Once energy security is achieved, Africa can play a greater global role as it builds out its downstream, Anibor Kragha, Chief Executive of the African Refiners and Distributors Association, tells Petroleum Economist
The African Refiners and Distributors Association (ARDA), the first pan-African organisation focused primarily on the downstream oil sector in Africa, plays a crucial role given its approximately 80 members span the entire supply chain from refiners, importers and terminal operators to marketers, distributors and industry regulators.
ARDA’s platform enables effective sharing of industry best practices and ensures improved interactions between African refiners and distributors one the one hand, and international marketing, trading, engineering, and financial services companies on the other.
Anibor Kragha, Chief Executive of ARDA, told Petroleum Economist in an interview that a key goal is to encourage strategic partnerships using both local and global financing, to develop public-private partnerships and to bring energy security as well as enable the continent to play a more prominent role in the global oil sector.
How important is it for Africa to start refining its own crude, rather than merely exporting oil and importing products and what challenges need to be addressed?
Kragha: Refining its own crude oil is crucial for Africa for several reasons, ranging from economic benefits (value addition, job creation, trade balance and price stability) to increased energy security (reduced dependency and stable supply) and industrial development (infrastructure and technology transfer). However, several challenges must be addressed to achieve this goal—regulatory frameworks to support long-term investments, human capital and technical expertise to develop and execute projects as envisioned, adequate logistics and infrastructure to support projects, ESG concerns and, of course, project financing for investments.
“The global oversupply of refining capacity and the risk of closures in some regions do present challenges for African nations looking to build their own refineries”
To address these challenges, ARDA promotes the sharing of industry best practices via our seven workgroups: Refining & Specifications, Storage & Distribution, LPG, HSE & Quality, Regulation, Human Capital and Sustainable Financing. These groups are run and staffed by our members and provide an avenue for members to collaborate with sponsors, partners and stakeholders on developing sustainable frameworks for projects across the continent.
How important for Africa’s nascent downstream are lenders such as the African Export-Import Bank? Are traditional Western lenders at all interested in refinery projects in Africa?
Kragha: African development finance institutions (DFIs) such as the African Export-Import Bank (Afreximbank) and Africa Finance Corporation (AFC), which are specialised development banks set up to specifically support private sector projects on our continent and promote intra-African trade, have played an increasingly crucial role in supporting Africa’s downstream oil sector in recent years.
The involvement of Afreximbank, AFC and similar regional financial institutions has been indispensable for the development of Africa’s downstream oil sector, especially over the last few years. These DFIs’ deep understanding of local African markets, long-term commitment, and ability to mitigate risks make them key players in financing key refinery projects in Africa such as the Dangote refinery in Nigeria.
Traditional Western lenders also have a role to play, even though they approach downstream fossil-fuel related projects like refineries with more caution due to stringent lending criteria and a growing emphasis on ESG issues, renewable energy and the global energy transition.
Strategic partnerships between African DFIs and Western lenders can provide a balanced approach, combining local expertise with global financial capacity to support the growth of Africa’s refining capacity to aid the continent’s move towards energy security while pursuing a lower-carbon future.
Is ARDA involved in helping projects to secure funding?
Kragha: ARDA’s approach is to develop a unique, sustainable energy transition roadmap, with a corresponding finance plan, termed ‘A Tale of Three Decades’—which outlines critical downstream energy projects its members and key stakeholders should be investing in on a decade-by-decade basis between now and 2050.
Downstream
“Local African economics—driven by growing demand, energy security needs, and regional market opportunities—can still make refinery projects favourable”
ARDA is actively working with McKinsey & Company to establish a consolidated register of investable pan-African energy infrastructure projects that we can bring to the market and match with African project developers with key financiers.
During ARDA Week 2024 last April, we held our first-ever ARDA Investment Forum, during which ARDA members from West and Central Africa and East and Southern Africa showcased their current projects and engaged with key DFIs such as Africa Finance Corporation and Afreximbank, commercial banks such as Mauritius Commercial Bank and Standard Bank, and the National Petroleum Authority of Ghana (downstream regulator) on key success factors to access project financing.
In the near term, ARDA’s goal is to raise funding for our members to upgrade existing African refineries to produce cleaner fuels and value-added petrochemicals, invest in strategic storage and distribution infrastructure to transport these clean fuels across the continent, and promote adoption of LPG as a cleaner cooking option to biomass/charcoal. ARDA and the Global LPG Partnership are putting together a $1b fund for ARDA members to invest in LPG and bio-LPG projects across Africa to promote the adoption of LPG as a cleaner cooking alternative to biomass/charcoal. In October 2024, ARDA plans to host its first-ever LPG Forum, which will focus on delivering actionable frameworks to significantly increase LPG adoption across the continent, especially last-mile distribution in peri-urban and rural areas, in the lead-up to COP 29.
