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Petroleum hub of West Africa: How competitive is Ghana’s bid?

By: Kwasi Zigah
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The Writer
The Writer

The Government of Ghana has outlined a bold vision to make Ghana a hub for refined petroleum products in West Africa. The hub will be built in three phases over a 13-year period starting from 2018 and completed by 2030. It is anticipated that the petroleum hub will be built in the Western Region of Ghana at a location that can hold the planned infrastructure and activities estimated to cover 20,000 acres.

The hub is to house four refineries with a total capacity of 600,000 barrels per stream day (bpsd). The hub will ultimately hold and redistribute 50 per cent of the West African consumption of petroleum products which is about 30 million MT per annum. The hub, when completed, will have storage infrastructure, port facility with multiple berths, refineries, petrochemical plants and an industrial park with related facilities such as school, hospital, roads, pipelines and rail network.

The hub is a strategic anchor initiative which will grow Ghana’s gross domes

Business opportunity
There is a market opportunity for a petroleum hub in the West African sub-region. The region requires about 850,000 barrels of refined fuels per day to meet its needs. This translates into a yearly consumption of about 30 million metric tonnes. West Africa’s fuel market growth rate is estimated at four per cent yearly. Currently, the total refinery capacity in the region is estimated at 500,000 bpd, leaving a shortfall gap of 350,000 bpd which is closed by the import of refined products from Antwerp-Rotterdam-Amsterdam (ARA) region by oil traders. The proposed petroleum hub is meant to close this importation gap.

Domestic demand
The demand for refined fuel in Ghana is put at 4.2 billion litres (85,000 bpd) according to the National Petroleum Authority (NPA). This demand is growing consistently at five per cent per annum. Ghana’s fuel consumption represents eight per cent of West Africa’s total fuel demand and it is projected that the country’s fuel consumption will reach 10 billion litres by the year 2030. Since the country’s utilised refining capacity is barely 25,000 bpd, Ghana relies heavily on importation of refined fuels. With the harmonisation of fuel standards in the region, it is expected that the hub’s refineries should be able to produce to meet fuel quality specifications in the region. In a situation where the hub cannot export its entire output to the neighbouring countries through traders because of cheaper source elsewhere, there is a ready domestic market for supply.

Resources
Ghana is strategically located on a major international shipping route. The country has relatively safe maritime infrastructure and coastline with water depth capable of receiving large ocean vessels. There is a growing upstream oil industry whose crude oil output provides the main ingredient for the hub project. Ghana produces medium-light sweet crude with 36.4 API gravity and 0.25 per cent sulphur content oil which when refined locally, yields ultra-low sulphur fuel output. In addition, the proximity of Ghana’s upstream crude oil to the proposed location for the hub should yield production cost advantage.

With respect to skilled human resource, it will take some years to train petrochemical engineers with relevant skills set to manage operations at the hub. At best, we may have to go to the international market to recruit skilled engineers.

Supporting industries
Ghana can count on few industries to support its business case for the petroleum hub project.

There is fairly good road network that links the coastal region with the Sahelian and neighbouring coastal countries. The rail lines are currently being revamped to cart heavy cargo to the northern parts of the country.

We have a very competitive downstream sector where indigenous players command over 75 per cent of the market volume share.

It is expected that this competitive downstream sector will play a critical role with regard to market products refined at the hub.

Rivalry among neighbouring countries
There is fierce competition among countries along the Gulf of Guinea to attract large and long-range oil cargo vessels to their harbours. Currently, the Lomé Offshore is more competitive to large cargos bringing refined fuel from ARA region due to relatively low anchorage charges and offshore security there. The domestic fuel demand in Nigeria is 600,000 bpd. This represents 70 per cent of regional market consumption. With a huge domestic market, Nigeria stands in a good stead to attract the necessary funding for a petroleum hub.

The Nigerian government-owned refineries hardly meet half of the country’s demand, making Nigeria rely on imported fuel. Indeed, Dangote Group identified the viability of a large-scale refinery and has invested USD 12 billion in a brand new refinery to produce 650,000 bpd.

It is expected that this new refinery will supply domestic market and export the surplus to other regional markets at competitive FOB prices.

If it becomes operational, this will jeopardise Ghana’s vision of becoming a petroleum hub due to the competitive price advantage Dangote Refinery is expected to command.

However, given Ghana’s political and business-friendly environment, investors could still choose to put their money in the project in spite of the promise Nigeria holds.

Conclusion
It is my overall assessment that Nigeria has an edge over Ghana in respect of a petroleum hub since the upcoming Dangote Refinery has tilted the tide in favour of Nigeria with their brand new refinery commencing 2019. However, Ghana should still keep the hub vision alive. In the meantime, the Ministry of Energy may consider retooling the Tema Oil Refinery (TOR) to up its current refinery capacity to 85,000 barrels per day to meet domestic demand. Alternatively, TOR could be tasked to find a strategic partner to construct new refinery with at least 100,000 bpsd capacity as the ministry assesses the impact of Dangote Refinery’s commencement of operation on refined fuel FOB prices in the sub-region.

