The demand for refined petroleum products in West Africa is expected to witness a CAGR of approximately 4.7% during 2020-2025. Major factors driving the market include strong economic growth, an increasing number of vehicle sales, and the penetration of LPG in recent years. The threat of violence from several militant groups, including small-scale theft and illegal local refining, large-scale illegal bunkering in the field, theft at export terminals, theft from fuel trucks, piracy, and oil tanker hijackings, is a major issue that has been hindering the growth in the production of refined fuel in the region. This has also led to the increasing dependency on imports of refined fuels in the region.
- Heavy fuel oil (HFO) is a major marine fuel in the region, which is expected to witness a huge rise in demand by the power industry in the region, due to an estimated heavy consumption in countries, like Nigeria and Ghana.
- Transition to low sulfur fuels is expected to provide an ample opportunity for refined fuel providers in the coming years.
- In the coming years, the government of Ghana is planning to make the country a hub for the refining petroleum products in the West African sub-region. The petroleum hub project may increase the presence of the major international oil trading and storage companies, creating a regional trading champion and encourage joint ventures between local and international companies for knowledge transfer and wealth creation.
Key Market Trends
Increasing Demand for Marine Fuel
- Over the past decade, the growth in the volume of West Africa’s container trade exceeded that of any other region across the world, doubling to almost 5 million twenty-foot equivalent units (TEUs). This expansion, supported by rising incomes in the region, also contributed to excess congestion at its ports. With an aim to address the problem, many ports have begun investing in expanding the capacity of their port infrastructure and improving their handling efficiency. The increase in the port handling capacity is likely to result in more marine vessels operating in the region, which is a positive market indicator for the coming years.
- On the distribution side, the distribution network of the West African region mostly depends upon the pipeline and the coastal front countries. For example, landlocked countries, such as Burkina Faso, Niger, Benin, and Mali, depend upon the pipeline network for the continuous supply of HFO.
- By 2020, more ships are expected to be able to run their auxiliary engines on HFO compared to 2012, which is expected to increase the demand for HFO in the region and affect the prices of fuel.
- Moreover, it is not possible to use low-grade fuels, such as heavy fuel oil or HFO, in regulated areas known as Emission Control Areas (ECAs). In such cases, marine gas oil fuel or MGO is used, which is one of the most prominently used clean fuels in the marine industry.
- Recently, LNG began gaining attention as the ‘future fuel’ for the shipping industry. However, the industry as a whole is yet to adapt to this change and, thus, HFO is still one of the most preferred clean fuels used on ships.
Increasing Demand for Petroleum Products
- There is a growing demand for LPG as cooking fuel in homes, and particularly as a transport fuel. The total petroleum products supplied to Ghana increased from 3.3 million metric ton in 2016 to more than 3.8 million metric ton in 2018.
- In 2018, the total LPG supplied in Ghana reached more than 400,000 metric ton, representing an increase of over 28% than that of 2017. Out of the total LPG supplied, more than 55% was imported and around 31% was produced locally. The government of Ghana is targeting 50% penetration by 2020. In order to achieve this target, the number of distribution outlets in the country must increase.
- In 2018, the Nigeria Liquefied Petroleum Gas Association (NLPGA) stated that, in the past 10 years, the sector increased by 1,000% to become one of the fastest-growing LPG markets in the world. NLPGA also stated that it has taken on the new growth trajectory to move from its 2018 demand of 600,000 metric ton to over 5,000,000 metric ton per annum in the next 10 years, with measures to make a significant impact on Africa’s LPG economy.
- Therefore, the increasing demand for petroleum products in the region is expected to drive the market studied, during the forecast period.
The major commodity trading companies involved in the West African refined petroleum products market include Puma Energy Holdings Pte Ltd, Monjasa Holding AS, Trafigura Group Pte Ltd, Vitol Group, Oando PLC, and Mercuria Energy Trading SA.
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