Tanzania is one of the largest consumers of petroleum products in Africa. According to the Energy and Water Utilities Regulatory Authority (EWURA), the average daily consumption of petrol, diesel, and kerosene in Tanzania is 14,880,230 liters.
This demand is increasing year after year due to the increasing number of vehicles and increasing economic activity such as transportation, construction, and mining.
Tanzania does not have proven reserves of crude oil, so its total petroleum requirements are met through importation mainly from the Middle East, making fuel remain one of the largest import products.
With infrastructure to support the import of petroleum products for domestic consumption as well as transit markets such as Zambia, Malawi, Rwanda, Uganda, and Eastern DRC, petroleum plays a crucial role in the running of Tanzania’s economy as most sectors use petroleum as an energy requirement.
Here are eight profitable opportunities within the sector to deal with the demand for petroleum and risks associated with the petroleum business in Tanzania.
1.Petroleum Storage Depot/Petroleum Tank Farm Facility.
Through this project your company’s core business will be importation, storage, and distribution of different petroleum products including diesel, petrol, kerosene, Jet A1, and Liquefied Petroleum Gas (LPG). The reason why a petroleum storage depot is a profitable business is because you will have multiple revenue sources.
First, you will make money through wholesale of petroleum products at the depot, you will also earn revenue through distribution of fuel to petrol stations across the country, and also you can provide hospitality services to oil marketing companies that do not have storage facilities.
This is a capital-intensive project. The total project costs for a petroleum storage depot is Tanzania shillings 32 billion (excluding working capital).
2.Petrol Station.
The increasing numbers of vehicles on the road, expansion of road networks, and new infrastructure projects make petrol stations a viable opportunity in Tanzania.
The business is highly location-driven, therefore, the success of a petrol station largely depends on securing a viable high-potential location. Petrol stations located in townships tend to perform better in sales compared to those in suburban areas.
Performance is also an important factor in the success of the petrol station business. The petrol station is a volume-driven industry.
The higher the volume of fuel sold at your petrol station, the higher the profit in Tanzania shillings value. Sites pumping 100,000 liters of fuel per month or more are generally viable and likely to avoid cash-flow challenges.
Entry of new competitors after acquisition of the site, sites located in low-traffic or non-viable areas, and acquiring sites in poor physical condition are some of the reasons for underperformance of petrol stations.
3.Compressed Natural Gas (CNG) Station.
The government aims for the majority of vehicles to be CNG-fueled by 2050. For reference, the total number of passenger cars (all fuel types) is currently 650,000.
Considering the population and economic growth expected in Tanzania, a 15% increase in the number of cars by 2050 is probably very conservative, but we will base our estimates on that assumption.
That will equate to 747,500. Assuming at least 70% are CNG-fueled, that would mean approximately 523,250 CNG vehicles by 2050. With currently only 11 CNG stations in Dar es Salaam, more investment in CNG stations is needed to meet the projected demand for CNG vehicles in Tanzania. This presents a profitable opportunity to take part in this growing CNG market.
4.Petroleum Wholesale Distribution.
This is another lucrative petroleum opportunity in Tanzania’s petroleum sector because it has higher margins than petrol stations, and you can sell large volumes to other petrol stations and commercial customers, allowing you to make more revenue and profitability compared to what you would make in the petrol station business.
As a petroleum wholesaler, you will uplift petroleum products from the petroleum storage depot owners or enter hospitality agreements with petroleum storage depot owners and sell to service stations and commercial customers across the country.
5.Fuel Transportation Through Road Trucks.
In order to distribute fuel to their customers, oil marketing companies need to have their own trucks or hire other transporters. Here is where you come in.
As a transporter, you will distribute different types of petroleum products mainly by road to service stations and commercial customers either in domestic markets or transit markets such as Malawi, Burundi, Rwanda, Zambia, and DRC. Having sufficient numbers of trucks is essential to meet logistical requirements.
Since you are dealing with a hazardous commodity, safety is a priority for your target clients.
6.Liquefied Petroleum Gas Distribution.
According to the Energy and Water Utilities Regulatory Authority (EWURA), LPG import was growing from 194,000 metric tons in 2020 to 403,638 metric tons in 2024. LPG import is estimated to grow by an average of 28% year on year.
This is substantial growth. As population grows and the government and LPG marketing companies continue to educate the public on the importance of using LPG as a clean and cost-effective source of cooking energy, LPG consumption will increase in the coming years.
With ongoing accelerated LPG consumption growth, it is obvious that more entrepreneurs and investors will be required to meet the expected demand for LPG distribution in Tanzania in the coming years. LPG opportunities in Tanzania range from starting a small LPG refilling plant, LPG transportation by road trucks, to LPG distribution and dealership.
6.Lubricant Oils Distribution.
Every vehicle on the road, the tractors used in agriculture, and the heavy machinery used in construction, mining, and power generation require lubricants to perform smoothly.
Read also: Nine Profitable Business Opportunities in the Petroleum and Energy Sector in Zambia
The automotive sector is the largest consumer of lubricants in Tanzania, with engine oil being the most consumed type of lubricant product. The lubricants oils market presents numerous opportunities such as setting up blending plants, importation, and distribution.
7.Manufacturing and Distribution of Petrol Station Pumps and Dispensers.
Petrol station pumps are the heart of successful petrol station operations. The established petrol stations need to replace the fuel pumps with new pumps to ensure high performance of their stations.
Also, new petrol stations need to buy fuel pumps. As of 30th June 2024, Tanzania has over 2,597 petrol stations, and more investors are building new petrol stations across the country. This creates opportunities for high-quality fuel station pumps and dispensers.
Potential Risks
Although the demand for energy is growing rapidly in Tanzania, the petroleum and energy businesses face the following risks:
1.Rise and Fall of Oil Price:
It is important to note that the domestic price of petroleum products is affected by rises and falls in international oil prices and exchange rates of the United States dollar to Tanzanian shillings. This can affect profitability of your business. To mitigate this risk, you need to put your ears on the market so you can push stock faster when you notice the price will drop and keep the stock when you sense the prices will increase. Also worth noting is that increases in local fuel prices have a tendency to trigger a general rise in the cost of goods and services, better known as inflation.
2.Inconsistent Supply.
Tanzania meets all its petroleum requirements through importation; any interrupted flow of petroleum products into the country might affect supply and lead to unstable and unpredictable prices.
3.Competition and Pricing Pressures.
The petroleum business is highly competitive. Companies compete based on price to attract price-sensitive buyers. This can ruin your profitability and growth of your business.
Final Words
Petroleum is a vital part of Tanzania’s economy. Every organization and institution needs consistent supply of petroleum as an energy requirement.
The growing demand for petroleum creates opportunities for investment in the sector. If you are looking for opportunities for expansion, the petroleum sector offers numerous options for the supply and distribution of petroleum products for profit.
