What Next for Africa?

Transcription

1 What Next for Africa? CITAC Africa LLP The Downstream African Energy Specialist Mark Elliott Chairman CITAC Africa Ltd Cape Town, March 2017 ARA Week, March

2 What Next for African Downstream? CITAC Africa LLP The Downstream African Energy Specialist Mark Elliott Chairman CITAC Africa Ltd Cape Town, March 2017 ARA Week, March

3 Outline 1. African growth 2. Specification changes and refining outlook 3. Logistics infrastructure 4. Marketing and distribution 5. LPG, LNG and renewable energy 6. Why regulation is the key to success ARA Week, March

4 1. African growth ARA Week, March

5 Mid-term economic growth: focus is on recovery 6 % Economic Growth Outlook 5 SSA MENA World G7 1 Euro area Source: IMF (Oct'16) ARA Week, March

6 AFRICA balances to m t 250, , , , ,000 Africa's Growing Clean Product Shortfall ( ) Clean products demand Clean products demand (f) Clean product output Output (forecast Scenario 1) Output (forecast Scenario 2) 150, , mn mt 110,000 90, mn mt 70,000 50,000 ARA Week, March

7 2. Specification changes and refining outlook ARA Week, March

8 Product quality: New momentum has led to government action on specifications Precipitated government action, mainly in Nigeria and Ghana Dutch ports joined the debate may face legal challenge The end result is good for ARA - increased focus on AFRI specifications campaign and ARA policy ARA Week, March

9 Focus on sulphur reduction ARA Week, March

10 ARA Specs Policy derives from landmark studies (WB/ARA 2009, Wood McKenzie 2014, etc.) Policy (brief summary): 1. AFRI specifications for all Africa to get adopted by the African Union 2. Governments: AFRI 4 by 2020, AFRI 5 by Governments: value refinery on all socio- economic benefits 4. 3 legged stool fuels, vehicles and testing 5. Regional specifications based on supply chains, not political boundaries 6. ARA members working with governments and regional organisations ARA Week, March

11 Africa: 20 years behind Europe ARA Week, March

12 Future specification challenges ARA Week, March

13 Does desulphurisation reward the investing refinery? 2014 Wood Mackenzie - ARA Value of Refining Study : the investment required is typically very significant and may exceed $500mn in some specific situations. Experience of clean fuels programs in Europe and elsewhere suggests that refiners are unlikely to receive a commercial return on any such investment. Product prices for higher quality fuels tend to command only a modest market premium over the poorer quality alternative. we consider that African refiners are extremely unlikely to invest in improved environmental performance unless mandated to do so. ARA Week, March

14 MARPOL Impact may be short-term positive for WAF ULSSR/VGO (<0.5% sulphur) values increase for two years? ARA Week, March

15 Refining developments Algeria: refinery expansion and new projects Egypt: new projects announced South Africa: Chevref (+ Caltex marketing) for sale Angola: Lobito refinery project put on hold Uganda: Looking for new investors Kenya: Essar leaves KPRL - conversion to crude terminal Nigeria: Dangote progessing (fertiliser plant construction started?) Cameroon: SONARA expansion tie-in delayed Specification changes require refinery investment ARA Week, March

16 Refining needs fundamental policy changes SSA governments commitment to refining needs to be confirmed: compare to Middle East and North Africa commitment to ongoing capital needs Ex-refinery prices based on import parity pricing plus logistic and other costs: but should they also take into account:? The socio-economic advantages of refining, supply security etc?*? The national health benefit of upgrading quality?** If so, governments must be willing to support refinery investments *ARA Wood Mackenzie study (2014) **WB/ARA study (2009) ARA Week, March

17 3. Logistics infrastructure ARA Week, March

18 Investment in downstream oil infrastructure Storage: Angola: new SBM and storage S. Africa: Cape Town, Durban, Richards Bay Namibia: Walvis Bay Mozambique: Nacala, Matola DRC: Ango-Ango; Rwanda: Kigali; Malawi: Lilongwe, Blantyre, Mzuzu Liberia: Monrovia, etc. Railways: Kenya: Standard gauge railway Ethiopia: Djibouti-Addis Abeba railway Tanzania/Zambia: Tazara Pipelines - Nigeria: NNPC privatising? ARA Week, March

19 Coastal storage- low turnover rates Most coastal storage turns over less than 6 times/yr. Typical Singapore is 20 times/yr. Typical demurrage Durban 7-10 days Mombasa days Dar New SBM 0-2 days Infrastructure already inadequate ARA Week, March

20 Investment in this sector may not all be wise encouraged by regulated price structures which compensate inefficiency and poor supply planning? controlling key entry points, but competitive and safe supply routes may change (Beira?, Matola?, Lagos?,Jorf Lasfar?) tank turnaround remains low by global standards Good regulation needed to reward investment in efficiency and HSEQ ARA Week, March

