European oil refiners battle to tap growing African fuel demand
* Africa's demand for oil products to grow rapidly by 2020
* Declining U.S. arbitrage leaves Europe with huge gasoline surplus
* U.S., Asian refiners also targeting new markets
By Ron Bousso and Jonathan Saul
LONDON, Oct 28 (Reuters) - Embattled European refiners face an uphill battle with U.S. and Asian competitors to supply Africa's rapidly growing appetite for fuel products as transatlantic shipping routes are redrawn.
Demand for oil products in Africa, including the north of the continent is expected to grow by more than 20 percent in the next seven years to 4.4 million barrels per day (bpd), according to Vienna-based consultancy JBC Energy.
Nigeria, Senegal, Togo, Kenya and South Africa are expected to see the fastest demand growth in sub-Saharan Africa, analysts say, while the continent's refining capacity is far from matching this demand and will only marginally grow by 2020 from current crude processing volumes of 1.925 million bpd.
"Most countries in the African continent prefer to import finished products rather than produce in small outdated plants. It's a question of technology and it turns out cheaper to import," said David Wech, JBC Energy managing director.
Traders including Puma Energy, the African subsidiary of Trafigura, Vitol, Gunvor and Mercuria have invested heavily in expanding their African operations in recent years.
"We see double digit growth in most African countries, in line with the expansion of Africa's middle class," an official in a large European trading house operating in Africa said.
The continent has been a longstanding outlet for European gasoline and gasoil, with exports more than doubling over the past five years to around 600,000 bpd in 2013.
Its importance for Europe's refiners is rising, and becoming even more important as demand for European gasoline in the U.S. East Coast, the main export market for decades, rapidly dries up, leaving refiners with a huge surplus that is weighing on profits.
"Europe is going to need to get more into Africa if refiners are going to survive," an oil tanker market source said. "TC2 (Rotterdam to New York route) should turn into a Europe-West Africa route really, but the U.S. could displace that trade."
Huge U.S. Gulf Coast refineries benefiting from cheap shale oil have in recent months exported record levels of diesel to Europe, reversing trade flows.
They have also increased exports to Africa, which have grown more than tenfold over the past decade to around 40,000 bpd in 2013, according to U.S. Energy Information Administration data.
"It is slightly more beneficial for the shipping market to bring in oil products from the U.S. as compared to European originated imports. But the distances are close," said Peter Sand, chief shipping analyst with trade association BIMCO.
And state-of-the-art and export-oriented refineries in the U.S. Gulf Coast, Asia and the Middle East are eyeing Africa in their constant search for new markets.
"For us, East Africa is a very important growth market. We supply either directly or indirectly a large part of that," Tony Fountain of Reliance Industry, which operates the world's largest refinery, said last month.
In West Africa, a product market long dominated by Europe, traders from the U.S. Gulf and Asia are now capable of taking advantage of arbitrage windows to ship products.
"In my view Africa is there to stay. It will take a long time for them to build their own refinery capacity," said Hans Noren, president of international tanker group Concordia Maritime, which is active in the products trade to Africa.
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