THERE was no shareholder on earth willing to pump in billions of rand to upgrade ageing oil refineries in exchange for no return on investment, South African Petroleum Industry Association (Sapia) chairman Maurice Radebe has warned.
Sapia members — including BP, Chevron, Engen, Total, Sasol and Shell — contribute 5% to GDP and employ nearly 9,000 people directly, with a further 70,000 in retail operations.
SA has six refineries, the majority of which were built in the 1950s and face the prospect of paying billions for upgrades to meet the government’s proposed Cleaner Fuels II strategy.
However, "there is no shareholder on the earth who will commit that money with no return", says Radebe. "We cannot do it without (government) support. If we do not support this industry, in five to 10 years’ time it will be wiped out."
But Alan Gelder, global practice leader of UK-based Wood Mackenzie’s refining and marketing research team, said South African refineries could face closure as soon as 2020.
Chevron has already embarked on a three-year divestment programme from SA, which started in 2014. It entails the potential $1bn sale of its 75% stake in Caltex and its refinery in Cape Town.
Should Chevron fail to find a buyer, its refinery could be the first to close, with Avhapfani Tshifularo, executive director of Sapia, warning that such a scenario could create a "house of cards" because it would directly affect other industries, including chemicals and plastics.
The industry’s future hinges on the investment required for the Cleaner Fuels II strategy. This was expected to be implemented in 2017, but has now been put back to beyond 2020.
"Investments require regulatory certainty," said Gelder.
When the new fuel strategy was unveiled, the industry mobilised engineering teams and resources for its implementation, Radebe said. But delays had seen these teams disbanded and left the industry and the government at a stalemate.
The National Development Plan requires a decision on local refineries by 2017.
"There will not be a refinery decision in 2016, but the minister of energy will not allow a decision to wait until December 2017," said Tseliso Maqubela, the deputy director-general of petroleum and petroleum product regulations at the Department of Energy.
The uncertainty surrounding the future of SA’s petroleum industry came at a time when the oil market was struggling to re-balance supply, says Gelder. He described the outlook as "volatile and uncertain", and expected to see a rebalancing start in the last quarter of 2016.
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