21 Need for logistic efficiency & improved supply planning ARA Week, March

22 4. Marketing and distribution ARA Week, March

23 Marketing New Majors get stronger Old Majors continue to exit: Shell: divests 20% of Vivo Caltex: South Africa for sale Exxon: Nigeria sold to NIPCO Total: investing heavily - Angola, Mozambique, Cote d Ivoire, EAC, Egypt Pan-Africans building - Puma, Vivo, Oryx, Engen Nigeria: Vitol Oando (OVH) South Africa: Puma Mali: Oryx 16 new stations Local players: NOC Ethiopia, Afriquia Morocco, Lake Oil EAC National companies changing Petroci sells to Puma but NOC s growing in Botswana, Egypt, Malawi ARA Week, March

24 Scramble for African markets Finding the right station And the right operator Margins often high and guaranteed Investment in brand differentiation (Shell, Total) Future: increase focus on service (C-stores, food fuel cards) Regulation is key ARA Week, March

25 Tank truck accidents in Africa are worst in World Source: WHO ARA Week, March

26 Is HSE (health, safety and environment) improving? Old Majors exit was a cause for concern Total, Vivo & Puma raising the standards* But small independent distributors and truckers can be sub-standard Bulk transport by pipeline and rail will lower accident rate but difficult to justify investment (markets small) Aviation fuel quality control is a concern Need for improved, enforced regulation *ARA Forum presentations ARA Week, March

27 5. LPG, LNG and renewable energy ARA Week, March

28 Primary energy mix forecast 100% 90% African Energy Mix forecast 1% 2% 4% 6% 8% 4% 80% 27% 25% 23% 21% 20% 70% Renewables 60% 50% 27% 26% 27% 29% 29% Hydro Nuclear Coal 40% Gas 30% Oil 20% 10% 41% 43% 41% 39% 36% 0% Source: IEA ARA Week, March

29 Relative costs of fuel for power generation c$/kwh 12 Africa: Power Generating Costs FUEL OIL COAL Turbine Diesel Single Cycle Gas CCGT Solar South Africa Wind Hydro OPERATING FUEL INPUT INVESTMENT ARA Week, March

30 Developing the propane market in Africa Large global oversupply Propane readily available Angola, Nigeria, US Gulf Replace gasoil/fuel oil in localised/off-grid powergen, e.g. industry, mining dedicated systems Retail continue to need 80/20 or 70/30 Butane/Propane mix ARA Week, March

31 Will gas/lng and renewables replace oil? Natural gas - power industry in North Africa, Nigeria, Côte d Ivoire (RCI) New gas supply: Ghana, Mozambique, Tanzania, Kenya, Egypt displace coal and fuel oil in power and mining LNG imports increasing RCI, Egypt, S. Africa? Large scale solar is competitive with oil and will displace some diesel, particularly in off-grid generation Growth of local distributed power solutions renewables and thermal will have an impact ARA Week, March

32 6. Why regulation is the key to success ARA Week, March

33 Regulator Structures: still mainly government REGULATOR STRUCTURE Petroleum - Downstream Petroleum - upstream Electricity Algeria Ministry(ARH) Ministry(ARH) CREG Angola Ministry Ministry HIRSEA* Burkina Faso Prime Minister (CIDPH) Ministry ARSE Cote d'ivoire Ministry (DGH) Ministry (DGH) ANARE Egypt Ministry - EGPC Ministry - EGPC Egypt ERA Ghana NPA Petroleum Commission Energy Commission Kenya ERC Ministry ERC Mauretania Ministry (CNH) Ministry Regulatory authority Mozambique Ministry(MIREM) Ministry(MIREM) CNELEC Nigeria Ministry - DPR Ministry - DPR NERC Senegal Ministry Ministry CRSE South Africa Ministry (Refining/retail) NERSA(Pipelines,storage) PASA, NERSA NERSA Tanzania EWURA* EWURA* EWURA* Uganda Ministry (MEMD) Ministry (MEMD) ERA Zambia ERB Ministry ERB Zimbabwe ZERA ZERA ZERA ARA Week, March

34 Regulators protect interest of consumers, investors and other stakeholders Downstream scope often includes: Depot and service station construction Ex refinery prices Pump pricing and price structures Industry import processes Fuel quality - product marking, sanctions Refining, storage & distribution HSE standards and monitoring Also sometimes electricity and water ARA Week, March

35 Regulators must apply the law Regulators must: Enforce the rule of law Stay out of politics and not be influenced by changes of government Be honest Be impartial Be independent Control, test, enforce Invest in equipment and technology Give confidence to investors ARA Week, March

36 Are regulators fit for the task ahead? Stronger, separate, independent downstream regulation needed in many countries Need to be independent of politics Over-regulation discourages investment and leads to investment in the wrong places Free markets generally lead to good investment Good, independent regulation is the single most important requirement to assure future investment and create investor confidence ARA Week, March

37 CITAC Africa Ltd Aldermary House Queen Street London, UK EC4N 1TX Tel: +44 (0) Web: CITAC is a registered trademark. Any reproduction of information contained within this presentation requires CITAC s permission. ARA Week, March