11 April 2014, Lagos – Africa’s dependency on fuel imports is likely to grow as its refining projects struggle to get off the ground, a Vitol director, Chris Bake has said.
Dozens of new refining projects have been announced in Africa, but they are unlikely to be built unless they are either gigantic or with guaranteed crude supply in a landlocked location.
“Micro refineries in waterborne locations are not a viable way to get a return on capital. You have to go big, and today big means a 300,000 to 500,000 barrel per day complex refinery and $5-$15 billion of capital,” Bake, director of origination and investments, told Reuters in a telephone interview.
“To deploy that is challenging,” he added. Bake added that he expected one large refinery to be built in West Africa but that it could take five to seven years, while new plants in east Africa were less certain given strong competition from the Middle East.
Vitol , the world’s top oil trader with over $300 billion in annual revenues, seeks to meet African demand in competition with other traders such as Glencore and Trafigura and with large Asian refiners.
Vitol estimates that Africa’s fuel demand amounts to 3.71 million barrels per day in 2014, worth about $440 million a day, based on ICE gasoil futures prices. That is close to a 3 percent increase from the 2013 estimate.
Bake said the most exciting market in Africa was gasoil, with growth expected to be in the high single digits as power demand booms. Demand for liquefied petroleum gas will also rise quickly across North Africa and Nigeria as consumers spend more and move to cities, he added.
A small number of refining projects in landlocked locations could succeed, possibly in Uganda, Chad or South Sudan, Bake added, as they are sheltered from competing supplies of giant Asian refineries.
Vitol is leading a consortium to bid for a $2.5 billion refinery in Uganda. The winner is expected to be announced in July. Vitol will also seek to supply African countries with gas for power production and is already working to develop gas fields offshore Ghana to supply its local market.
“Africa is a power-hungry continent, and we are looking at domestic gas opportunities,” said Chris Joly, director of exploration and production, in the same interview.
He added that the firm, which pumps around 10,000 barrels per day, would look for exploration and production opportunities that complement its existing assets and trading contracts.
Vitol has invested in an African chain of petrol service stations, Vivo Energy, in partnership with Shell and Helios Investments Partners. Vitol also has an oil product storage terminal in Mombasa, Kenya.