March 2017

Trends and Resources

Business Trends: Africa—Will increasing demand spark downstream capacity builds?

Over the past decade, Africa’s oil demand has increased by more than 1 MMbpd, to nearly 3.9 MMbpd. Africa’s oil production is more than double the amount it consumes, but lack of investment, failing infrastructure and inadequate refining capacity force the continent to rely on imports to satisfy increasing fuel demand.

Nichols, L., Hydrocarbon Processing

Over the past decade, Africa’s oil demand has increased by more than 1 MMbpd, to nearly 3.9 MMbpd. Africa’s oil production is more than double the amount it consumes, but lack of investment, failing infrastructure and inadequate refining capacity force the continent to rely on imports to satisfy increasing fuel demand. Most African refineries operate well below capacity, and the majority of new refining investments rarely progress beyond the initial concept stage. As a result, refined products imports have increased for years. In the short term, African oil demand is expected to climb by nearly 1 MMbpd by 2022 (FIG. 1).

FIG. 1. African oil demand, 2015–2021, MMbpd. Source: IEA.
FIG. 1. African oil demand, 2015–2021, MMbpd. Source: IEA.

 
The increase in demand and new oil discoveries have been catalysts for grassroots refinery project announcements, as well as expansions and upgrades to existing units. However, Africa continues to struggle to expand its domestic refining capacity. The region is well-positioned to enlarge its refining market, but many African nations would rather import refined fuels than invest in capital-intensive capacity additions.

The need for gas and coal will continue to grow in Africa as the continent seeks to mitigate widespread electricity shortages. Africa also plans to expand LNG capacity in numerous nations for both the import and export of LNG.

The continent’s petrochemical sector has healthy demand growth, but it represents a small percentage of the world’s total demand for petrochemicals. Africa’s primary petrochemical activity is located in Egypt and Nigeria.

According to Hydrocarbon Processing’s Construction Boxscore Database, Africa has announced more than $140 B in downstream capital investments through 2030. The majority of active African downstream projects are located in Nigeria and Egypt (FIG. 2).

FIG. 2. Breakdown of active project market share in Africa. Source: Hydrocarbon Processing’s Construction Boxscore Database.
FIG. 2. Breakdown of active project market share in Africa. Source: Hydrocarbon Processing’s Construction Boxscore Database.

Algeria

The country is the continent’s leading natural gas producer and third-largest oil producer. Its refining network is made up of five refineries, with a total installed capacity of 21 MMtpy. Sonatrach, Algeria’s state-owned oil and gas company, has updated its rehabilitation program, which includes the expansion and upgrade of the country’s refineries. The rehabilitation program will increase domestic refining capacity by 50% and includes several planned capacity increases:

  • Algiers refinery: 2.7 MMtpy to 3.45 MMtpy
  • Arzew refinery: 2.5 MMtpy to 3.8 MMtpy
  • Skikda refinery: 15 MMtpy to 16.5 MMtpy, and the addition of a 5-MMtpy condensate topping refinery.

The program also includes the addition of three, 5-MMtpy refineries in Biskra, Hassi Messaoud and Tiaret.

The country is developing plans to simultaneously boost petrochemical output. In January, Sonatrach signed a memorandum of understanding (MoU) with Versalis—the chemical division of Eni—to conduct joint feasibility studies on an integrated petrochemical complex in Skikda. The project could include a world-scale ethane cracker, as well as units to produce propylene, polypropylene, methanol and derivatives. Within the same month, Sonatrach launched invitations to bid on the construction of nearly $6 B worth of petrochemical projects in the country.

Egypt

The country’s fuel demand and refining capacity is the largest on the continent. Egypt has seen rapid growth in oil and gas consumption over the past decade. This trend is due to a rise in population and to increases in industrial output, energy demand for oil and gas projects, and increased vehicle sales.

Egypt is investing heavily in all sectors of its downstream industry. However, the largest capital investments remain in the country’s refining and petrochemical sectors. Egyptian Refining Co. will begin commercial operations at its $3.7-B, 86-Mbpd Mostorod refinery in 1Q 2017. Once completed, the refinery will cover 50% of the country’s diesel deficit. Approximately 245 mi south of Cairo, Assiut Petroleum Corp. is investing $1.5 B in the modernization of the Assiut refinery. The project will increase the refinery’s complexity and efficiency, eliminate the refinery’s production of heavy fuel oil and boost the production of clean fuels.

Middle East Oil Refinery (MIDOR) is investing $1.3 B in the expansion of its Alexandria refinery. The project will boost operational capacity from 100 Mbpd to 160 Mbpd by 2019. The MIDOR project will help Egypt produce more high-quality fuel and mitigate the amount of high-octane gasoline imported into the country, as well as curb air pollution in highly populated cities, such as Cairo.