Globally, there is an oversupply of refining capacity, and a good portion is viewed as being at risk of closure. At the same time, there are still vast amounts of refining capacity coming online in the next few years, particularly in the Middle East. Does that oversupply stymie efforts for African nations to build their own refineries? Or are the local economics within Africa still favourable?
Kragha: The global oversupply of refining capacity and the risk of closures in some regions do present challenges for African nations looking to build their own refineries. That said, given that Africa’s energy demand is projected to grow about 50–55% between now and 2040 and the continent is anticipated to have three of the world’s top ten countries by population by 2050—Nigeria (third), the Democratic Republic of Congo (eighth) and Ethiopia (ninth)—several factors could still make local refinery projects in Africa viable.
“The growth of Africa’s downstream oil sector is likely to come from a combination of state-backed projects, private sector investments and public-private partnerships”
First, local African economics—driven by growing demand, energy security needs, and regional market opportunities—can still make refinery projects favourable. Strategic planning, robust feasibility assessments and supportive government policies will be essential to navigate the complexities and harness the potential benefits of building refineries and supporting storage & distribution infrastructure in Africa.
Second, it should be noted that about a third of Europe’s 1.33m b/d average gasoline exports in 2023 went to West Africa, a bigger chunk than other regions, with the majority of those exports ending up in Nigeria. The startup of the Dangote oil refinery in Nigeria could end a decades-long gasoline trade from Europe to Africa (worth up to $17b/yr), and put pressure on European refineries, but this has demonstrated the viability of strategic refinery investments on the continent as energy demand increases.
In building Africa’s downstream, do you expect the bulk of the growth to come from state-backed projects, the private sector or a combination?
Kragha: The growth of Africa’s downstream oil sector is likely to come from a combination of state-backed projects, private sector investments and public-private partnerships.
Each type of investment brings unique strengths and addresses specific challenges. State-backed projects provide strategic control and foundational infrastructure, the private sector introduces efficiency and innovation, and PPPs balance risk and reward while leveraging combined strengths.
A collaborative approach, supported by robust regulatory frameworks and strategic planning, will be essential to maximise the potential of Africa’s downstream oil sector and ensure sustainable and inclusive growth.
Is there enough collaboration between the public and private sectors in developing African refining capacity?
Kragha: The level of collaboration between the public and private sectors in developing African refining capacity varies significantly across the continent. While there are some examples of successful partnerships and collaborative projects (such as the Dangote refinery in Nigeria) there are also notable gaps and challenges that need to be addressed to enhance this collaboration further.
“ARDA’s role is to ensure that all its members across the African downstream value chain can access the necessary funding to execute their critical projects to reduce refined products imports”
Some regional initiatives and organisations, such as our association—ARDA—continue to work towards fostering collaboration and sharing best practices between public and private entities across the continent.
The global oversupply of refining capacity and the risk of closures in some regions do present challenges for African nations looking to build their own refineries
Enhancing regulatory frameworks, promoting regular dialogue, adopting innovative financing models and investing in capacity building are essential steps to foster more robust and productive collaboration between the public and private sectors. By addressing these areas, African countries can better leverage their resources, attract investment and build sustainable refining capacity and supporting infrastructure to meet growing domestic and regional demand.
What does the Dangote project mean for Nigeria?
Kragha: The streaming of the 650,000b/d Dangote refinery in Q1 2024 has had an immediate effect on diesel and jet fuel flows in the region as the plant ramps up operations and petroleum products output displaces imported volumes. During this phase, naphtha and fuel oil are being exported. Once fully operational, not only is the refinery expected to be able to satisfy demand for petroleum products (particularly for gasoline) in Nigeria, displacing imported cargoes, it will also export excess diesel and jet fuel to international markets.
Can you give us any update on the operations at Dangote and when might the refinery start using Nigerian crude? What is the strategic focus of the refinery given it is importing US crude and exporting its products? What happened to Nigerian crude and African products or is that normal in the early phases? Or does it come down to economics?
Kragha: Currently, we understand that the refinery is working to bring onstream conversion units in early Q3 2024 that will allow for low-sulphur gasoil and gasoline production. Thereafter, the refinery is expected to ramp up throughputs from the current rate of about 340,000b/d to 400,000b/d.
