OPEC Predicts Potential Long-Term Refinery Shutdowns in Africa

The Organization of Petroleum Exporting Countries (OPEC) has released its World Oil Outlook, and one of the notable revelations from this report is the anticipation of long-term refinery closures in Africa.

This development carries significant implications for the region’s oil and energy sector. OPEC’s report, launched in Saudi Arabia on October 9, paints a complex picture of the future of Africa’s refineries.

The World Oil Outlook delves into the dynamics of refinery operations and the anticipated trends beyond the year 2028. Rather than providing a clear prediction of specific closures, it offers insights into implied refinery closures. These implications are derived from long-term modeling results, taking into account factors like sustainable utilization rates at a regional level over the long term.

In regions with more developed economies, such as Europe and North America, a sustainable utilization rate of around 80% is considered typical. However, in regions like Africa and Latin America, the sustainability rate varies significantly. The underlying assumption is that most of the implied closures will predominantly involve older, simpler, and less efficient refineries. As utilization rates decrease over time, these refineries find it increasingly challenging to compete with more complex and integrated facilities.

It’s important to note that the long-term modeling exercise considers expected closures in the medium term, spanning from 2023 to 2028, amounting to a total of 1.2 million barrels per day. This underscores the pressing nature of the issue and the need for strategic decisions within the African oil and energy landscape.

The report also casts a critical eye on the efforts made by the Nigerian National Petroleum Company Limited (NNPC) to modernize local refineries, including those in Kaduna, Warri, and Port Harcourt. While these modernization efforts are commendable, the OPEC Outlook suggests that they may face limitations.

According to the report, “Closures are possible throughout the outlook period. Latin American and African regions have a large number of older refineries, which operate at relatively low or even close-to-zero utilization rates. Some countries are trying to modernize existing refineries, for example, NNPC refineries in Nigeria, but these efforts remain limited across these regions. This is why closures in these two regions can be expected.”

The future of the global downstream market remains uncertain, particularly in the mid- and long-term perspectives. Developing countries are anticipated to experience significant growth in oil demand in the coming years. This, in turn, will lead to a tighter downstream market in these regions due to higher utilization rates.

The OPEC Outlook projects that developing nations will continue to expand their refining capacity by constructing new greenfield refineries. These projects are expected to be highly complex, often integrating with petrochemical facilities. Moreover, innovations like crude-to-chemical technology are poised to play a crucial role in adapting to long-term shifts in oil demand.

A prime example of an integrated refinery is the Dangote Refinery, which is set to begin refining diesel and aviation fuel soon, with petrol production slated for November. This refinery’s integration with petrochemical production exemplifies the trend toward more complex and multifunctional refining facilities.

To address environmental concerns and reduce carbon footprints in the downstream sector, the OPEC report emphasizes the need for greater energy efficiency and the integration of renewable energy sources in refinery operations. Additionally, carbon capture utilization and storage (CCUS) are highlighted as strategies to significantly reduce emissions within the downstream sector.

The report underscores that meeting global challenges related to emissions reduction while ensuring energy affordability and security requires the deployment of all available technologies and strategies.

This report aligns with recent discussions in Nigeria concerning the efficiency of local refineries. Despite substantial government investments exceeding N10 trillion for the rehabilitation of refineries in Warri, Port Harcourt, and Kaduna, these facilities remain inactive. This issue has prompted suggestions, notably from Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, to consider selling these refineries. Many stakeholders share the sentiment that privatizing these assets could lead to improved performance and productivity, considering the government’s historical challenges in managing public assets effectively. These discussions are integral to the broader conversation on the future of the oil and energy sector in Nigeria and, by extension, the African continent.