Decision time for fuel industry, MPs told

…..article dated 5 May 2021…….

SA oil refineries have limited future…       

In a recent parliamentary meeting of the energy portfolio committee, AdvThabo Mokoena, DDG of the Department of Mineral Resources and Energy, surprised many with an  unannounced summation of South Africa’s refining capacity and future directions for the industry.

His facts and figures, he said,  were basedon recent meetings with the local oil and gas sector and also bore in mind recent global developments in the Middle East, India and China.   His main message was that time was running out on the way South Africa handled its oil imports for refining and the supply of fuels to the local market.

Cupboard bare

He commenced his briefing to members of Parliament on an open U-tube virtual link with the statement that any discussion on South Africa’s current refining capacity had to bear in mind that the country is totally dependent on imports for petrol and diesel products.  It has no proven oil and gas resources other than an enormous potential of gas offshore in Southern Cape waters, this having a long-term production factor tagged at 7-10 years.

Adv Mokoena said there was no significant footprint of crude oil in South Africa whatsoever – other than the state’s small investment in a Ghanaian venture to the North, too small to make any difference to strategy planning.

Important employers

In general terms he said, the petroleum sector has a turnover of some R360bn employing some 110,000 people locally with 70,000 of those involved in services stations “all of whom all well protected by the regulatory environment”.      He said it was important to note that all the crude oil refineries were built in the ‘fifties and ‘sixties, the oldest now being the Engen refinery in Durban built in 1964.The Sasol and Mossgas CTL and GTL refineries were a product of the ‘eighties, he said.

Adv. Mokoena then went on to list all present installations stating that, with the exception of PetroSA at Mossel Bay, all were privately owned.  Sasol was involved in the ownership of Natref at Sasolburg and with Secunda, with BP/Shell operating from Durban,  and Astron now owned the refinery in Milnerton, Cape Town.

Situation abnormal  

There were three refineries not operational at present, he said, which were those owned by Astron, which had suffered from a chemical explosion and Engen’s, which had far worse damage caused by fire, the cause not yet reported upon.    He added that PetroSA, for which new feedstock cannot be found, had to be closed down.

Mokoena stated, “The three other refineries are operating at an average of 75% of nameplate capacity but  the operating nature of these three had left South Africa in the situation where, as things stood, the country was essentially now an importing nation”.

International picture

Looking at the global picture, Mokoena said, Shell/BP International has announced its new global structure relying on six only refineries worldwide, turning the rest, which are many, into terminals. Australia, Europe and the USA are seeing any number of refineries closing down as well, he said.

Currently, most of the refineries are now being built with the latest technologies are in the Middle East, such as in Saudi Arabia, or in the Far East such as Indonesia. These “mega refineries” ran on such  enormous scales that profitability was pre-determined.

Majors only

The trend therefore for many was to build mega-refineries and it was in this area that India and China are now dominant, Mokoena said.  South Africa has made a certain shift towards India, for example, from which it obtains much of its diesel product. The prices are good in the light of its massive refining capability, all built to service in the future, its massive growing domestic market, relatively under-developed at the moment.

Africa represents only 3% of global  trade, he noted, but the Dangote mega-refinery in Nigeria was growing and already South Africa had a small offtake which boosts inter-Africa trade.    He admitted that South Africa had looked at the concept of a mega-refinery but to start such a product too late meant being caught up in the race to develop electric and gas vehicles.

Global factors

Most internationals were re-designing in such a way that the process meant divesting in dozens of  companies which they had on their books that could be said to harm their environmental profile, particularly wishing to dispose of refineries that had bad CO2  profiles, Mokoena said.

Also, particularly in Europe, the picture was changing too, he said.   Here the move to electric cars was particularly pronounced and where, in terms of any future strategy, the arrival of gas and electric driven cars were just part of the writing on the wall.    Consequently, any strategy to build a refinery had to take such factors into account whatever the developmental time lag.

Local futures

Adv Mokoena then moved back to the domestic sector in his address to give a picture of the immediate situation facing South Africa.     He said that DMRE always had “continued conversations with local oil companies” and in the case of Engen these conversations had resulted in DMRE learning that they were to turn their Durban operations into a port terminal which wish, he understood, had now become a board decision.

He said, “What does this mean? It means that the days of refining crude oil at the ENREF facility will be over. They will stop completely.  He went on, “ We countered this in our engagement with Engen the fact that the stoppage and the decision to close must be subject to an independent review to show whether the installation has reached the end of its life and whether further investment to continue would be a waste of money to the shareholders.”

Good money after bad

The review was conducted, Mokoena said, “And the resultant figures were marginal.  It is a hard fact that we as the Regulator have had to accept and recognise that if shareholders do not want to do something that they see as against their interests, you have to go along with it”.

“One commitment we have received from Engen”, Mokoena said, “is that there will be no job losses. They have sufficient businesses to absorb all the 780 persons in their refinery operations and the approximately 110 permanent workers. I understand that right at this moment they are contacting organised labour on setting up arrangements to transfer workers to new jobs.”

Clearing up

To conclude on Engen, Adv. Mokena said, “A complicating factor for Engen had been the damage caused by the fire which had resulted in an immediate stoppage of work for the whole refinery, meaning that many of the workers were idle right now.  Engen is attempting to find alternative tasking as we speak.”

Astron has been a different story, he said, where the damage was not so extensive and of a different nature, meaning that their management now has been able to follow the option of returning into business.

“At the moment, in the light of the fact that this was an accident, they are in discussion with insurers on such things as to whether there was negligence and other such issues”, Mokoena said.

Go well

With Shell and BP, Mokoena said, they have decided on a different course. They do not want to run a refinery any more in the light of global policy.  They have stated they would rather somebody ran the refinery for them. As far as DMRE understands, a process has started whereby Shell/BP is looking for a suitable partner.

On this arrangement, Mokoena told MPs  “Insofar as DMRE is concerned, the Shell/BP option is the most suitable and best-case scenario in all three instances, since South Africa does not lose an investment, the supply chain does not change, and the employment factor alters little.”

Keep it tight

On the maintenance  of continuous high-quality supply lines, he  quoted the necessity of the top-quality specifications needed to keep a continuous supply of jet fuel delivered to OR Tambo as an example. “The importance of this vital artery cannot be under-estimated”, he said.

Adv. Mokoena brought PetroSA once again into focus to say, “When it closed it was contributing something like 18,000 barrels a day. So as a third refinery to close, this is not the big issue it might have been in terms of the national supply target”.

Chain links

“What has to be done now has to be the result of a managed situation”, Adv, Mokoena said.   An example of managed outcomes had been the same closure of the ENREF refinery had which  resulted in a shortage of paraffin wax for candles, a fact of life in the Eastern Cape and Kwa-Zulu Natal.

An arrangement has now been made to import paraffin from the Far East and consequently the supply chain will be re-established.” He continued, “There will be change in the nature of any industry as time passes and just because of sudden alteration  or crisis in the oil industry you cannot have refineries closing down all over the place”.

At the top

Another example of the “managed” process he said were the meetings the Minister recently had with the directors of Shell/BP and also the discussions held between the Minister and with Petronas, the shareholders of Engen.”

He concluded that “Two refinery fires did not break the supply chain to the consumer”.  This, he said, indicated the strength of industry supply lines and the fact that the decision to build the multi-product pipeline from Durban through to Gauteng had been the right one.

Public Enterprises reports on Transnet – ParlyReportSA

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