Crude throughput rates closer to its 650,000b/d nameplate capacity will likely be achieved in 2025 after the RFCC and other units are started such that the refinery is able to produce AFRI-6 (Euro-5) compliant gasoline and diesel consistently.
The refinery has already processed a broad range of Nigerian crudes, as well as the US WTI crude. Importing US crude into Nigeria may be a departure from historical norms but is due to economics as well as other factors.
NNPC has been refurbishing its refineries for years. When might we see Port Harcourt, Warri and Kaduna in operation?
Kragha: NNPC is carrying out rehabilitation programmes across the refineries in Warri, Kaduna, and Port Harcourt. Recently, NNPC announced that the plan is for the 60,000b/d PHRC 1 refinery to restart by the end of 2024, with the larger 150,000b/d PHRC 2 refinery expected to gradually restart operations about 12 months later.
Similarly, work is ongoing to restore operations at both the Warri and Kaduna refineries that is estimated to be completed by next year.
Do you have any update on Angola’s Cabinda refinery project?
Kragha: At our ARDA Week 2024 conference last April, [Angolan NOC] Sonangol announced that its new 60,000b/d refinery in Cabinda, in partnership with investment fund Gemcorp, is to be built in two phases. It was reported that overall project progress is around 55% complete, with commissioning of the 30,000b/d first phase expected to be completed by the end of 2024.
Can you tell us more about the Sentuo refinery in Ghana and how that is progressing?
Kragha: Sentuo Oil Refinery Limited has completed its rapid construction of a new 40,000b/d complex refinery in Tema. Testing of its units began in November 2023 and continued through early 2024. It is understood that work is being completed to ensure that its petroleum products meet local specifications ahead of full commissioning on the plant
Uganda seems to be taking lessons from established African crude producers and hence is keen to build its own downstream. What is your view of this strategy? Do you have any updates on Uganda’s planned 60,000b/d refinery at Hoima?
Kragha: At our ARDA Week 2024 conference last April, Uganda National Oil Company announced that land for the refinery development had been secured and the approved refinery configuration was based on UOP Honeywell’s residual fluid catalytic cracker technology.
“There is also significant potential for the continent to become a more prominent focal point in the global oil industry”
Following the expiry of the project framework agreement between the government of Uganda and the AGEC Consortium in June 2023, the government decided to progress as a public sector-led project, in a strategic partnership with a consortium led by Alpha MBM Investments of Dubai, UAE.
Can you tell our readers what other African countries might be poised to enter the refining space with their own projects?
Kragha: Brahms Oil Refineries is planning to construct a 12,000b/d modular oil refinery at Kamsar, Guinea, under its subsidiary Societe de Raffinage Guinéenne. The refinery would process West African crude oil for the local market. ARDA understands that environment and social impact assessments as well as site studies have been performed for the project, with the Africa Finance Corporation as the financial adviser for the project and SNC Lavalin as the FEED contractor. At this stage, there has been no announced startup date target.
Any final thoughts on Africa’s refinery strategy and the broader partnerships with the African Petroleum Producers Organization (APPO), OPEC and more? Given the transition narrative, could we see Africa’s upstream and downstream be connected more closely and become a greater focal point for the oil industry, or is this more a story of providing products for the region’s population?
Kragha: Africa’s go-forward refining strategy should focus its role on the development of a robust, intra-African energy industry that balances energy security with the continent’s ambitions to transition towards a sustainable, lower-carbon footprint. Since 2021, ARDA has been working with OPEC, the APPO and the African Union Commission as part of the OPEC-Africa Dialogue, focused on developing an integrated oil value chain, supported by strong regional and international partnerships and initiatives such as the new APPO-Afreximbank-led African Energy Bank and African Continental Free Trade Area to mobilise resources and leverage technology to accelerate Africa’s progress towards achieving universal energy access and promoting inclusive growth across the continent.
ARDA’s role is to ensure that all its members across the African downstream value chain can access the necessary funding to execute their critical projects to reduce refined products imports, thereby ensuring energy security and value addition on the continent. As such, ARDA is focused on defining an African Downstream Energy Transition Roadmap, which prioritises upgrading refineries to produce cleaner fuels and value-added petrochemicals, development of strategic storage and distribution infrastructure, and promoting LPG as a cleaner cooking alternative in the near term, and adoption of mature, cost-effective renewable technologies thereafter.
Ultimately, once energy security has been provided to Africa’s growing population, there is also significant potential for the continent to become a more prominent focal point in the global oil industry. Achieving this ambition will require balancing traditional oil investments with a strategic push towards renewable energy and sustainability, ensuring a resilient and diversified energy future for Africa.
