March 07, 2018

Highlights from Africa’s Refining Forecast

Stratas Advisors

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▪ Among the regions, Africa ranks fifth in world crude oil reserves. African production of crude oil, condensate and natural gas liquids (NGL) is currently about 8 million b/d. Its production is projected to increase by 2 million b/d by 2035. 

▪ Africa is the third-largest crude oil exporter region in the world. It exported net 5.5-6 million b/d crude oil the last few years. Global demand for crude oil will keep increasing, but developments in North America will keep reducing the need for African crude oil. As a result, the net export of African crude oil is expected to remain within 5.5-6 million b/d through 2035. 

▪ Crude oil produced and processed in the region is high-quality, but the quality of crude oil processed is projected to slowly decline. The gravity is expected to worsen from the current 34.7 °API to 34.9 °API. The sulfur level of processed crude oil will increase from 0.51 wt% to 0.62 wt% by 2035.

▪ Demand for refined products will keep increasing for the region as a whole.

▪ Continuing the recovery from the recession and the events of 2011, petroleum product demand is projected to increase by 2.5% annually until 2020. This growth is projected to increase to 2.8%-3% annually from 2020 to 2035, reaching 6.8 million b/d by 2035.

▪ From 2017 to 2035, the growth in combined demand for gasoline and on-road diesel is projected to average 3.3%, with diesel growing at a faster average rate.

▪ Residual fuel demand will decrease from 0.36 million b/d in 2016 to 0.23 million b/d in 2035. Residual fuel will be replaced in the near term by natural gas, which is relatively abundant compared with crude oil in North Africa.

▪ By 2035, ethanol’s share in the gasoline pool is projected to reach 4%, and biodiesel’s share in total middle distillate 1%. The use of renewable energy sources is projected to be much stronger in Africa than the move to liquid biofuels for transportation. Ethanol and biodiesel development is focused mainly in South Africa, Nigeria and several other East African countries that have already announced their interest in biofuels. Developments in GTL/CTL fuels are expected to continue throughout the studied period in areas with access to natural gas and coal.

▪ The African refining industry has low complexity and poor production performance. Utilization in the region has been well below 70% for several years and does not even reach 50% in some countries. Thus, the incremental product slate is generally limited to low-quality products and unfinished oils. Refiners in the region have expressed significant concerns about refining expansions in the Middle East and Asia-Pacific, as well as the potential for product imports to shut down African capacity. The African Refiners Association (ARA) announced a plan to counteract the expansion by improving and expanding the African refining industry, but up to now there has been almost no success in realizing those plans.

▪ Crude oil distillation capacity in Africa would be adequate to meet local demand. However, because of geography, low refinery utilization and limited depth of refining, Africa imports a net 1.07 million b/d of main refined products (namely gasoline, naphtha, jet fuel, kerosene, middle distillate and residual fuel). As demand of refined products are expected to increase significantly in Africa, expansion projects on both CDU and downstream processing units will kick in. We project a 2.5 million b/d capacity expansion in Africa by 2035. There will be significant improvement in secondary processing units too, and capacity utilization will reach 70% by this time period. Even with these expansions, Africa will remain a net importer of more than 1 million b/d. 

▪ Imports of gasoline and middle distillate will increase, and the sulfur content of imported fuels will decrease significantly. Product exports (mainly to Europe and Asia-Pacific) will continue to consist primarily of naphtha.

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