By Thangapandian Srinivasalu
Executive Director of Gulf Petrochem
Africa’s annual appetite for gasoil and gasoline is expected
to climb by as much as 8%, while demand for liquefied petroleum gas (LPG) has
hit double digits. The continent’s growing home-grown energy supply will help
satisfy some of the burgeoning demand.
Image Attribute: A "National Oil" Gas Station in Kenya, / Source: www.nationaloil.co.ke
Africa produced 8.2m b/d of crude last year - 76% came
from Nigeria, Algeria, Egypt and Angola, according to PricewaterhouseCoopers’
(PWC) 2015 Africa Oil & Gas Review. But East Africa is elbowing its way under
the spotlight and changing Africa’s energy map – a move easily justified by its
wealth of oil and gas assets. For example, Tanzania hopes to use its 55tcf of natural
gas reserves to become a liquefied natural gas (LNG) exporter by 2025, while Tullow
and Canada’s Africa Oil have identified 600m bls of oil reserves in Kenya’s
South Lokichar basin. Many projects are still in the exploratory stage, but investors’
appetite has strengthened East Africa’s position in the global energy arena.
Tanzania, Kenya and Uganda are amongst several East
African countries addressing wobbly regulatory frameworks by establishing
bidding rounds – a more transparent way to allocate resources. Plus, the East
African Community (EAC) hopes to invest around $1.5b to build 1,454 kilometers
of intraregional and domestic pipelines over the next few years. The longest
pipeline will be the 784 kilometer route through Kenya – Uganda – Rwanda, which
should significantly bolster fuel trade between the three countries.
East Africa must react quickly to satisfy the demand
of its thriving middle-class. Such households in eleven sub-Saharan African
countries - including Tanzania, Kenya and Uganda - are expected to more than
double from 15m people to over 40m by 2030, according to Standard Bank’s 2014
research. The subsequent appetite for oil products is vast, with a large
portion earmarked to powering personal cars on newly paved roads. Most of the liquefied
petroleum gas (LPG) demand will be soaked up for cooking to support the rapidly
growing populations in Africa’s cities, which will also help boost the region’s
green credentials.
Robust growth wherever it is always attracts global
investors’ attention.
The time is right to explore African assets, but only
the strongest players will survive in what is an increasingly competitive
space. Tanzania, Kenya and Uganda are spearheading East Africa’s economic
prowess, with the eastern region as a whole growing by 7.1% in 2014, with 5.6%
and 6.7% growth forecast for 2015 and 2016, respectively. With many energy hubs
in the Middle East and North Africa (MENA) beset by political strife, the
largely stable democracies in the EAC offers investors respite; the EAC demands
strong governance and human rights.
Chart Attribute: Bab-al-Mandab near Horn of Africa, a crucial transit point through which varieties of petro-product and crude oil passes through. Southbound legend depicts the growth in consumption in East African Coastline. / Sources: EIA.gov
Plus, lower crude prices since June 2014 have
triggered a rising oversupply and pushed the market into contango - where spot
prices are lower than future prices. This has boosted investments in oil
storage and traders that have access to physical oil and storage can
significantly bolster their profit margins.
The outlook for higher future prices has become
particularly striking in the last three months as the surplus of crude oil production
has increased stockpiles worldwide, exceeding capacity in many trading ports
and forcing traders to seek alternatives. The high rates for very large crude
containers (VLCC) means floating storage is still an unpopular second
choice.
The changing market structure has presented a gateway
for global trading and storage firms to enter and widen their footprint in new
markets in Africa, building on already strong platforms in
the Gulf, Asia and Europe. If the oversupply of oil
persists, traders may become bolder and secure their own storage facilities. They
may also need to incorporate more blending capabilities and roll out additional
jetties to widen their mandates to help cater for future growth.
Governments and national oil companies are also
joining the rush to Africa’s east coast. Oman is looking to build a foothold to
promote trade of fuel and crude into the vast landlocked interior of Africa via
Oman Trading International (OTI) with a $50m investment in facilities to store
fuel in Mozambique or Tanzania.
We do not see any new refineries coming in near future
in Africa, but Africa’s economy is in a growth phase and we expect good demand;
it presents a good opportunity for storage terminals to cater to that demand.
About The Author:
Mr. Thangapandian Srinivasalu, Gulf Petrochem Group’s Executive Director is an oil and gas
professional with over 30 years of experience in sales, marketing and trading
of petroleum products in India & Nigeria with PSU, MNCs and Private sector
companies in India.
Before joining
the Gulf Petrochem, he was associated with Essar Oil Limited as CEO – Marketing &
IST. He established PetroFina in India and was part of the Team
that launched Gulf oil in India post opening up of the market. As Head of
Marketing & IST in Essar Oil, a fully integrated oil company, his
responsibilities included, ‘Retail sales’, ‘Direct sales’, Retail Network
Expansion, Sourcing Crude, Trading of Petroleum Products, Supply & Distribution
for the company in India and Kenya.
Source: The Gulf Intelligence