The Government of Ghana has outlined a bold vision to make Ghana a hub for refined petroleum products in West Africa. The hub will be built in three phases over a 13-year period starting from 2018 and completed by 2030. It is anticipated that the petroleum hub will be built in the Western Region of Ghana at a location that can hold the planned infrastructure and activities estimated to cover 20,000 acres.

The hub is to house four refineries with a total capacity of 600,000 barrels per stream day (bpsd). The hub will ultimately hold and redistribute 50 per cent of the West African consumption of petroleum products which is about 30 million MT per annum. The hub, when completed, will have storage infrastructure, port facility with multiple berths, refineries, petrochemical plants and an industrial park with related facilities such as school, hospital, roads, pipelines and rail network.

The hub is a strategic anchor initiative which will grow Ghana’s gross domestic product (GDP) by 70 per cent by the year 2038 and provide nearly a million jobs. The project is estimated to cost about USD 50 billion.

Business opportunity
There is a market opportunity for a petroleum hub in the West African sub-region. The region requires about 850,000 barrels of refined fuels per day to meet its needs. This translates into a yearly consumption of about 30 million metric tonnes. West Africa’s fuel market growth rate is estimated at four per cent yearly. Currently, the total refinery capacity in the region is estimated at 500,000 bpd, leaving a shortfall gap of 350,000 bpd which is closed by the import of refined products from Antwerp-Rotterdam-Amsterdam (ARA) region by oil traders. The proposed petroleum hub is meant to close this importation gap.

Domestic demand
The demand for refined fuel in Ghana is put at 4.2 billion litres (85,000 bpd) according to the National Petroleum Authority (NPA). This demand is growing consistently at five per cent per annum. Ghana’s fuel consumption represents eight per cent of West Africa’s total fuel demand and it is projected that the country’s fuel consumption will reach 10 billion litres by the year 2030. Since the country’s utilised refining capacity is barely 25,000 bpd, Ghana relies heavily on importation of refined fuels. With the harmonisation of fuel standards in the region, it is expected that the hub’s refineries should be able to produce to meet fuel quality specifications in the region. In a situation where the hub cannot export its entire output to the neighbouring countries through traders because of cheaper source elsewhere, there is a ready domestic market for supply.

Resources
Ghana is strategically located on a major international shipping route. The country has relatively safe maritime infrastructure and coastline with water depth capable of receiving large ocean vessels. There is a growing upstream oil industry whose crude oil output provides the main ingredient for the hub project. Ghana produces medium-light sweet crude with 36.4 API gravity and 0.25 per cent sulphur content oil which when refined locally, yields ultra-low sulphur fuel output. In addition, the proximity of Ghana’s upstream crude oil to the proposed location for the hub should yield production cost advantage.

With respect to skilled human resource, it will take some years to train petrochemical engineers with relevant skills set to manage operations at the hub. At best, we may have to go to the international market to recruit skilled engineers.

Supporting industries
Ghana can count on few industries to support its business case for the petroleum hub project.

There is fairly good road network that links the coastal region with the Sahelian and neighbouring coastal countries. The rail lines are currently being revamped to cart heavy cargo to the northern parts of the country.

We have a very competitive downstream sector where indigenous players command over 75 per cent of the market volume share.

It is expected that this competitive downstream sector will play a critical role with regard to market products refined at the hub.

Rivalry among neighbouring countries
There is fierce competition among countries along the Gulf of Guinea to attract large and long-range oil cargo vessels to their harbours. Currently, the Lomé Offshore is more competitive to large cargos bringing refined fuel from ARA region due to relatively low anchorage charges and offshore security there. The domestic fuel demand in Nigeria is 600,000 bpd. This represents 70 per cent of regional market consumption. With a huge domestic market, Nigeria stands in a good stead to attract the necessary funding for a petroleum hub.

The Nigerian government-owned refineries hardly meet half of the country’s demand, making Nigeria rely on imported fuel. Indeed, Dangote Group identified the viability of a large-scale refinery and has invested USD 12 billion in a brand new refinery to produce 650,000 bpd.

It is expected that this new refinery will supply domestic market and export the surplus to other regional markets at competitive FOB prices.

If it becomes operational, this will jeopardise Ghana’s vision of becoming a petroleum hub due to the competitive price advantage Dangote Refinery is expected to command.

However, given Ghana’s political and business-friendly environment, investors could still choose to put their money in the project in spite of the promise Nigeria holds.

Conclusion
It is my overall assessment that Nigeria has an edge over Ghana in respect of a petroleum hub since the upcoming Dangote Refinery has tilted the tide in favour of Nigeria with their brand new refinery commencing 2019. However, Ghana should still keep the hub vision alive. In the meantime, the Ministry of Energy may consider retooling the Tema Oil Refinery (TOR) to up its current refinery capacity to 85,000 barrels per day to meet domestic demand. Alternatively, TOR could be tasked to find a strategic partner to construct new refinery with at least 100,000 bpsd capacity as the ministry assesses the impact of Dangote Refinery’s commencement of operation on refined fuel FOB prices in the sub-region.

Disclaimer: The views expressed in this article are personal views of the author and do not represent views of PETROSOL

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