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Why fuel shortages are spreading across Africa

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I.N BURUNDI, VADITSY so desperately in need of fuel that they sleep on the front platforms of gas stations. Senegal has so little jet fuel that an Air France flight from the capital Dakar to Paris stops in the Canary Islands to replenish. The same problem in Johannesburg, due to which United Airlines canceled some flights from New York. From Kenya, which recently experienced the biggest gasoline shortage in ten years, to Lagos, where queues near gas stations are on the highway, and Cameroon, where thousands of trucks have run out of diesel, Africa lacks the livelihood of the modern economy. “Everyone is looking for diesel everywhere,” said Anibor Kraga of the African Association of Oil Refiners and Distributors, an industrial group.

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The economic costs of the deficit are huge. They are stopping trade, closing millions of businesses that are forced to generate their own electricity, and forcing vacationers to cancel trips due to lack of flights. This is a blow to tourism, a great contribution to GDP in many African countries. The social impact is also great. Hospitals cannot get medicine and ambulances are stationary. All this makes politicians jump. Anger at the deficit can quickly erupt in the streets.

Demand for fuel grew worldwide last year when the economy recovered from Covid-19. However, for the first time in 30 years, global refining capacity has shrunk, leading to rising fuel prices. Russia’s invasion of Ukraine pushed them even higher. In most places fuel remained available, albeit expensive. But not in Africa, which is experiencing the worst supply crisis in 40 years, says Pierre Barb, who runs the African business at Vitol, the world’s largest independent oil trader.

The shortage is not simply the result of rising prices that have made fuel unaffordable to poor buyers in many parts of Africa. They have also been triggered by several other market changes that particularly affect the continent, says Christine Petrosyan of the International Energy Agency (IEA), intergovernmental think tank.

Fuel traders typically use financial markets to reduce the risk of price fluctuations. But they have to spend much more (and bind more working capital) on hedging when prices are high and volatile. Importers in Africa are often smaller than in richer regions, and have a tighter balance. To save capital, many simply import less fuel.

The problem is exacerbated by a turnaround in the futures market: the price of oil supplies in the future has fallen well below the price of immediate supply. In more ordinary times, traders stood dozens of full oil tankers (known as “smelters”) off the West African coast, where they waited for prices to rise. Now traders want to unload them as soon as possible and send them to Asia via the Suez Canal, avoiding Africa altogether.

Many sub-Saharan countries are particularly vulnerable because they usually buy in small quantities from floating or tankers passing by. While many rich countries keep a 90-day reserve in reserve, few sub-Saharan countries have such a reserve. It is clear that storage capacity in the region is small, although little is known.

The second vulnerability is that sub-Saharan Africa processes little oil domestically. Many of their refineries are performing poorly and operating well below capacity or too small to compete. Refinery production in sub-Saharan Africa has halved in the last decade, even as oil demand in the region has risen by 19%, according to IEA. Sub-Saharan Africa now imports an average of about three-quarters of its oil products, a larger share than in any other region. This makes it deeply vulnerable to external influences. West Africa is particularly vulnerable. Senegal, for example, lacks fuel in part because the country’s only oil refinery has been closed for maintenance.

Small recycling capacity and almost anything in reserve is risky in the best of times. In many African countries, poor logistics, poor governance and distorted subsidies regularly cause supply shocks. Many African ports can only accept vessels with small nozzles, forcing large tankers to unload into small ones. They are also heavily congested, which exacerbates delays. Nigeria’s recent shortage emerged after authorities blocked the sale of 350,000 tonnes of petrol: it contained too much methanol. Who exactly got confused, there is a heated debate, but with small stocks motorists quickly ran out. In Kenya, the government subsidizes gasoline, but does so clumsily, exacerbating fuel shortages. The late payment of subsidies equivalent to $ 112 million to retailers who were already struggling with a shortage of working capital due to high prices was recently delayed.

Soon things could get worse. Major oil traders are cutting back on Russian oil purchases to enforce European sanctions, which take effect on May 15. This will further reduce the flow to Africa of fuel processed in Europe from Russian oil.

In the long run, high hopes – and money – are being invested in a large refinery under construction in Nigeria’s Dangote Group. Although the project is behind schedule for years, it is expected to be completed this year. However, the project is an exception to the declining capacity trend. Africa also needs deeper strategic fuel reserves to withstand both global shocks and local challenges. “It may be a wake-up call for the 1970s,” he said IEAMs. Petrasyan, “because it is obvious that such a situation may happen again in the future.”

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