Africa plans many oil refineries, only one likely

A new refinery in South Africa is likely to be the only one to go ahead in the short-term from a slew of projects proposed in sub-Saharan Africa, analysts say.

Dozens of developments have been announced in recent years in countries including Angola, Nigeria and Zimbabwe but most will stay on the drawing board due to rising costs, political instability and difficulty obtaining finance.

“There’s a lot of talk of refineries going ahead, but until you hear of actual investment you have to be cautious,” said Tom Pearmain, an analyst at Global Insight.

Africa, an increasingly important oil exporter, is a major importer of refined products due to growing demand for fuel and a lack of refining capacity.

In Nigeria, the world’s eight-biggest crude oil exporter, the government of former President Olusegun Obasanjo, issued 18 licenses to private investors in 2003 to build refineries but many have since been revoked as they have not been built.

Investors agreed to build the refineries in return for oil licences but refining is loss-making in Nigeria due to price controls on fuels, so most projects were abandoned.

Only a tiny 6 000 barrels per day (bpd) refinery in the southern Akwa Ibom state is under construction in the West African country, where the authorities have tried unsuccessfully to privatise its four ailing refineries.

SA moves ahead

The one major project that looks set to move forward is South African national oil company PetroSA’s plan, announced last year, to build a $5,85-billion refinery at the deep-water port of Coega, near Port Elizabeth.

The plant, which would have a capacity of 250 000 bpd, would raise South Africa’s refining capacity by more than 30%.

The company has hired United States engineers KBR to carry out a prefeasibility study for the plant.

An investment decision will be made in 2010 and the refinery is due to come on stream in 2014 or 2015.

“Coega is probably the most viable. It’s the seriousness of the project—they are talking about linking up with other parties and KBR is involved at this stage,” Pearmain said.

The Coega refinery will provide fuel to meet South Africa’s booming energy demand and could also export to neighbouring countries, Jorn Falbe, Petro’s vice-president of new ventures, told Reuters.

“There are a lot of [export] opportunities due to unreliable supply,” Falbe said.

South Africa’s own fuel demand is rising fast due to its strong economic growth. Figures from the country’s main oil group, the South African Petroleum Industry Association, show diesel consumption climbed 12% in 2007.

Nigeria looks at other options>/b>

In Nigeria, the government is looking at alternative ways of ensuring new refineries are built as part of a review of joint ventures and production sharing agreements with foreign players.

One possibility under consideration is to involve oil majors in refining as a condition for their involvement upstream, independent analyst Antony Goldman said.

“Offering oil blocks as an incentive has been a disappointment,” Goldman said.

“The current idea is how to get the majors involved.
Nigeria wouldn’t be able to attract them on a commercial basis but would have to link it to upstream.”

While majors have stayed clear of refining in Africa, energy-hungry Chinese oil companies have signed refinery deals but progress has been patchy.

Last year, the Angolan government said it would press ahead on its own with a refinery project at Lobito after it cancelled a deal with China’s Sinopec to build the plant.

The refinery will initially refine 120 000 barrels a day of oil, rising to 240 000 bpd in a second phase.

Angola’s state oil firm Sonangol had originally slated first production at Lobito for 2009, but this has been put back to at least 2013.

Analysts say there is talk of Japan becoming involved in the project in exchange for emergency crude supplies.

Other Chinese downstream projects include an agreement last year by state-owned China National Petroleum Corporation to build a 30 000 bpd refinery in Chad.

Elsewhere, projects in sub-Saharan Africa include a 500 000 bpd refinery in Mozambique led by US firm Ayr Logistics Limited as well as schemes in Côte d’Ivoire and Zimbabwe. - Reuters

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