The local market: With refinery capacity limited, imports are needed to meet demand

While the government has been exporting its share of the country’s oil, demand at home continues to increase. With erratic and restricted refinery capacity hampering delivery to the domestic market, the cost of meeting this demand is becoming an increasing burden.

FACTS & FIGURES: According to figures from the Bank of Ghana, the cost of the country’s petroleum imports have been rising rapidly, growing 58% to $3.3bn in 2011. Crude oil imports increased in value by 55% for the same period, although they actually decreased by 3% in volume. Nonetheless, demand for oil products in the domestic market remains strong. This trend is likely to continue, with forecasts for robust population and economic growth over the next five years.

Ghana consumes 61,950 barrels of oil per day, the US Energy Information Administration reported, ranking it as the 93rd-largest global consumer in 2011. Much of this goes to fuel Ghana’s power plants with approximately 900 MW of the 2120-MW total output provided by thermal plants running on fuel oil, while the country awaits the development of its gas infrastructure. Indeed, according to the Volta River Authority (VRA), Ghana’s primary electricity generator, the crude oil bill constitutes 80% of the electricity tariff.

As gas comes on-stream at the end of 2012, the crude oil import bill should drop, but the fuel source still remains important for the country’s transportation sector. According to the World Bank, the road sector accounted for 11.98% of energy consumption in 2008. This may present opportunities for investors in local marketing and distribution firms, but competition is stiff, with 58 companies, according to the Association of Oil Marketing Companies of Ghana. This has also brought better services, however. According to Guillaume Larroque, managing director of Total Petroleum Ghana, “The Ghanaian retail market has become increasingly sophisticated, so the retail concepts implemented at our stations here mirror those in developed markets.”

According to Henry Akwaboah, the managing director of Engen Ghana, an energy firm focusing on the downstream refined products market and related businesses, petrol stations themselves are another area with potential. “There is definitely room to increase the number of petrol stations in the country, but it is a question of determining where there is still market need. Around 60% of the demand in the Ghana market is centred in the greater Accra region,” he told OBG.

OBSTACLES AHEAD: There are plenty of challenges, with the private sector raising concerns about the level of regulation. According to Kwaku Agyemang-Duah, CEO of the Association of Oil Marketing Companies of Ghana, “The price and fees have not been deregulated, and as an investor the return on investment is somewhat limited.” Balancing the demands of investors with the political ramifications of fuel prices has been difficult for the government. Petrol prices have increased steadily in the country. According to the Ministry of Energy (MoE), premium petrol had reached a price of GHS1.75 ($1.04) per litre by the end of December 2011, up from GHS1.5 ($0.89) per litre at the beginning of the year. Nevertheless, government pricing caps limited investors’ margins to 6-7%, compared to 15-20% in South Africa, which prevents firms from improving standards in the industry, Agyemang-Duah said.

Local marketing and distribution firms are also over-reliant on the import of refined products, creating upward cost pressure. Agyemang-Duah said that 46% of the consumption of refined products is met by imports, with marketers 100% reliant on imports in some months because of intermittent technical difficulties and financial problems at the Tema refinery.

CURRENT CAPACITY: The Tema refinery has a capacity of 45,000 barrels per day (bpd), but the MoE is looking for investment to raise this to 205,000 bpd and there are plans to open additional refineries. According to the MoE, 25 firms have expressed interest and two or three refineries have advanced plans. The seaboard is strategic for moving oil from Nigeria and Angola to sell on internationally. If these plans come to fruition, Ghana will be well placed to be an oil and gas hub for the region.