Due to strong domestic demand for polymers and petrochemicals, Egypt is investing more than $7.5 B in the construction of two petrochemical complexes. These two complexes, along with additional petrochemical expansion projects, will help the country to meet growing domestic demand for petrochemicals, as well as mitigate the need for imports. Egypt’s Carbon Holdings is investing $7 B in the Tahrir Petrochemicals complex. The facility, which is expected to be completed in 2019, will be located in Ain Sokhna. Once completed, the complex will produce up to 1.5 MMtpy of ethylene, as well as ethylene derivatives.

Roughly 270 km north of Ain Sokhna, Sidi Kerir Petrochemicals Co. (Sidpec) is building a $600-MM, 200-Mtpy petrochemical complex in Port Said. Operations are scheduled to begin in late 2018. Also in Port Said, TCI Sanmar is expanding its polyvinyl chloride (PVC) plant. The 200-Mtpy PVC-2 project is scheduled to be completed in 2020.

Egypt has been a bright spot for LNG exporters seeking new outlets for their product. In 4Q 2016, the country issued a tender to secure nearly 100 LNG cargoes over the next 2 yr. Egypt is in desperate need of additional natural gas supplies to feed its growing demand for power generation, alleviate rolling blackouts and mitigate an escalating energy crisis. The country imports LNG via two floating storage and regasification units (FSRUs) moored in Ain Sokhna. Egypt was seeking to lease a third FSRU vessel, but those plans have been delayed. Eni’s massive Zohr natural gas field discovery in offshore Egypt played a part in the suspension of plans for a third FSRU.

To complement the Zohr field development, Eni plans to build two new gas processing plants in Port Said. The plants will come online in late 2017 and 2019, respectively. Once completed, the gas processing plants will house four processing trains, each with a processing capacity of 350 MMcfd. The majority of natural gas supplies will link into Egypt’s national power grid. The total cost for the project could reach nearly $4 B.

Mozambique and Tanzania

Both countries are in the midst of developing massive offshore natural gas reserves. From E&P activities to FLNG and onshore mega-LNG export terminals, East Africa has the potential to become a new global gas hub.

With major natural gas discoveries in the offshore Rovuma Basin, Mozambique announced plans to build a mega-LNG export terminal in Afungi. The terminal is being developed by Eni and Anadarko. In mid-2016, Eni sold a multi-billion-dollar stake in the terminal project to ExxonMobil. The terminal’s initial capacity will consist of two 6-MMtpy liquefaction trains. Phase 1 of the project was expected to be completed in 2018; however, due to infrastructure restraints, a more realistic timetable for completion is after 2020. If needed, the terminal could be expanded up to 50 MMtpy.

In late 2016, Eni approved Phase 1 of its Coral LNG development. The project will utilize an FLNG vessel in the company’s Area 4 operations offshore Mozambique. The 3.4-MMtpy vessel will be attached to six subsea wells.

As in Mozambique, major offshore gas discoveries in Tanzania have spurred capital-intensive exploration and production activity. To capitalize on natural gas resources, BG Group (acquired by Shell), Statoil, ExxonMobil and Ophir Energy are planning to construct a two-train, 10-MMtpy LNG export terminal. The facility will be located in the southern Lindi region. However, the $30-B project has been delayed due to land acquisition issues. The project is still in the early stages, and a final investment decision (FID) is not likely to be made until after 2020, according to Statoil. Should the project be greenlighted, operations would not begin until after 2025.

Nigeria

The country has four refineries in operation representing a total domestic capacity of 450 Mbpd. Due to corruption, poor maintenance, theft and outages, the country’s refineries have seen little investment. Because of this, refinery utilization rates have been extremely low. The low refining rates come at a time when the country desperately needs fuel supplies.

In April 2016, Nigerian National Petroleum Corp. (NNPC), the country’s state-owned oil and gas company, launched a tender for bidding to secure partners to invest in the country’s refining sector. This rehabilitation and expansion program will consist of upgrading the country’s domestic refineries. Selected investors will be responsible for funding, revamping and jointly operating the refineries with NNPC. The partners would receive revenue from refined products sold until they recoup their investment. In January, Eni signed an MoU with NNPC to modernize the Port Harcourt refinery. Other companies, such as Chevron, Shell and Total, also have expressed interest in the country’s rehabilitation plan.

One refining project that will be built falls within the private sector. The $9-B Dangote Industries Ltd. (DIL) integrated complex will produce gasoline, diesel and aviation fuel. The facility is expected to begin operations by 2019. The project also includes a petrochemical plant that will produce 750 Mtpy of polypropylene, and a fertilizer plant that will produce 2.8 MMtpy of urea and ammonia for the nation’s agricultural sector.

With the construction of the DIL complex, other Nigerian producers are investing in downstream petrochemical additions. Brass Fertilizer plans to build a world-scale methanol-ammonia facility on Brass Island. The multibillion-dollar project will be built in two phases. Phase 1 includes the construction of units to produce 1.66 MMtpy of methanol and 1.3 MMtpy of urea. Operation of Phase 1 is scheduled to begin in 2020.

