Africa has not benefited from the low crude oil price because of currency deterioration in most countries on the continent, an energy expert has told the Africa Energy Conference taking place in Johannesburg, South Africa.
Indeni Petroleum Refinery Board Chairman, Mr. Johnstone Chikwanda, who is also Energy Forum Zambia Chairperson, has pointed out that with the depressed oil price on the global market, one would have thought that this would advantage African countries by enabling them to pass on the benefits of low price to consumers.
“The scenario is totally the opposite. Africa has not benefited at all to a point that some countries have actually been increasing pump prices during this period.”
Mr. Chikwanda said it was a painful missed opportunity for African countries that the drop in crude oil price was happening at a time when the value of their currencies had significantly deteriorated.
“It must be reiterated that fuel pump prices are fundamentally dictated to by a dichotomy of the exchange rate and the spot price on the global market,” he noted.
The crude oil price has been falling since 2013 and had so far dropped by over 60 per cent; a situation he said has had tremendous negative impact on oil producing African economies.
He was speaking on the theme ‘Upstream and Midstream Petroleum Value Chain’ which sought to bring out the impact of the global low crude oil price on Africa, on explorations and implications on refineries.
The session also pondered on who was benefitting from the current low prices.
Mr. Chikwanda, whose presentation was overwhelmingly well received by the audience, said the fall in price had wreaked havoc on oil exporting African economies in terms of revenue generation which they had lost. The current scenario in the oil sector had also slowed down investments around exploration works for oil and gas in Africa.
He said the situation was likely to persist for the next couple of years and that diversification of economies into agriculture, aquaculture, tourism and other identified sectors should be pursued vigorously.
Mr. Chikwanda said Africa needed to increase refinery capacity including building new facilities which could support regional economic growth and further invest in projects such as pipelines, rail and fuel storage facilities. These projects would strength regional integration and intra-Africa fuel trade.
“It is sad that at the moment, a lot of African countries that produce crude oil export the product and then import refined fuel at great cost. It is anticipated that by 2025, increased demand for fuel will create serious logistical challenges in terms of critical shortage of storage facilities. Transportation of fuel by road will not solve the problem in a significant way. Hence the case for investing in rail and pipeline remains valid,” Mr Chikwanda said.
He urged investors to assist and collaborate with African governments in setting up strategic fuel reserves that could last a minimum of 90 days, which was about the globally accepted benchmark for fuel reserves.
“It is a sad scenario that most of the African countries have no strategically held fuel reserves which can last a number of months. They also do not seem to know how to set up robust national fuel reserves without putting pressure on the national treasury for capital expenditure and stock procurement,” Mr. Chikwanda said.
Zambia’s Energy and Water Development Minister, Ms. Dora Siliya and Zambia’s High Commissioner to South Africa attended the two-day conference. The Africa Energy Indaba was also attended by government ministers from other African countries, senior government officials, financiers, investors from other continents, regulators, banks, international media and various other industry players.
