ARA Week, March 2017 1
CITAC Africa LLP
The Downstream African Energy
Specialist
What Next for Africa ?
Mark Elliott
Chairman CITAC Africa Ltd
Cape Town, March 2017
ARA Week, March 2017 2
CITAC Africa LLP
The Downstream African Energy
Specialist
What Next for African
Downstream?
Mark Elliott
Chairman CITAC Africa Ltd
Cape Town, March 2017
ARA Week, March 2017 3
Outline
• African growth1.
• Specification changes and refining outlook2.
• Logistics infrastructure3.
• Marketing and distribution4.
• LPG, LNG and renewable energy5.
• Why regulation is the key to success6.
ARA Week, March 2017 5
Mid-term economic growth: focus is on recovery
-1
0
1
2
3
4
5
6
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
%
Source: IMF (Oct'16)
Economic Growth Outlook
SSA
MENA
World
G7
Euro area
ARA Week, March 2017 6
AFRICA balances to 2030
50,000
70,000
90,000
110,000
130,000
150,000
170,000
190,000
210,000
230,000
250,000
000m t
Africa's Growing Clean Product Shortfall
(2000-2030)
Clean products demand
Clean products demand (f)
Clean product output
Output (forecast Scenario 1)
Output (forecast Scenario 2)
148.3mn
mt
81.6mn
mt
ARA Week, March 2017 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 2017 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 2030
3. 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 2017 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 2017 14
MARPOL Impact may be short-term positive for
WAF
• ULSSR/VGO (<0.5% sulphur) values increase
• for two years?
ARA Week, March 2017 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 2017 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 2017 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 2017 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 10-15 days
― Dar – New SBM 0-2 days
• Infrastructure already inadequate
ARA Week, March 2017 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 2017 23
• “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
Marketing – “New Majors” get stronger
ARA Week, March 2017 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 2017 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 201728
Primary energy mix forecast
41% 43% 41% 39% 36%
27% 26% 27%29%
29%
27% 25% 23%21%
20%
4%
1% 2% 4% 6% 8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2020 2025 2030 2035
African Energy Mix forecast
Renewables
Hydro
Nuclear
Coal
Gas
Oil
Source: IEA
ARA Week, March 2017 29
Relative costs of fuel for power generation
0
2
4
6
8
10
12
FUEL OIL COAL Turbine
Diesel
Single
Cycle
Gas
CCGT Solar
South
Africa
Wind Hydro
c$/kwh
Africa: Power Generating Costs
OPERATING FUEL INPUT INVESTMENT
ARA Week, March 2017 30
Developing the propane market in Africa
30
• 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 2017 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 2017 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 CRSEMinistry (Refining/retail)
NERSA(Pipelines,storage) PASA, NERSA NERSATanzania EWURA* EWURA* EWURA*Uganda Ministry (MEMD) Ministry (MEMD) ERA
Zambia ERB Ministry ERB
Zimbabwe ZERA ZERA ZERA
South Africa
ARA Week, March 2017 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 2017 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 2017 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 2017 37
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