South Africa’s oil industry is at a crossroads, which could tip the scales from self-reliance to import dependence, posing a threat to the domestic economy and security of supply, warns the SA Petroleum Industry Association (SAPIA).
The downstream industry imports, produces, and distributes petroleum products for the country and region, and in 2019 supplied 35 billion litres of product to these markets, according to SAPIA executive director Avhapfani Tshifularo.
However, local capacity has plunged by 80% because of unplanned shutdowns. Various reasons have been given, the primary one being an impending switchover to clean fuel standards and the uncertainty surrounding implementation.
In particular, the industry has bemoaned the absence of, and silence on, financial support, which would justify the investment case for embarking on refinery upgrades to meet the new norm.
In June 2022, the government published guidelines on petroleum products specifications and standards aimed at curbing greenhouse gas (GhG) emissions and set a 2027 deadline for local refineries to comply.
As the clock ticks to the target date, only two out of six refineries in the country are operational while Engen’s Durban facility has ceased production permanently. Combined, the six refineries represent an installed capacity of 718,000 barrels/day, SAPIA says.
In addition to crude oil, the facilities process natural gas and coal into petroleum products.
Sasol and TotalEnergies’ Natref remains operational, with the two partners having communicated compliance plans to keep the facility’s doors open.
BP and Shell’s Sapref, the largest refinery in South Africa responsible for 35% of product, in March 2022 halted production at the Durban facility indefinitely. The partners cited shareholder reluctance to make further investments and indicated a preference for a sale option.
The Africa Report reached out to Sapref for comment but did not receive a response at the time of publication.
The department of mineral resources and energy says the government enabled investment in fuel import terminals “when the reliability of existing refineries was in question”.
The department insists that “this has proven to [be] … a correct strategy as refineries close. The import terminals throughout the country’s ports are able to ensure the security of fuel supply.”
Need for upgrades
But SAPIA questions the wisdom of such a view, pointing out that the infrastructure at South Africa’s ports is not suitable for increased fuel imports and requires upgrades.
According to Tshifularo, failure to upgrade port infrastructure “will have a direct impact as domestic supply is reshaping, resetting the security of supply balance between local production and imports”.
“This will, in turn, have a huge bearing on the South African economy,” Tshifularo says.
At its results presentation in July 2022, Transnet said there is insufficient storage capacity for petroleum products, particularly in Durban, in light of some refineries shutting down. Transnet said it would be coming out in search of partners in this area.
Transnet also highlighted Tarlton, a Transnet Pipelines depot and one of the company’s biggest facilities, as a possible solution pending its registration as a warehouse with South Africa’s tax authorities.
A commissioned economic assessment report shows that the oil industry has the second-highest multiplier effect on the South African economy:
- For every R1 the industry contributed directly to GDP, R1.59 was generated elsewhere in the economy.
- Historically, the industry spent R94bn on capital projects and R197bn on operations.
That contribution hangs in the balance, pending decisions by refiners on the future of domestic facilities, and these choices will have “a direct impact on employment and potentially result in a larger dependency on imports,” says Tshifularo.
“Without a financial support mechanism,” however, “it would be difficult to justify the refineries’ upgrades,” Tshifularo cautions.
SAPIA says Australia faced a similar problem because of competition from bigger and more efficient facilities in Asia. Tshifularo says the Australian government in 2020 came up with a Fuel Security Package to assist its domestic market.
“This will, in turn, have a huge bearing on the South African economy.”
SAPIA believes the South African government could take a leaf out of its Australian counterpart’s playbook to address the domestic fuel supply dilemma.
Jobs are at risk, making decisive action critical “to ensure the security of supply and the growth of the South African economy now and into the future”, says Tshifularo.
As refiners mull the future of their facilities, Sasol and TotalEnergies have taken their fate into their own hands at Natref, which produces petrol, diesel, jet fuel, and black products.
During a climate change roundtable held earlier in November, Sasol executive Priscillah Mabelane said: “I am pleased to … report that we’ve completed a pre-feasibility study on a green hybrid refinery concept for Natref.”
That includes the introduction of bio feedstock as a sustainable pathway to transition the refinery to meet both clean fuels standards and to reduce GhG emissions, explained Mabelane, who is the executive vice-president responsible for Sasol’s energy business.
“This is a positive step for our customers, but also for the country, in terms of security of supply,” Mabelane said.
Sasol and TotalEnergies expect to produce clean fuel-complaint diesel at Natref towards the end of 2023.
Sasol and TotalEnergies have previously communicated it would cost an estimated R4bn-plus to make Natref clean fuel compliant. Sasol has also indicated it will provide an exact cost update in the next six months or so.
The Africa Report