African countries will need about $15.7 billion to upgrade existing 36 refineries on the continent to produce petroleum products that will conform with a planned level of sulphur content.
African Refiners and Distributors Association (ARDA) disclosed that the $15.7 billion estimate is about 50 per cent and final per refinery upgrades may need to be finalised when respective engineering, procurement and constructions are engaged.
The African Union and ARDA had planned an initiative called AFRI-6, which aimed at reducing Sulphur content in fuels to 10 parts per million (ppm) in the coming years.
Speaking yesterday at a workshop organised by ARDA on “Upgrading African Refineries to Produce Cleaner Fuels,” Executive Secretary of ARDA, Anibor Kragha revealed that North Africa with 17 refineries would require capital expenditure of $5.955 billion for upgrade, West and Central Africa with 12 refineries would need $6.285 billion, while East and Southern Africa with seven refineries would need $3.415 billion.
A report published last year by an international resource watchdog group, Stakeholder Democracy Network (SDN) had found that on average, the fuel sold in Nigeria exceeded EU pollution limits by as much as 204 times, and by 43 times the level for gasoline.
Kragha noted that without urgent steps on adopting uniform fuel specifications across the continent, health and environmental challenges could worsen existing problems on the continent even as the continent’s population projection is expected to grow exponentially.
Kragha, who said “cleaner, harmonised, Pan-African fuels specifications are required,” noted that there has been uneven progress in tightening fuel specifications across the continent.
Disclosing that African Union and ARDA were collaborating on adoption of AFRI Fuels Roadmap, ARDA secretary listed new process units required to improve key fuel specifications to include; Naptha Hydrotreater (NHdT), Diesel Hydro-desulphurisation (DHDS), Benzene Extraction and Sulphur & Hydrogen Plants.
Kragha, who said: “Major urban population growth would result in increased pollution,” stated that orderly, sustainable transition to cleaner fuels remained imperative to address potential public health issues.
“Targeted financing needed for projects to upgrade refineries and infrastructure to produce and transport cleaner fuels,” he also commented.
An investment professional at the African Finance Corporation, Ufuoma Adasen, noted that while access to long-term financing at competitive rates remained a challenge, phased project implementation could represent a way forward.
Adasen said since some refineries do not operate on full cost-reflective basis, a development, which contributes to financial losses, strained cash flows, and weak balance sheets, there was a need for stakeholders to adopt a fully commercially viable framework.
In the face of shrinking investment into the oil and gas sector, Adasen expressed the need to prioritize projects that would improve production of cleaner fuels and increase advocacy by key stakeholders.
Business Development Expert at Vitol Group, Richard Egan said the continent’s sub-economic utilisation and relatively low complexity calls for significant investment in refining, adding however that the world has reached a tipping point whereby financing ESG or green projects may be more than that for fossil fuels going forward.
The expert noted that commercial viability remained paramount, calling for investment decisions to be driven by end users and stakeholders with a roadmap focused on emissions reduction, social development and governance (ESG).
Director of Project and Structured Finance at the Honeywell UOP, Robert Doyle noted that African marketplace offers many opportunities for investment in the oil, gas and petrochemical sectors, adding that attracting capital however remained a challenge due to perceptions of country risk; currency convertibility, economic growth factors, regulatory challenges, etc.
“International lenders have been traditional sources of capital for large mega-projects but it can be a challenge to attract them for smaller opportunities with less recognised sponsor names,” Doyle said.
The Director said while regional banks are stepping up in this regard, better understanding of market players and local lending dynamics were necessary.
“Fastest path towards success is with sponsor groups featuring a strong balance sheet and with well-structured offtake agreements (offshore hard currency contracts preferred),” Doyle said.
