OTL: Import based fuel supply hampers African economy

The inability of African countries to develop commensurate refining capacity to meet internal fuel consumption is responsible for the myriad of economic woes associated with reliance of mass importation of petroleum products.

Women in Energy Network and other industry groups who spoke at the last sessions of the just concluded Oil Trading and Logistics (OTL) Africa Downstream Week in Lagos pointed at the inverse relationship between Africa’s rising fuel demand and lowering capacity to process crude oil and condensate into consumable products.

Besides the mismatch between demand and refining, the panelists observed that reliance on imported petroleum products into the economy has become a major cost driver for players, government and consumers in the domestic market.

It would be recalled that one of the key disputes in the ongoing efforts to deregulate and liberalize the market remains the insistence of the labour stakeholders in the economy for the industry to displace high import volumes with locally refined products by building and developing midstream facilities in the country.

The biggest cost factors captured by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) include cost, freight, insurance and port charges which are built into the local retail prices of products sold in the country.

Again logistics constraints and bottlenecks that associate with importation of products lead to delays Import based that translate to sudden shortages and price jumps that jolt the domestic economy with epileptic shocks.

A delegate from Women in Energy Network (WIEN), Joke Olatunji, noted that rising fuel demand associated with fast growing population and urbanization has continued to mount pressure on the nation’s lean foreign exchange reserves due to massive importation.

The situation, according to her, continues to call for investments to bridge downstream infrastructure gaps country-specific infrastructure bottlenecks.

Ms Olatunji who is a Strategy Expert and Business Transformation Professional further identified some other challenges facing the industry to include low draft ports; inadequate storage terminals, pipelines, rails, roads; and  lack of harmonization on pricing, quality specifications, tariffs, subsidies, and sundry regulations.

She also listed other malaise in the industry to include slowing downstream investment, low capital influx due to global shift towards net-zero, foreign exchange crunch, inefficient policies and regulatory processes, obsolete legislative framework, and lack of regulatory clarity.

She hammered on the need for energy security for Africa such as minimum stock holding requirements to provide a buffer against supply shocks and minimum holding period impacting retail price.

 Ms. Olatunji reiterated the critical importance of local refining capacity, pointing out that reliance on foreign refineries has become precarious following the global migration of demand from fossil sources to green options. She made it clear that foreign refiners would soon come under stringent ESG regulations, a situation which, according to her, would impact countries relying on product importation.

She is also of the view that most downstream players will reinvent to focus on ESG requirements committing to climate change and transiting to business models that evolve smart goals for energy transition.

 She said that purpose-driven, tech-enabled and human-powered organizations are striving to attract, train, and retain employees in a tight labor market.

Other speakers agreed with WIEN that reliance on fuel importation affects supply dynamics for oil marketers and the demand for storage infrastructure.

They also agreed that decarbonization remains a major trend affecting the sector, with oil companies increasingly embracing sustainability, leading to the diversification of the energy supplied to African markets.

The emerging trends, according to them, have introduced new trends in forecourt retails where diverse non-fuel energy products are gaining prominence. They said oil marketers are also broadening their offerings to clean energy products and hybrid solutions.

The panel discussants also noted that natural gas products, especially liquefied petroleum gas (LPG) and compressed natural gas (CNG), are notably expected to witness to most significant growth in Africa between 2020 and 2030.

The demand for clean cooking fuels in Africa, according to them, is notably growing by double-digit figures as governments incentivize the switch to clean cooking for public health and environmental reasons.

Prominent industry and market players on the panel, including the Chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr Olumide Adeosun, agreed that Africa’s fuel market environment is challenged with the vagaries of importation due to acute gaps in local refining capacity.

Mr Adeosun who is the Managing Director of Ardova Plc agree with the Managing Director Piplines and Products Regulatory Company (PPMC),  Isiyaku  Abdulahi, that Africa’s rising fuel demand provides adequate market incentives for investments in local refining.

 A major concern is the small size of the Africa’s refining industry; small, old and uncommercial refining facilities continue to make most African markets net importers of petroleum products.

The discussants which also included Ogbugo Ukoha, Executive Director, Distribution Systems, Storage &Retailing Infrastructure, Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), agreed that there is need for investments and collaborations among African countries in overcoming the challenges.

Source: WIEN DIGEST