Rebalancing Africa’s Oil Supply Chain for Sustainability and Sovereignty
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Rebalancing Africa’s Oil Supply Chain for Sustainability and Sovereignty
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By Gerald Kilimo
May 2025
Africa's oil supply chain remains misaligned with the continent's economic and environmental priorities. As Africa can refine only about 25% of its domestically produced crude oil, projects continue to prioritize crude exports over local value addition. This extractives-focused approach perpetuates environmental harm and economic inefficiencies, further widening the continent’s climate finance gap. Bridging this gap requires restructuring the continent’s oil supply chain to enhance sustainability, especially as traditional funding mechanisms, such as foreign aid and externally financed multilateral loans, continue to fall short.
Maritime shipping, central to Africa’s oil trade, generates millions of tons of CO₂ globally each year. Increased shipping volumes and greater liner connectivity have been directly linked to higher pollution levels across Africa. For example, transporting crude oil from Nigeria to Europe and returning with refined products covers thousands of nautical miles, emitting significant CO₂ per trip. In fact, at the recent Africa Climate Summit in Nairobi, African nations were urged to integrate maritime decarbonization strategies into their national climate plans, especially given rising geopolitical tensions such as the Red Sea crisis. Data shows that each container ship diverted around the Cape of Good Hope emits an extra 2,000 metric tonnes of CO₂, amounting to 8.8 million metric tonnes over a year. But, as a continent lacking the necessary technology in green ports and digital systems to reduce emissions, the transition may still be a long way off.
Even for local businesses, external shipping costs are rising sharply. For example, Nigeria’s Eterna Energy CEO reports that the cost to finance a single petrol shipment jumped from $2.9 million to over $10 million in just under six months, highlighting the risks of dependence on external markets. The head of one of Nigeria’s largest petrol station chains describes Dangote’s refinery as good news for the country’s fuel industry and “an African solution to an African problem”, emphasising the broader need for increased local refining across the continent.
Beyond local businesses, African governments lose billions annually by importing refined fuels after exporting crude oil. In 2023, Africa's petroleum product imports totalled nearly 2.5 million barrels per day. These fuel imports strain foreign reserves, diverting funds from climate adaptation projects like drought-resistant agriculture. While fuel imports are unavoidable for non-oil-producing nations, the continent’s sourcing strategy exacerbates the problem. Africa purchases 74 million tonnes (Mt) of refined fuels annually from Europe and the Middle East, effectively paying a premium to reprocess its own crude oil. Meanwhile, intra-African trade in refined fuels remains underdeveloped at just 2 Mt. The cost is high to individual countries. In Nigeria, for instance, oil accounts for nearly 90% of government revenue but contributes only 10% to GDP, primarily due to the high cost of importing refined oil.
How then can Africa reconcile its urgent need for climate finance with an oil supply chain that exacerbates environmental degradation and economic leakage? Domestic refining could eliminate Africa's annual multibillion-dollar fuel import bill, with Nigeria alone, for instance, saving $7.8 billion in annual expenditure for fuel importation. These savings could be redirected toward climate adaptation and mitigation projects, hence a self-sustaining source of climate finance. This strategic shift would reduce transport-related emissions and address acute fuel deficits to meet local demand. Critics might contend that local refining could increase overall emissions, but this argument overlooks a critical nuance: whether processed in Europe or Africa, the same volume of oil is ultimately refined. The environmental benefit lies in eliminating the carbon-intensive back-and-forth shipping of crude and finished products. This approach doesn't advocate ending trade but rebalancing it through sustainable infrastructure. African nations should implement refinery-focused industrialization policies that include climate finance mechanisms, such as dedicating a percentage of savings to renewable energy development.
Regional organisations like the African Continental Free Trade Area (AfCFTA) and the Pan-African Payment and Settlement System (PAPPS) should work to standardize refinery regulations and cross-border payment solutions. This would enable cross-border fuel trade through better-negotiated currency conversion rates. Africa needs harmonized oil legislation to avoid ruinous competition among its oil-producing nations as they vie for investors. With clear legislation, African nations should participate in projects as equity shareholders rather than being content with royalties. This approach would increase national revenue that could be allocated to climate resilience initiatives.
Oil investors, on the other hand, must evolve from pure exporters to refinery co-investors, for instance, following TotalEnergies' model of collaboration with Dangote Refinery to supply crude for local refining rather than exporting it. Companies should adopt "green refining" standards, similar to Dangote's Euro-V specifications, to minimize sulfur emissions and qualify for global carbon credits. Investment agreements could include requirements for companies to contribute to national climate funds as a condition of refinery partnerships.
Africa's oil sector has the potential to be both an economic driver and a climate solution. However, realizing this vision requires strategically leveraging existing resources to address the continent's urgent climate finance needs while strengthening economic sovereignty and environmental resilience.
Gerald Kilimo is an Analyst at Botho Emerging Markets Group