Wendell Roelf. Julia Payne. Bate Felix

CAPE TOWN/LAGOS/DAKAR – Due to a lack of oil refineries throughout sub-Saharan Africa and soaring crude price due to the conflict in Ukraine, countries are now facing a dangerous shortage of fuel. This has disrupted airlines and caused queues at filling station.

This price rise is accompanied by a sharp increase in food prices after Russia sends troops to Ukraine. It has impacted tens and millions of people who are already in difficult circumstances, government budgets, and aid agencies budgets.

The combined capacity of refineries in sub-Saharan Africa to process 1.36million barrels per day (bpd) is theoretically, however, due to many of them being out of commission, only 30% was actually used last year according CITAC, an independent consultancy.

The refineries of Senegal, Ghana, and Cameroon are all closed, along with four others in South Africa. Nigeria is Africa’s largest oil producer. However, the two private plants that are still operating there cannot process more than 1%.

Although the African Export-Import Bank (Africa Petroleum Producers’ Organisation) and the African Export-Import Bank signed an agreement in May to establish a multi-billion-dollar energy bank to increase private sector investment, analysts believe there are a few short-term fixes.

Western nations are suffering from fuel shortages, too. However, Africa’s impact is likely to last longer as African governments and corporations are not able or willing to spend the billions of dollars required to bring back their oil refineries to full operation.

“It is likely that the situation may get much worse in the short term,” Anibor Kragha, head of the African Refiners & Distributors Association (ARDA), told Reuters.

In recent years, oil giants from Western countries have stopped investing in Africa’s refinery projects. Local investors have failed to fill the gap and there has been a persistent lack of investments in upgrading facilities.

The result is that African countries, despite having an estimated 125 billion barrels and 600 trillion cubic meters of crude oil reserves, still depend almost entirely on imported petroleum products for their energy needs.

Officials from the government say that imports account for nearly 80% of domestic fuel requirements, even major exporters like Nigeria and Angola.

DANGOTE REFINERY

Faced with growing discontent at rising prices, the governments are trying to restart their oil refineries.

The 45,000-bpd Tema refinery in Ghana, however, was damaged by an explosion on January 2017. Nana Akufoa-Addo, the President of Ghana, said that urgent efforts were being made to restore the refinery and reduce fuel costs.

Industry sources say that $40 million would be required to bring the refinery online. This is a huge expense for the country, who already has a large debt load and faces a fiscal crisis.

Cameroon has a very similar story.

After a fire at Limbe’s Limbe refinery in 2019, the 42,000 bpd Limbe refining plant was shut down. However, Reuters saw a directive from President Trump that asked for the immediate implementation of plans to reshape the highly indebted facility.

Aliko Dangote is Africa’s wealthiest man. He was a cement entrepreneur who built a huge refinery in Nigeria. It will be able to produce 650,000 barrels per day and place it outside of the top five global refineries.

However, the launch of this much-awaited project has been delayed to next year. The overhaul of Nigeria’s Port Harcourt refinery will also take many years. This is after decades of debate.

Angola is Africa’s 2nd largest oil producer, producing about 1.1million bpd. It plans to expand its Luanda plant, which has a single 65,000-bpd capacity.

Particularly diesel and jet fuel were in limited supply because refiners dramatically reduced output during the pandemic, when travel restrictions grounded airplanes. Russian diesel volumes also fell since the Ukraine war.

Nigerian airlines were threatened with a suspension of domestic flights because of rising jet fuel prices. However, they have since reversed their threat. While the country subsidies gasoline at high costs, it does not support diesel fuel or jet fuel.

Supply supply is curtailed by scheduled maintenance.

Senegal’s SAR 27,000 bpd refinery in Dakar, Senegal has been closed since November due to repairs. At the end April, gasoil supplies had dropped to three days. This caused long lines at pump stations.

South Africa is experiencing four major refineries closures, one being the Sapref 180,000bpd plant in Durban. This forced some airlines to divert from the busiest African airports to meet fuel shortages.

CITAC data shows that although some North Africa countries have been particularly affected by the Ukraine slump in grain exports, other refineries in the area are doing better than the Sahara. They ran at 80% capacity in 2013 and are now in better condition.

SANCTIONS NOOSE

Since the lack of refinery capacity oil majors have sent their oil products to commodities trading firms for decades. These oil products float in big tankers from Togo in West Africa. Once they reach Togo, the oil can be divided up for final-minute delivery.

However, with the high prices of immediate delivery and market volatility, major players are pulling back. Increased trade costs and additional outlays caused by credit concerns for small-scale African importers only add to the problem.

Traders reported that only two or three of the companies responding to tenders for jet fuel or diesel were interested in buying it. This compares with six, or more, before Russia invaded Ukraine. Moscow refers to this as a “special military operations”.

Ghana has been spared from any shortages so far, however importers warn that each day’s price increase means more expensive purchases. Ghana’s statistics agency reported that retail diesel prices increased by more than 90% over the previous year in April.

Senyo Hosi of Ghana Chamber of Bulk Oil Distributors said, “These circumstances mean you basically need to double what credit you would require last year.”

There is no incentive for products to be stored for sale with prices so high for immediate delivery compared to future months. This phenomenon is known as Backwardation.

Jamie Torrance of Trafigura’s distillates and biofuels division stated, “High prices and high backwardation decrease the incentive to hold discretionary inventory or unsold inventory. Spot or short-notice customers are vulnerable to shortages.”

The price of physical jet fuel hit new highs in Europe in April and in the United States, while stocks fell to their lowest levels in 2 years at Europe’s key oil hub, ARA in the week leading to May 12. [ARA/]

Russian diesel, fuel oil and other products were previously stored and re-blended in ARA (Amsterdam-Rotterdam-Antwerp) for transport to Africa, but Russian crude and products can now only be sold to European buyers in certain cases.

Trafigura’s Torrance stated that “this is unfortunately likely to worsen the existing shortages.”