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Home / Regional oil refinery on the cards …will not necessarily result in cheaper local fuel prices

Regional oil refinery on the cards …will not necessarily result in cheaper local fuel prices

2022-09-07  Edgar Brandt

Regional oil refinery on the cards …will not necessarily result in cheaper local fuel prices

Regional oil refineries are being investigated to make Africa more independent in terms of oil supply. This was confirmed on Monday by mines and energy minister, Tom Alweendo, who recently returned from West Africa’s leading energy forum in Dakar, Senegal, that took place from 1 to 2 September with the aim to determine the future for the continent’s energy. 

“This may take billions of dollars in investments and will take years to realise,” said Alweendo while responding to refinery possibility queries from the media. 

However, the energy minister was quick to add: “Let us not assume that a regional refinery will make local fuel cheaper. Yes, the transport costs will be reduced but there are other factors that come into play. Also, a regional refinery does not necessarily have to be in a country where oil is extracted.” Alweendo noted that a major contributor will be the cost at which the oil is extracted. 

Meanwhile, a 2002 report on South Africa’s petroleum industry indicated that four of that country’s six refineries have shut down, mainly in response to growing operating costs to meet new regulations such as clean fuels. According to this report, high oil and gas prices, which peaked following the February 2022 outbreak of the conflict in Ukraine, resulted in oil majors reporting record profits globally, although there is a risk that high prices could lead to a decline in demand. 

“However, Karoo shale gas reserves, two recent local gas discoveries and two new finds in Namibia could transform South Africa’s reliance on depleting local gas reserves and gas imports,” the report reads. 

As a result, South Africa is refining less crude oil with only two of its refineries remaining operational in the face of increasingly expensive operating costs and it becoming more affordable to import refined oil products. 

“The only refineries operating are a crude refinery and a synfuels refinery after the biggest crude oil refinery ceased refining at the end of March 2022. One refinery is set to come back online in late 2022,” the report reads. 

Meanwhile, a massive oil refinery being built in Nigeria by Africa’s richest businessman, Aliko Dangote, is expected to commence with operations by mid-2023. This is according to Nigeria’s state oil company that has a 20% stake in the project. 

“Projection is first quarter, but we think that it can come up latest by the middle of next year,” said Mele Kyari, chief executive of the Nigerian National Petroleum Corporation (NNPC).  

Kyari added that once the planned 650 000 barrel-a-day refinery commences next year and ongoing rehabilitation of the NNPC refineries is completed, Nigeria will stop importing refined products. To supply the new refinery, the NNPC will allocate crude production from its partnerships with oil companies.  “We have locked down the ability to sell 330 000 barrels-per-day minimum by right for the next 20 years,” Kyari explained. The NNPC has also acquired the right to purchase 20% of production from the new refinery, which will primarily produce petrol, but also some quantities of diesel and jet fuel.

The Russia-Ukraine conflict has propelled oil prices to over US$100 a barrel and sent global fuel prices skyrocketing. Many governments around the world have since intervened to reduce fuel prices mainly by reducing fuel levies. 

While global fuel demand is recovering, fuel sales have yet to recover to pre-pandemic levels. International oil prices have also moderated in the face of Chinese lockdowns and the release of strategic oil reserves by oil-producing countries.

2022-09-07  Edgar Brandt

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