unctad ogtf conference nairobi, kenya, 23-25 may 2007 african refiners association not an official...
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UNCTAD OGTF ConferenceNairobi, Kenya, 23-25 May 2007
AFRICAN REFINERS ASSOCIATIONAFRICAN REFINERS ASSOCIATIONNOT AN OFFICIAL UNCTAD RECORD
Introduction to the ARA
50 refineries built in Africa over past 50 years 39 currently operating 12 closed in past 40 years Out of 17 countries with refineries, 12 have only
one refinery Total refining capacity in Sub-Saharan Africa
<1.4 million b/d (<70 million MT); Secondary refining capacity only 20% of total
nameplate crude distillation capacity
Introduction to the ARA
ARA provides a voice for Africa’s 39 refineries; NGO funded by its members, associate members
and sponsors; Second AGM – March’07 in Cape Town Third AGM – 10-15 March’08 in Cape Town
ARA’s Aims and Objectives
Create a voice for African downstream;
Take ownership of and address common issues (economic, environmental, social);
Promote communication, co-operation and exchange of experience;
Defend the interests of the African oil industry.
ARA Structure
AGM Executive Committee:
organise AGM ARA budget Monitor Workgroups Manage ARA membership
4 Executive Committee meetings/yr
Possible Impact on African Markets
New projects in Persian Gulf will result in estimated: 5 million MT of gasoline, 5 million MT of jet/kerosene, 9 million MT of gasoil;
New projects in India (west coast): 6.5 million MT of gasoline, 9.5 million MT of jet/kerosene, 15 million MT of gasoil.
A large portion of these are for export and will impact on African markets.
Possible Impact on African Markets
A key issue is whether or not Middle East and Indian refineries (and European/Russian?) play by international trade rules?
Exports subsidised by domestic sales? Low cost feedstock (ME/Russian)? Low cost/free power? Disposal of low quality by product at below cost?
Are WTO rules applied?
Product Specifications: AFRI Specs
AFRI -1 AFRI -2 AFRI -3 AFRI -4RON, min* 91 91 91 91MON, min 81 81 81 81Lead content** Unleaded Unlleaded Unleaded UnleadedSulphur content, mass %, max 0.1 0.05 0.03 0.015Benzene content, vol %, max to be reported to be reported 5 1
AFRI -1 AFRI -2 AFRI -3 AFRI -4Sulphur content, mass %, max 0.8 0.35 0.05 0.005Density at 20ºC, kg/ litre (min/max) 800/890 800/890 800/890 820/880Cetane index (calculated), min 42 45 45 45Lubricity (HFRR @ 60ºC), micron, min to be reported to be reported 460 460
*A higher grade of gasoline may be marketed if required
** 'Unleaded' means <0.013g of lead per litre
GASOLI NE
DI ESEL
Product Specifications
ARA members have committed to meeting AFRI spec targets
Meeting the higher levels will require investment that may not be achievable
Refiners need a fair, consistent “playing field” to attract investment
Gasoil: 103 Gasoline: 112
Gasoil: 89 Gasoline: 93
Gasoil: 63 Gasoline: 49
Gasoil:109 Gasoline: 113 Prices in US cents per litre
Gasoil:119 Gasoline: 125+16%
+12%
+63% +129%
+90%
+41%
+73%
+131%
+11%
Pump Prices in Africa: Regional Imbalances
+16% +20%
Market Structure
Wide variations in pump prices within the same region
Wide differences in ex-refinery/depot and distribution price structures
Harmonisation could lead to: Reduction in smuggling Facilitation of trade Market transparency, less market distortion
Value of a Refinery: Do we need them?
Would it matter if all African refineries close in the next 20 years and Africa buys all its products from the ME, India, and Europe/Russia?
Value of a refinery: Traditional arguments
Traditional arguments to allow refinery subsidisation (e.g. by K-factor):
Employment Technology Domestic crude Supply security ( no longer an issue?)
All valuable but worth $millions not $100’s of millions (subsidy cost?)
Value of a refinery: Additional Arguments 1
Tax collection: Refineries are good tax collectors Private importers (especially at small import
points) may not be Smugglers (who operate when cross-border
prices are different) do not pay taxes
Quality Control: Product quality fraud (off-spec imports)
Can be worth $10’s of millions
Value of a refinery: Additional Arguments 2
Product Import Pricing: Many questionable practices exist for ‘adjusting’
prices on product cargoes; more difficult to do on crude oil cargoes
Privatisation: Refineries are difficult to sell as investors averse
to market regulation Limited competition (difficult for a refinery to
compete against imported products)
Can be worth $10’s of millions
Subsidies
K-Factors extremely important to a refiner (10% on 1
million mt/yr = ~$60 million) Blunt instrument Inconsistent application
Import taxes on products are an alternative
Refiners need a consistent level playing field
Efficiency Improvement…
Enormous improvement achieved in Africa over past 20 years
To go further need a clear consistent playing field particularly to attract much needed investment
Cooperation through the ARA can help with: Benchmarking, Training, Experience-sharing, Expanding supplier choice
Summary
African Refineries face serious threats Advantage of local refining vs. product imports
has been seriously undervalued in the past by economists
Constant pressure for closure and replacement by product imports may lead to wrong answer for Africa
African refineries can become much more efficient but need a consistent level playing field
ARA can help by encouraging cooperation among members