotterdam-Antwerp) for transport to Africa, but Russian crude and products can now only be sold to European buyers in some cases.
“Unfortunately, this risks further exacerbating current shortages,” Trafigura’s Torrance said.
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(Reporting by Bate Felix in Dakar, Julia Payne in Lagos, Cooper Inveen in Accra and Wendell Roelf in Cape Town; Additional reporting by Amindeh Blaise Atabong in Yaoundé; Editing by Mike Collett-White and David Clarke)
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