Dakar city: Senegal’s sole refinery, the Société Africaine de Raffinage (SAR)

A feasibility study outlining the profit-making potential of Senegal’s sole refinery, the Société Africaine de Raffinage (SAR), has convinced the government to keep the ageing facility running.

While SAR is in need of an upgrade, it continues to play an significant role at home and abroad, supplying Senegal’s domestic market with fuel inclunding serving export markets in the region.

In late January, company officials from SAR announced the government had decided to continue operations at the refinery, saying a set of guidelines has been drafted to help revitalise the refinery. However, the company, which counts the national as its major shareholder, cautioned that the government will need to undertake modernisation and expansion projects to ensure the facility’s profitability.

A history of planned reforms

A lot of of SAR’s challenges are linked to its age. Built in 1963, the 25,000 barrel-per-day (bpd) facility, which refines crude oil imported from Nigeria, is presently in need of major upgrades. In 2006, unable to pay its suppliers, SAR was forced to shut down for nine months. Media reports estimated the refinery’s deficit to be CFA31bn (€50m) at the end of 2012.

For most of its existence, SAR has been majority-owned by private investors, inclunding Total. The French oil giant held the role of operator until 1976, at the same time as the facility was brought under local control. The national oil company, Petrosen, is presently the major shareholder, with a 46% stake. A division of Saudi Bin Ladin Group bought a 34% share of the refinery in 2011, while Total owns the remaining 20%.

Several plans have been floated before for boosting capacity, and press reports in 2011 said that investors at that time had planned to as much as double production levels with an eye to producing additional naphtha for export markets.

Building a regional position

While SAR is able to supply only about 80% of the domestic markets needs, it exports certain refined products, mainly to neighbouring nations. According to research from regional lender Ecobank, refined petroleum is Senegal’s fourth-major category of exports, accounting for 14% of foreign sales in 2012. These products are a growing component of Senegal’s exports to the region, inclunding Mali, Guinea, Mauritania, Guinea-Bissau, Côte d’Ivoire and Burkina Faso.

In spite of the comparative large reserves the region benefits from, downstream hydrocarbons production in West Africa is surprisingly modest. Logistical issues make petroleum refining in sub-Saharan Africa an expensive and challenging presentation. While the number of refineries operating in Africa stood at 55 in 2012, only 19 were located in the sub-Sahara region. Of those, just seven had the capacity to produce additional than 100,000 bpd.

However, regional capacity is on the rise and SAR will face a tighter market in the years approaching if upgrade plans elsewhere come to fruition. Ghana’s Tema Oil Refinery, for example, is among a two-year expansion process that will raise output by 33% to 60,000 bpd. Nigeria, the region’s major processor with around 450,000 bpd nameplate capacity, has suffered from ailing infrastructure but Nigerian conglomerate Dangote Group has announced plans to build a new 400,000-bpd refinery as part of a $9bn downstream complex. Côte d’Ivoire’s Société Internationale de Raffinage (SIR) has, at between 75,000 and 80,000 bpd, the second-major processing capacity in the region next Nigeria.

SIR is equipped with vacuum distillation and hydrocracking units, and has two maritime stations that can receive cargoes ranging from 80,000 to 250,000 tonnes of crude. Cote d’Ivoire has as well built a fuel pipeline from Abidjan to inland Yamoussoukro, which it plans to extend north to Burkina Faso. The landlocked country currently buys fuel from SAR, which is delivered by truck.

Looking ahead

News that SAR would remain open on the findings of the government-commissioned strategic review brought to an end speculation that the refinery could be converted into a storage facility. The idea is not new, having proved an option for locations where refineries have seen their profit margins squeezed, such as the east coast of the US.

The plan for the refinery this year includes a scheduled shutdown in April for maintenance.

Analysts will presently be keen to learn additional about Senegal’s plans for improving efficiency and production at the SAR. However, confirmation of the refinery’s potential and its role as a supplier both locally and regionally, could pave the way for a significant capital injection.