FEATURE: African oil demand poised to reach pre-pandemic levels by H2 2021: analysts

African oil demand is recovering steadily with demand likely to reach pre-coronavirus pandemic levels by the second half year, with imports continuing to account for a larger share of total fuel needs, analysts said on April 28.

This compares with other regions such as Europe where oil demand is unlikely to reach pre-pandemic heights till at least early next year as mobility restriction weigh on fuel needs.

Africa-focused oil consultancy CITAC said oil consumption is expected to return to pre-pandemic levels from H2 2021 and exceed it by Q3 2022.

CITAC Executive Director Elitsa Georgieva said demand fundamentals remain positive for the long term, with the product mix shifting towards lighter oil products as a result of the coronavirus pandemic and the energy transition.

"Despite some changes in consumption patterns and energy mix shifts overall consumption grows," said Georgieva on a webinar. "2022 demand is expected to be 3.2% above 2019."

Similarly, S&P Global Platts Analytics expects African oil demand to reach 4.75 million b/d in the fourth quarter of 2021, the highest since Q4 2019 when it was at 4.94 million b/d. For 2021, demand will average 4.50 million b/d from 4.37 million b/d in 2019, Platts Analytics added.

Product dynamics

African LPG demand, which is used for cooking, has been very strong in the past few years, and it is one of the only products that saw demand rise in 2020 as more people stayed home because of lockdowns. Similarly, kerosene growth was boosted by increased heating demand.

Severe lockdown measures predominantly affected gasoline demand in 202 but a modest growth is expected this year. Gasoil demand has been more resilient as Africa's mining industry is a keen consumer of gasoil for its industrial power needs.

But the forecast for fuel oil looks "relatively bleak," according to James McCullagh, another executive director at CITAC.

"We see an increasingly difficult investment space for fuel oil," McCullagh said. "The pool of funding available for these projects is sinking. The sulfur requirements are also becoming more stringent."

Regional differences

The demand impact has differed across the continent, according to CITAC.

Demand in East Africa will return to pre-pandemic levels in H2 2020, but southern Africa will only reach such levels by H2 2022, CITAC added.

This is because, South Africa was one of the worst hit by COVID-19 on the African continent, and its refinery output contracted almost 30% last year due to refinery closures and weak demand.

West Africa saw a "mild contraction" compared with the rest of the continent with demand falling by 3.4% last year, McCullagh said.

Imports into the continent remain strong, with West Africa expected to remain the largest importer until the start-up of the Dangote refinery in late 2022/early-2023.

South Africa is also increasingly relying on imports because of refinery closures. It has imported around 296,000 b/d of refined products so far in 2021, according to estimates from data intelligence firm Kpler. This is the highest in almost a decade, and compares with 198,000 b/d and 178,000 b/d in 2020 and 2019 respectively, Kpler data showed.

Low refinery output

Overall refining output in Africa remains low as many refineries remain closed or are operating intermittently, according to CITAC.

In South Africa alone, refinery output fell 28% last year as all refineries were closed in April and May during lockdown.

In April, South Africa's Engen said it will be proceeding with the conversion of its Durban refinery into a terminal. The refinery has been shut since a fire and explosion broke out there on Dec. 4. A second refinery in the country, Astron Energy's Cape Town, will remain closed until 2022, after an incident in July 2020, according to S&P Global Platts data.

Elsewhere in Africa, Cameroon's Limbe refinery, which suffered from a fire at the end of May 2019, remains offline, while Ghana's Tema refinery is operating intermittently, Platts has reported.

In Nigeria, all four NNPC refineries have not had any output since Q2, 2019, CITAC said. Operations at Port Harcourt could start soon after the necessary financing was secured, although no timeline has been announced yet, Platts has reported.