Following the opening of the Ethiopian downstream market to more participants, the segment is now likely to attract a refinery investment within the next five to ten years. National Oil of Ethiopia, one of the leading downstream operators, is looking to build a 200,000 to 300,000 barrels per day (bpd) refinery. The decision is underpinned by the rapid growth rate in fuel consumption, averaging 10 percent annually in the past five years.
Ethiopia consumed an estimated 3 million metric tonnes of fuels in 2014 and is likely to retain the same growth rate in oil demand over the next few years. The refinery could play a very key role in East Africa where the only refinery, Kenya Petroleum Refinery (KPRL ) has been shut down following the exit of shareholder Essar Petroleum. Uganda intends to build a 60,000 bpd refinery but troubles with capital gains taxes have held up discussions with Total, one of the key shareholders in the Lake Albert field development project.
An Ethiopian refinery could compete with fuel imports from the Middle East as it could be positioned to use various crude grades ranging from the waxy light crude from Kenya and Uganda. It could also process crude grades out of the Middle East. However, funding the refinery is likely to constitute the major challenge. With so much capacity planned for East and Southern Africa, financiers are likely to be wary of narrow refining margins if all these capacities come onto the market.