Unless the Dangote Refinery in Lagos comes on stream, Sub-Saharan Africa (SSA) will continue to waste scarce foreign exchange (forex) on the import of 700,000 barrel of diesel per day, a report by S&P Global has said.
The integrated Dangote refinery project under construction in the Lekki Free Zone is expected to be Africa’s biggest oil refinery and the world’s biggest single-train facility when completed.
If everything goes well, the about $19 billion facility is expected to meet 100 per cent of the Nigerian requirement of all refined products and also have a surplus of each of the products for export. However, the project has been delayed for a multiplicity of reasons.
But the S&P report stated that with South Africa losing a huge percentage of its refining capacity recently, the refining capacity on the continent has diminished considerably with about 80 per cent of sub-Saharan Africa diesel need still being imported. On the supply side, Sub-Saharan Africa, S&P noted, lacks sufficient refining capacity and therefore is highly dependent on imports. “In particular, the region needs to import nearly 700,000 bpd of diesel, which is 80 per cent of its needs,” it stated.
The report added that this gap has grown considerably since 2020 when a wave of refinery closures swept the region and slashed domestic supply. Most notably, in 2022 , it stressed that South Africa lost the third of its five refineries; with only 35 per cent of its refining capacity being currently operational.
“There is a possibility for additional domestic supply in the immediate term, but this hinges on the restart of South Africa’s Astron refinery. Nigeria’s Dangote refinery, once online, is expected to provide substantial additional volumes that will relieve pressure from supply constraints across the region.
“But the giant greenfield refinery still has a long way to go. It is expected to come on-stream only after the fourth quarter of 2023 and not reach full capacity before the end of 2024.
“Moreover, in 2023 the global market is forecast to remain tight, with disruptions anticipated owing to the expected embargo on Russian exports,” the report stated.
With global markets already in flux in 2023, uncertainties for the supply of products to Africa, S&P said in its 2023 African Outlook, still abound.
According to the report, the embargo on Russian oil products imposed on February 5, 2023 means that diesel supply trades to African markets will require some reconfiguration, explaining that this comes with risks. “Although Africa does not import material diesel volumes from Russia, Russia is a major diesel exporter to Europe,” it added.
