SA’s refineries must invest or go bust
South Africa’s seven oil refineries have a small window of opportunity to exploit the low global oil prices before their margins disappear because of the ongoing expansion of bigger and better fuel-making facilities elsewhere.
Alan Gelder, refining research head for consultancy Wood Mackenzie, says: “If there is no new investment, profits will go down. “You need a regime where this is supported.” He was speaking at a media breakfast organised this week by the SA Petroleum Industry Association (Sapia), which represents South Africa’s oil-refining and fuel-wholesale sector.
The good news is that South Africa’s refineries are making money and sit in the middle of the profitability rankings of refineries in Africa and Europe. The bad news is that this is not the greatest peer group, because Europe is set to close several refineries that cannot compete with newgeneration facilities in the US and Asia.
Wood Mackenzie predicts that South Africa’s net imports of diesel will continue to grow through to 2025. Consumption was about 13.1 billion litres last year, while the refineries produced 9.1 billion litres. Eskom alone is burning about 10% of all the diesel used in South Africa.
Chief director of energy planning at the department of energy Tshilidzi Ramuedzisi, who attended the Sapia event, said there would finally be a decision on Clean Fuels 2 (CF2) in November.
The point of contention is how the refineries will recover the costs of upgrading their plants. They argue for a full cost recovery through the fuel price on the basis that the investment gives them “no return” and is basically a public service.
Chanel Burke, a Sapia spokesperson, clarified that this “returnless” capital expenditure would be unrelated to the investments to maintain profitability advised by Gelder.
As part of the talks, Sapia has to “remotivate the rationale” for CF2, which includes spin-off benefits for the motor industry and the environment, according to its annual report, also released at the event.