The Uncertain Future of Refineries in Africa: Insights from OPEC's World Oil Outlook

The Organization of Petroleum Exporting Countries (OPEC) recently released its World Oil Outlook in Saudi Arabia, shedding light on the prospects of long-term refinery closures in Africa and beyond. The report, launched on October 9, highlights significant developments and challenges in the downstream oil industry, particularly in regions like Africa.

Understanding Refinery Closures

OPEC's report suggests that beyond the year 2028, precise predictions of long-term refinery closures are elusive. Instead, they rely on implied refinery closures derived from long-term modeling results. These closures are estimated by working backward to achieve a sustainable average utilization rate at a regional level over the long term. In developed regions, this sustainable rate is around 80%, but it varies in other regions, including Africa and Latin America.

The underlying assumption is that most of these implied closures will primarily involve simple and less efficient refineries. As utilization rates decrease over time, these refineries find it challenging to compete with complex and integrated plants. The report notes that between 2023 and 2028, an estimated 1.2 million barrels per day may be impacted by refinery closures in the medium term.

Challenges in Modernizing Refineries

The OPEC report also highlights the efforts of the Nigerian National Petroleum Company Limited (NNPC) to modernize local refineries such as Kaduna, Warri, and Port Harcourt. However, it suggests that these efforts could be limited. In some regions, older refineries operate at relatively low or even close-to-zero utilization rates, making them less competitive in the evolving downstream market.

According to the report, "Closures are possible throughout the outlook period. Latin American and African regions have a large number of older refineries, which operate at relatively low or even close-to-zero utilization rates. Some countries are trying to modernize existing refineries, for example, NNPC refineries in Nigeria, but these efforts remain limited across these regions. This is why closures in these two regions can be expected."

Uncertain Future of the Global Downstream Market

The OPEC Outlook underscores the uncertainty surrounding the global downstream market, especially in the mid-and long-term. While the demand for oil in developing countries is expected to rise significantly in the coming years, it may lead to a tighter downstream market due to higher utilization rates.

The report projects that developing countries will continue to add to their refining capacity by constructing new greenfield refineries, often with a high degree of complexity and integration with petrochemicals. Innovations such as crude-to-chemical technology will also play a crucial role in adapting to long-term changes in oil demand. An example of this integrated approach is the Dangote Refinery, expected to refine diesel, aviation fuel, petrol, and produce petrochemicals.

Reducing Carbon Footprints in the Downstream Sector

One of the key focal points of the OPEC report is reducing the downstream carbon footprint, both in developing and developed regions. This reduction is achievable through improving energy efficiency and integrating renewables in downstream operations. Additionally, carbon capture utilization and storage (CCUS) are cited as potential tools to drive emissions reductions within the downstream sector.

However, addressing the global challenge of reducing emissions while ensuring energy affordability and security requires a comprehensive approach that leverages all available technologies.

The Nigerian Refinery Challenge

The report highlights a concerning issue related to Nigeria's local refineries, including Warri, Port Harcourt, and Kaduna. Despite significant government investments in their rehabilitation, these refineries remain inactive. Some stakeholders propose privatizing them, suggesting that improved management and productivity could result from such a move.

In conclusion, OPEC's World Oil Outlook offers valuable insights into the future of refineries in Africa and beyond, emphasizing the need for modernization and adaptation to meet evolving market demands while addressing environmental concerns.