Prices expected to be depressed
Despite the loss of Libyan and South Sudanese production, most sources agree that the global oil price will be slightly lower in 2014 than in 2013. Nevertheless, the Nigerian government has based its 2014 budget on an assumed average oil price of $77.50 a barrel during the year, higher than the $75 barrel benchmark agreed for 2013.
Global oil prices stood at about $107 a barrel in early January 2014, roughly in line with the 2013 average, but had been depressed by rising North American shale oil production during 2012 and 2013. This trend is expected to have an even greater impact during 2014 as multibillion-dollar new projects are brought on stream in the US. Abuja’s calculations seem to have been influenced by a desire to increase government expenditure in the run-up to the 2015 elections, in a repeat of spending patterns during previous electoral cycles.
Oil transport and marketing in Nigeria and elsewhere in West Africa continues to be affected by tanker piracy. International naval efforts had cut the number of pirate attacks off the coast of Somalia to 10 in the first nine months of 2013, just a quarter of the number officially recorded in West Africa by the International Maritime Bureau’s Piracy Reporting Centre.
The attacks have taken place off the coasts of Togo, Côte d’Ivoire, Sierra Leone and Guinea, as well as Nigeria, after pirates were forced away from Benin because of more regular naval patrols. Jan Fritz Hansen, the chairman of the piracy task force at the European Community Shipowners’ Associations, commented: “They are becoming more and more organised. You can’t really rely on private armed guards. It should be a more strong force from governments. The criminals down there are a bit better equipped and armed.”
Tankers are taken for ransom; for the crude oil and fuel that they carry, which is then sold on elsewhere in the region; and for the cash and other valuables held by the crew. Roy Paul, a director at the Maritime Piracy Humanitarian Response Programme, said: “Initially they were interested in holding the ships, stealing the cargo, taking this ship crew’s possessions and money and leaving. This year, we’ve seen an increase in taking hostages.”
An African refining revolution?
Several African governments are seeking to increase their revenue per barrel of crude oil produced by developing new refineries. British consultants CITAC estimates that 1.1m b/d of new refining capacity is planned in Africa and predicts that only about a third of this will actually be developed.
Nevertheless, this a better track record than the continent has achieved in recent years. Dozens of refinery schemes were announced in Africa during the first decade of the new millennium but very few have actually been built. As a result, the IEA forecasts that the gap between supply and demand will grow by about 650,000 b/d between 2012 and 2018. CITAC executive director David Bleasdale said: “Our view is that growing African demand will by and large be met by imports.”
Africa is certainly becoming more important to global oil marketers. The International Energy Agency estimates that the African continent will account for about 15% of the expected rise in global oil demand over the next five years, roughly in line with its share of global population. This equates to a rise of about 150,000 b/d in 2014 alone.
Ecobank’s head of oil and gas research Rolake Akinkugbe said: “Competition to supply Africa is only going to increase. Even if three projects [for instance] do get built, there is no way they can keep up with demand growth.”
Total oil production on the African continent will rise from about 7.4m b/d at present to 8.5-9.0m b/d by 2020 and demand for refined petroleum products is expected to increase by about 50% between 2012 and 2020.
Plans for a new refinery of global importance near Lagos have been unveiled by Nigeria’s billionaire Aliko Dangote. The project and its role within the continent’s refining industry is considered on later. The scheme’s success depends on several factors, but not least continued strong economic growth in Africa’s most populous country. Rapidly growing car ownership will drive diesel and petrol demand, while rising air traffic is boosting demand for jet fuel. With such huge capacity, it is also likely that the refinery would supply more specialised refined petroleum products to neighbouring states.
Refineries across Africa have long struggled to operate on a successful basis because of the heavy commercial and regulatory constraints that are placed upon them. In particular, they are often forced by governments to buy crude oil at a market rate and sell fuel at a subsidised rate.
The sums regarding African refining projects may not always add up, but Nigeria may be an exception, particularly if the new refinery helps to tackle industry corruption. Others argue that the market will be big enough to sustain new African refineries even if international refiners increase their exports to the continent. Either way, there is little doubt that African consumers are beginning to play a bigger role in the minds of global oil producers.