OilVoice - Oil Major to Cut Back on African Downstream Operations?

Oil Major to Cut Back on African Downstream Operations?

Thursday, January 14, 2010

The exit of an industry major from Africa would come as disastrous news for the continent's oil sector. However, this is exactly the scenario Africa is now facing, with news of Anglo-Dutch Royal Dutch Shell's planned downsizing of its African operations in 2010. While the report by Radio France International (RFI) is yet to be confirmed by the oil giant, it is in line with Shell's gradual withdrawal from low-margin downstream operations the world over.

The RFI claims that Shell is planning to exit as many as 20 African countries this year, continuing its ongoing withdrawal from the continent. It is though that if it goes ahead, the downsizing is likely to occur in the company's downstream operations - given the importance attached by Shell to expanding its exploration and production portfolio. Shell's African refining, distribution and retail business represents only a tiny percentage of its global downstream operations. Therefore, any downsizing that takes place is likely to have more of a qualitative than quantitative impact. In particular for Shell, it is likely to see any significant change on its balance sheet if it were to end its 110 years of presence in the African market.

As of the end of 2008, Shell was operating in 25 African countries. In 19 of these nations its operations were confined to the downstream segment, mainly in low-scale retailing and storage of fuels and lubricants. Shell's footprint in refining on the continent is minimal: a 17% stake in the 90,000 barrel per day (bpd) Mombasa refinery in Kenya and a 37% interest in the South Africa's 165,000 bpd Durban refinery.

Back in 2008 Shell exited 15 African countries, spinning off the assets to regional specialists such as South Africa-based Engen Petroleum and Libya's Tamoil in North and East Africa. However, if the RFI's report is correct, by the end of this year Shell would have as good as ceased operating in the African downstream segment. While Shell will no doubt continue to focus on its E&P business in the region, last month reports of Shell's intention to dispose of its $5
billion-worth of producing assets in oil-rich Nigeria serve to pre-empt the firm's reduced interest in the continent.