The closure of a number of petroleum refineries is a serious economic issue for SA and one that jeopardises more than just security of supply of products such as petrol and diesel.
Phindile Masangane, CEO of the Petroleum Agency SA, said these closures affected the supply of important by-products.
“We also need to be concerned that we are prematurely deindustrialising the economy, and in the process we are losing critical parts of our economy,” she said. “We don’t just get petrol and diesel from refineries, but many by-products that have linkages to other economic activities,” Masangane told Business Day in an interview.
This includes by-products such as bitumen, which is used to make tar for the construction of roads, and other chemicals used in the construction sector. Another important by-product is petroleum coke, which is used to make nitrogen fertilisers for the agricultural sector.
“When you are not refining as an economy, you must start importing [these byproducts]. Imagine the repercussions of having to import the tar that is used to build new roads.”
For a few days during July, there was not a single operating crude oil refinery in SA after Sasol declared force majeure on petroleum products due to the delay of crude oil shipments, which resulted in the temporary shutdown of its Natref refinery, which is run in partnership with TotalEnergies.
Sasol announced earlier this week that it had resumed fuel production at the refinery.
Engen’s refinery in Durban and Astron Energy’s in Cape Town were closed after explosions at these plants, and PetroSA’s Mossel Bay refinery had to shut down because it could not obtain enough gas feedstock to stay in operation.
In February, BP and Shell announced they would indefinitely freeze refinery operations at Sapref, which accounted for 35% of SA’s refining capacity. Mineral resources & energy minister Gwede Mantashe later announced that the government, through the Central Energy Fund, was considering acquiring Sapref, but the department has yet to confirm this.
Energy consultant Citac said in a recent article that output by SA’s refineries halved between 2018 and 2022.
A major headwind for local oil refineries is the new rules published by the government in 2021 that lowered the sulphur content allowed in the country’s diesel fuel.
The rules, which will come into effect in September 2023, stipulate that diesel grades allowed for sale may not exceed 10 parts per million (ppm), compared with the 50 ppm found in most diesel used in SA.
To comply, some oil refineries would have to upgrade their facilities at costs that could run into billions of rand.
Sasol and TotalEnergies have indicated previously that upgrades to the tune of R45bn may be required to comply with this legislation and that operating the Natref refinery may not be feasible in the long term due to the regulations.
According to Masangane, the primary concern for the government is loss of security of energy supply. “Sometimes there are interruptions in the logistics of bringing in finished [petroleum] products,” she said.
The more reliant SA becomes on petroleum imports, the more exposed it will be to potential disruptions in supply.
Speaking at an event earlier this month, Jacob Mbele, director-general of the department of mineral resources & energy, said the department was in “ongoing discussions with the major [refinery] players”.
“In the context of energy security, it is a concern for the department that the refining capacity, most of it, is being converted into storage and handling facilities to bring in finished product […] it is the top of the list of our issues that we need to address,” he said.
One of the reasons refineries were closing, Masangane said, was that they were no longer economically viable. They were built a long time ago and, compared with newer facilities, they were small-scale refineries that lacked economies of scale.
In addition, these refineries were owned by international companies, which made investment decisions based on the global position they occupied. An international oil company may decide to locate a refinery in another country and then import to SA, she said.
“The solution is not for the government to subsidise refineries; this is not affordable.
“The work of government is to create an enabling environment that will make SA a more attractive investment option for oil companies,” according to Masangane.
Discovery
She referred to the recent discovery off the southern coast of SA of 3.4-trillion cubic feet of gas. “Our gas-to-liquid refineries were supplied by 1.3-trillion cubic feet of gas, so we now have the potential to increase gas-to-liquid refining threefold.
“It is the role of government to create an environment that would entice companies to make use of this opportunity.”
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