Due to its national and international natural resource distribution, the African continent brags about growth and competitiveness. Its validated oil and gas deposits make up roughly 7.5% and 7.1% of the world’s stockpiles.
The excellent possibility now lies for Africa’s petroleum and natural gas exporting countries to embrace a new age of wealth in the international oil industry, made possible by enhanced practical improvements and rapidly expanding global energy requirements.
Africa is well-positioned to replenish the base oil procurement disparity in Europe while supplying dependable fuel to domestic industries thanks to scheduled oil pipelines that will link the region’s ample resources to great diversity, expanding the consumer base. It is a sound strategy for ending the region’s fuel inequality. Oil pipeline facilities in Africa are advancing in the quest for encompassing African base oil development and long-term energy supplies. It is conveniently placed and created to benefit existing growth markets.
African Demands for Base Oil
Africa has enormous development prospects, both generally and about base oils, and as a result, it offers suppliers in more developed regions a strong export chance.
The market forces of the region’s nations, however, demonstrate a significant degree of variation in their growth stages and desire for base oils. The area is far from being a homogeneous group. In addition, needs can be erratic in several sectors, changing in reaction to domestic and foreign causes.
Nigeria is by far the major consumer of base oils in Africa. The typical monthly importation estimate ranges from 30,000 to 40,000 tonnes, but some sources place the number as 60,000.
Nigerian purchases outweigh those of the next largest west African competitors, with nations like Ghana. However, it should be noted that roughly 15-20% of these volumes end up in the neighboring region.
There is no doubt that Nigeria is the largest supplier of crude oil on the continent while having no ability to make base oil, which accounts for a significant portion of the gap. According to a local source, a regular exploration and production project uses 2 million liters (528,400 gals) of base oil.
The type and purity of base oil imported into West Africa varies, and it comes from various places, including the US, Brazil, Europe, and the Middle East. However, the bulk comes from Eastern Europe and Russia via the Baltic Sea and has a lower viscosity index. Nigerian consumption, which is impacted by various reasons, can substantially affect the Baltic Sea trade and costs when factoring for large quantities.
The yearly rainfall in West Africa is the most consistent of these variables. Still, it fluctuates year to year and can have an almost paralyzing impact on African base Oil development and base oil demand, affecting both primary industry and transportation use. Domestic, manufactured factors are far less foreseeable; examples include the 2011 Ivory Coast civil war, sporadic sectarian warfare in Nigeria, and, most lately, the nationwide strike in January that paralyzed the nation.
Nevertheless, despite the robust market in West Africa, many European suppliers believe that the northern nations have the best prospects for African base oil development. Base oil consumption was significantly disrupted by the Arab Spring. Still, many people are optimistic that when peace and security resume, African base oil development and its base oil need will follow.
Due to its extensive oil industry, Libya has experienced a comparatively high consumption of between 50,000 and 60,000 tonnes annually. With four base oil-producing factories, Egypt has a sizable demand for base oils and Africa’s most considerable manufacturing potential.
It continues to be heavily dependent on imports, but this is mostly for bright materials. Due to the relative vicinity and the 6% tax that European exports to Egypt are exposed to, the Middle East has a considerable economic edge over the former. All three countries, Tunisia, Sudan, and Morocco have a sizable base oil market segment with room for African base oil development. Morocco even has a base oil refinery of its own.
South Africa is a second nation that has solid trade links to Europe. Because of long-standing ties to Europe, existing trade routes have continued to be used, and most of the nation’s Group I base oil supplies come from Europe.
Similarly to Egypt, South Africa has its domestic Group I base oil supply, which reduces its need for importation despite possessing a sizable overall trade. The country’s requirement to purchase additional goods for the domestic market depends on how well these infrastructures run. In consequence, this hides the surge in sales of base oil.
Since many African nations lack lubricant mixing infrastructure, they do not receive a sizable amount of base oil. Because of this, most of the continent presents the little potential to foreign base oil providers.
Market Snapshot of African Base Oil Development
The demand for base oils in Africa was estimated to be worth 1,774.36 kilotons by 2020, and it is expected to increase by 1.47% during the following five years (2021-2026). The COVID-19 pandemic in the area within the first half of 2020 substantially impacted the automotive, transit, and several other economic sectors. For instance, it is predicted that sales in the South African car sector will grow by -16% in 2020 compared to 2019.
Need in the industry under study during the projected period is anticipated to be temporarily driven by elements like the growing renewable power industry growth and high production sector requirement.
The market is anticipated to benefit from advancements in Africa’s synthetic base oil and bio-based lube and industrial growth.
Critical Market Factors
Rising Demand Driven by an Expanding Renewable Energy Industry
In wind turbines, gear oils are used to lubricate the primary gearbox and other gear motor parts. Compared to other industrial gear lubricants, the lubrication needs for wind turbine gearboxes are stricter. It is because generating electricity involves high temperatures, bearing wear, rust and oxidation, and heavy loads. Because synthetic motor oils have superior qualities to their mineral-based equivalents because of the efficient chemicals employed in their composition, there is a rising desire for them in wind generators.
The wind energy industry is anticipated to expand during the projection time, despite pressure from solar energy generation. Consequently, this is expected to significantly increase the need for African base oil development in the coming years.
Since several developments have been presented and developed by different organizations and governments, nations like Egypt, Morocco, Jordan, and South Africa, including Sub-Saharan Africa, are some of the major countries in Africa where the wind energy industry is enjoying favorable development.
