The International Energy Agency (IEA) today released a forecast that global gasoline consumption has peaked as more efficient cars and the advent of electric vehicles from new players such as Tesla Motors Inc. halt demand growth in the next 25 years.
According to the IEA, that shift will have profound consequences for the oil-refining industry because gasoline accounts for one in four barrels consumed worldwide.
“Electric cars are happening,” IEA Executive Director Fatih Birol said in an interview in London, adding that their number will rise from little more than 1 million last year to more than 150 million by 2040.
This brings us to Africa’s richest man Aliko Dangote, who is spending a small fortune of about $14 billion to construct a 650,000 barrel-per-day oil refinery and petrochemical plant in Lagos, Nigeria’s commercial capital.
The facility with capacity to produce 55.2 million litres of gasoline daily was originally scheduled to be completed in 2018 but has now been pushed back to 2021, sources familiar with the matter tell Nairametrics.
The IEA forecast in its “World Energy Outlook 2016” report estimates that gasoline demand will drop to 22.8 million barrels a day by 2020 from 23 million barrels a day last year.
Dangote which is financing the project with about 70 percent debt and 30 percent of his own equity was hoping on the continued growth in demand for refined petroleum products in Nigeria and the rest of Africa.
The problem though is that refiners already operate under very thin margins today and the fall in demand could erode margins in the future.
Another issue that could complicate Dangote’s Refinery operations is the fixed retail prices and opaque foreign exchange market in what would presumably be its largest market Nigeria.
The cost of gasoline per litre in Nigeria currently stands at $0.45, compared with $0.90 in South Africa, $0.93 in Ivory Coast, $0.96 in Angola and $1.02 in neighbouring Cameroon, according to the website globalpetrolprices.com.
However in order to realize the highest margins refiners seeks to pay the lowest price for crude oil, maximize the yield of the higher value products (e.g., gasoline), control operating costs and receive the highest price for its refined products on a sustained basis.
“If the government operates the subsidy regime, we can sell it to the government at the subsidized price,” Devakumar Edwin, chief executive officer of the Dangote Group said earlier this year. “If there is no subsidy regime, we’ll sell it directly to the distributors. So practically it is not going to affect our operations.”
This is easier said than done especially with the current situation where Nigeria’s National oil company NNPC is racking up losses from its inability to pass on the full market price of imported petrol that it sells to retailers and other marketers.
Also the opaque FX system in Nigeria will surely challenge Dangote’s Refinery which will be buying inputs such as crude oil in dollars, but selling the output like Gasoline, Diesel, and Aviation fuel in Naira.
Gasoline has been the world’s choice to power automobiles from the 1950s onward, when Henry Ford’s dream that every middle-class American could own a car became reality.
Now, however, car companies — most obviously Tesla, but also General Motors Co., BMW AG and Nissan Motor Co., BMW — are putting their money, and innovations, behind electric vehicles and with technology improving — especially for batteries — prices are falling.
IEA Executive Director Fatih Birol expects the biggest victim from the move to electric cars to be refiners, noting that the changes in fuel-demand growth over the next 25 years will have “major implications” for the industry.