Eleme Indorama Petrochemicals Co. Ltd. is making additional investments at its Eleme fertilizer plant. The company completed its $1.2-B fertilizer plant in late 2015, but has announced it may invest an additional $2.2 B to expand the facility. The company’s goal is to create the largest petrochemical hub in Africa by 2020.

In 2Q 2016, Nigeria LNG (NLNG) announced its plan to build two new LNG trains at its Bonny Island LNG terminal. The project calls for the simultaneous construction of Train 7—which has been delayed for nearly a decade—and Train 8. Each train will have a capacity of 4.3 MMtpy. If completed, the project will boost Bonny Island’s LNG capacity to 30 MMtpy. An FID on the project is expected to be made in 2017. However, the project is at risk of being cancelled due to a possible amendment to the 1989 NLNG Gas Act. If repealed, the law—which created the NLNG JV—would enact a 3% tax on the total budget of any oil and gas company operating onshore or offshore in the Niger Delta area. If the law is repealed, it is highly likely that the additional LNG trains will not be built. Even if the law stands as is, it is possible that the project will remain in infinite hiatus.

Located near NLNG’s Bonny Island terminal, the Brass LNG terminal project’s fate also is unknown. The $20-B project was being developed by NNPC, ConocoPhillips, Eni and Total, but ConocoPhillips exited the project 2 yr ago, sparking fears that the facility’s construction would be abandoned. In late January, interest in the project was renewed when Total announced that it would not pull out of the multibillion-dollar project. At the time of publication, no timeframe has been announced for an FID.

South Africa

The country has tried to enact a clean-fuels program that would entail the upgrade of the country’s four domestic refineries. The Clean Fuels Program 2 (CF2) is an effort to curb sulfur content in transportation fuels. The country’s ultimate goal is to develop Euro 5-specification fuels.

The multibillion-dollar CF2 program was initially designed to begin in mid-2017, but it will likely be pushed back until 2020 or beyond. The country’s refiners are hesitant to make the necessary upgrades due to the low rate of return on investment. Upgrade costs could reach as high as $3.5 B, and South African refiners argue that it is unlikely they will recoup the construction costs without some form of government subsidy.

To produce clean fuels and to prevent a fuel shortage, South Africa’s national oil company, PetroSA, plans to construct Project Mthombo. The $10-B, 300-Mbpd refinery will be located in the Coega Industrial Development Zone near Port Elizabeth. The project has been delayed several times, and many question its viability. The South African government has even held talks with Iran for the refining venture. South African refineries were originally built to process Iranian crude, but were retrofitted after Iran was slapped with Western sanctions. With the easing of sanctions, South Africa is in talks with Iran about a possible JV to build the new refinery to process Iranian crude into high-quality, low-sulfur transportation fuels. No timetable has been given for the project’s construction.

Additional projects

To diversify natural gas imports from sole provider Algeria, Morocco has initiated its LNG power project. The $4.6-B project will be built in Jorf Lasfar and includes a jetty, terminal, regasification unit and pipelines. The natural gas supplies will help fuel gas-fired power plants being built in the country. The power plan is scheduled to be completed by 2025.

Liberia is planning the construction of a new, 100-Mbpd refinery in Buchanan. No FID has been announced for this project.

Dependent on a positive FID from the OneLNG and Ophir Joint Operating Co. (JOC), Golar will deliver an FLNG vessel for Equatorial Guinea’s $2-B Fortuna LNG project. An FID is expected to be made by mid-2017, with operations scheduled to begin in early 2020.

In Ghana, successful well appraisals in the Lake Albert Rift basin have spurred the construction of midstream and downstream assets. This plan includes the construction of the Hoima refinery. The facility was slated to have an initial capacity of 30 Mbpd, with a second phase to double the size of the refinery, if needed. The project’s initial capital expenditure was set at $4 B, but talks with the refinery’s builder and financier, Russia’s RT Global, broke down in mid-2016. In late 2016, RT Global proposed a smaller refinery plan, which would decrease the overall CAPEX substantially. At the time of publication, Ghana’s government was still searching for a minority partner. The country’s Energy and Mineral Development minister hoped to finalize a partner by the end of 1Q 2017, with the refinery beginning operations in 2020. At the time of publication, a project partner has not been announced.

Senegal is partnering with Mauritania on what could be a new African LNG hub. Deepwater gas fields located off the coast of the two countries contain approximately 50 Tcf of natural gas reserves. BP and Kosmos Energy plan to develop these fields, and pipe the natural gas to an LNG processing facility onshore. FEED work is being completed, and an FID is set for 2018.

Ethiopia and Djibouti are working with China to develop the $4-B Ethiopia-Djibouti LNG project. The project will include the construction of a 700-km pipeline to transport up to 12 Bm3y of natural gas from Ethiopia to a new LNG liquefaction and export terminal in Damerjog, Djibouti. The proposed terminal would export LNG to China. If built, the terminal is anticipated to begin operations in 2020. HP

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