Morocco intends to produce 52% of its energy by 2030, according to the Direction of Studies and Financial Forecasts (DEPF), a division of the Moroccan Interior Ministry. The Moroccan authorities recently made significant investments in solar and renewable energy projects to reach this goal.
The market for base oils in the area is expected to expand in the industry throughout the forecast period for all the reasons mentioned earlier.
Constant African Base Oil Development
South Africa continued to expand through 2019 in the African continent. The International Monetary Fund estimates South Africa’s GDP grew by about 0.2% in 2019. The COVID-19 epidemic caused the GDP to decline by almost 8% that year. The COVID-19 pandemic had a severe adverse effect on the economy of the nation.
The largest Group II base oils user in Africa is South Africa, one of the continent’s primary markets for base oils. The most popular lubricant brand in the nation is Castrol, followed by Shell, Engen, and Chevron, in that order. Other significant lubricant businesses in the country include Fuchs, Total, Centlube, etc.
Substantial base oil mixing production developments have recently been seen in South Africa. FUCHS Lubricants South Africa finished a ZAR 125 million lubricant infrastructure project in its factory on Island in March 2018. Additionally, the business declared in 2020 that it would spend about USD 14.9 million on storage, buildings, and a significant base oil mixing facility in Johannesburg.
One of the most outstanding food manufacturing sectors in all of Africa is found in South Africa. Engen Petroleum Ltd., Fuchs, and Total are a few large businesses that provide food-grade oil to South Africa. The country’s expanding population drives the demand for base oils in the food industry.
Therefore, during the projection period, African base oil development is anticipated to impact lubricant usage in the South African marketplace.
Recent Occurring Growth in Africa
Developing the oil infrastructure in these nations, which calls for the admission of firms and brands deserving of this industry, is essential to the African base oil development.
To increase its operations (oil products, lube, bitumen, and other commodities) in Zambia, KenolKobil bought Samuel Limited in March 2020.
To increase its market position in Sub-Saharan Africa, FUCHS Lubricants purchased 50% of local wholesalers’ interests in Zimbabwe and Zambia in December 2019.
To speed up the implementation of their supply chain in the Provinces of southern Morocco, Vivo Energy and Myer Holding announced their cooperation in the firm Sopétrole in November 2019. This business may be storing, promoting, and delivering petroleum products and lubricants under the Shell brand in the Saharan provinces.
New Path for African Base Oil Development: Investment in Green Energy Plants
African nations that produce oil and gas may also think about funding renewable energy initiatives to ensure energy security in the future. Due to the substantial electricity demand in many African nations, the use of renewable energy sources like solar and wind seems promising. The cost of renewable energy sources has rapidly decreased since 2009. In the last ten years, timeframes for both solar and wind energy have decreased, along with deployment and productivity improvements. Innovations like blue and green hydrogen, whose unit costs are expected to fall, could also one day be exported to Europe’s main markets. The Namibian government recently revealed plans to construct a 300,000-ton eco-friendly hydrogen initiative to produce green hydrogen and its derivative products for local and international markets. A significant new source of carbon-abatement money may be found in the ecological systems of the 16 African nations that make oil and gas. For instance, conserving, effectively maintaining, or rebuilding Africa’s abundant ecology could provide a chance to reduce carbon emissions by 1.2 gigatons annually.
Such fresh commercial potential would probably need the backing of numerous parties. Changes to the market can also be required. The climate policy would facilitate the creation of blue hydrogen from natural gas using steam methane reformation.
Each new initiative would have to be evaluated in terms of its capacity to secure money, how closely it adheres to the Nationally Determined Contribution of the host country, and the appropriateness of growth in that area. 17 For instance, wind and solar energy use are especially well suited to Algeria, Chad, Egypt, and South Africa. At the same time, the generation of blue hydrogen is made possible by the abundance of supplies of natural gas in nations like Nigeria.
African Base Oil Development Issues
Despite the quickly changing environment, conducting trade in Africa still presents several significant difficulties. Geopolitical unrest and a resurgence of violence in many nations are met with a lack of openness, a labor shortage, a lack of construction investment, and a high rate of corruption. All imports are paid for using foreign currency, primarily the US dollar. However, importers are restricted in the types of goods and quantities they can purchase because they cannot charge foreign suppliers with foreign exchange. Current dealers must deal with the possibility of phony-produced base oils and non-conforming raw materials being supplied and marketed in their nation as a marketing difficulty.
All African dealers must apply for a license to purchase base oils or other petroleum products, a requirement across the board. The procedure is lengthy—to put it mildly—and takes anywhere from two to three weeks in more sophisticated nations and up to a year in other places with more complicated bureaucracy.
There are still logistical restrictions. Infrastructure such as ports and railroads has to be upgraded urgently because they were constructed for oil exploration rather than commerce facilitation. Landlocked nations require effective port-to-transportation connections. The ports in the countries with them typically run at maximum performance and incur expensive disruptions due to poor management, delayed approval processes, and slow clearance.
There are financial limitations in addition to operational ones. Prepayments are prohibited in some nations because they can only be made in conjunction with import declarations and associated shipping details. Dealers depend on local banks with whom they arrange credit limits for imports, and the majority of purchases are carried out through Letters of Credit.
In connection with this, African banks encounter several challenges in fulfilling the need for financial transactions, including a lack of US dollars (which is by far the dominant currency in global trade and, consequently, exchange financial services), adherence to regulations, and the incapability to evaluate the worthiness of promising lenders. Africa currently has a $120 billion trade finance funding shortfall.
It is a significant issue because lubricant dealers primarily import base oils and produce lubricants.