Soaring crude prices because of the war in Ukraine has left countries perilously short of fuel supplies, causing queues at filling stations, increasing cost of transportation and production, and disrupting airline services. A chief concern amidst the global shortages of fuel and price spikes is the overdependence on imported fuel within the Sub-Saharan Africa region.

Fuel shortage is hitting both advanced and developing economies, but the shortage in Africa is expected to last longer as governments and companies are generally not able to afford the sky rocketing cost of imported fuel. The situation intensifies with the shortage of oil refineries across Sub-Saharan Africa. According to Anibor Kragha, head of the African Refiners & Distributors Association (ARDA), “It is likely that the situation may get much worse in the short term”.

Is this impact of fuel shortages and fuel prices an issue that Sub Saharan Africa could or can deal with? Are we are under the perpetual reliance on external developments in Advanced economies?

African oil refineries operating far below capacity

The specialist consulting company for African downstream energy- CITAC released their annual review of the Sub-Saharan African downstream oil sector report in May 2022, revealing that the region has the potential processing capacity of 1.36 million bpd (barrels per day), but with many refineries either shut or operating below capacity, only 30% of the region’s capacity gets processed.

Cameroon, Ghana, and Senegal have their refineries shut as well as four refineries in South Africa. The refining sector in South Africa has changed significantly in the past five years. In 2018, South Africa’s refineries produced 21.8mn mt of products but in 2022, this is forecasted to be only 10.9mn mt.

Africa’s biggest oil producer, Nigeria, pumps over 1.3 million barrels a day, but has only two privately owned plants still running, and processing only 1% of its crude.

Ghana’s Tema oil refinery, with a total of 45,000 bpd and 2.6million metric tons (MT) storage capacity, mandated to achieve the president’s vision of refining and transforming the country’s oil and gas sector to ensure efficiency and meet the 65,000-bpd national demand, has been out of operation since an explosion in January 2017.

The culmination is that even with the region’s estimated 125 billion barrels of oil reserves and 600 trillion cubic feet of natural gas, African countries depend almost exclusively on imported petroleum products to power their economies. It is of great interest to note that major crude oil exporters, Nigeria, and Angola, depend on imports for 80% of their domestic fuel needs- CITAC data.

Contrary to the above picture, refineries in the North African region are in better shape than south of the Sahara. North African refineries are reported to be running at 80% capacity.

A Lack of investment or an issue of political interference?

The driving factors for Africa’s refinery challenges spans from challenges with investment to managerial and ultimately political. There is no doubting the fact that a major bane to these industrial slowdowns can be attributed to political interference which leaves most public-private partnerships without protection. We are at a period where greater public private partnership investments must be fostered.

However, Western oil companies’ and local investors have been withdrawing from refinery projects in Africa in recent years and with the level of discontentment over fuel price hikes, most governments need to get their refineries up and running. This can be considered an urgent call to ensuring energy security.

The Institute of Energy Security (IES) in Ghana, projects continual higher price in petrol and diesel and therefore calls for interventions, subsidies, and the revamping of refinery to manage both supply and price risk.

Ghana is said to be making “intense efforts” to rehabilitate its refinery to be able to address soaring fuel prices. An estimated $40 million worth of investment will be needed to get the refinery back in operational levels but given the current mountain of debts and the fiscal deficit situation, can we still hope to see the resurrection of the refinery?

Other Professionals propose a win-win joint venture agreement with international oil companies as a medium to revamp the refinery, harness modern technologies and transfer skills from experts to local workers. 

There seems to be plans by other Sub- Saharan African countries to revamp their refineries but how determined are we to see this up and running? Plans are underway to revamp the heavily indebted Cameroonian 42,000 bpd refinery in Limbe, which has been shut since a fire outbreak in 2019.

Africa’s second-biggest oil producer, Angola, pumping about 1.1 million bpd, also has plans to build more refineries in addition to its sole 65,000 bpd plant in Luanda.

It is interesting to note that Aliko Dangote, Africa’s richest man, is building a refinery in Nigeria that will have a capacity of 650,000 bpd, but this we hope to see come to light sometime next year.

There are also efforts by the African Export-Import Bank and the African Petroleum Producers’ Organization in a deal signed in May to create a multi-billion-dollar “energy bank” to boost private investment in the sector.

In summary, the absence of refinery capacities in sub-Saharan Africa and the market unusually volatile, coupled with big players pulling back, the current increases in price will lead to a market phenomenon known as “backwardation”. A situation where there is little incentive to store products for future sale.

But the situation can change when new suppliers come online to boost production and supply, a commitment Saudi Arabia is willing to make, but Africa’s step in the right direction is for our refineries to be up and running, so we ultimately reduce the overreliance on importation and ensure energy security.