Saudi-SA refinery on track, says Mantashe

The government has reached an agreement with oil giant Saudi Aramco for the construction of a $10bn (about R147bn) refinery at Richards Bay, north of Durban, mineral resources & energy minister Gwede Mantashe said in Cape Town on Thursday.

The project has been in the offing since a visit by President Cyril Ramaphosa to Saudi Arabia in July 2018, when a pledge for the investment into SA was made.

The Central Energy Fund (CEF) is a joint developer of the project, which is at the prefeasibility stage. The proposed equity stakes of the partners have not been disclosed.

Last week, Ramaphosa appointed former energy minister Jeff Radebe as his investment envoy for the oil and gas industry. Radebe has been involved in discussions with the Saudis since January.

Addressing journalists at Africa Oil week, Mantashe said that Saudi Aramco “has committed” to the project and there is agreement that the location will be Richards Bay.

The government had tried to persuade the company to locate the refinery in Coega, its deep

water port and special economic zone which has struggled to attract investment.

“One of the things we have resolved is that we can’t tell the investor where to go. So we have in principle agreed on Richards Bay. What is left now is to see contractors on site,” Mantashe said.

SA has seven crude oil refineries and imports about 200,000 barrels a day of the finished product to meet demand.

Mantashe said the government is of the view that more refining capacity is needed and that it has a “responsibility” to ensure that not all Africa’s oil is exported without being refined. The Saudi Aramco project is planned to be the biggest refinery in the country, producing 300,000 barrels a day.

Kholly Zono, the acting CEO of the CEF, said on Thursday: “This is not a Saudi Aramco development. It is being developed by both CEF and Saudi Aramco. We are currently in the prefeasibility stage.”

Zono said the plant was expected to come online in 2027/2028.

Mantashe said exploration in the Karoo for shale gas is showing promise.

“We have drilled down 1,403m and gas formations are showing. That has encouraged us to continue to 3,500m. And at that level, we are convinced we will discover shale gas.”

In his remarks to reporters, Mantashe briefly touched on the future of the independent power producers (IPPs) programme. The government is engaged in renegotiating the contracts with IPPs from the first three bid rounds, in which prices were much higher.

The IPP contracts require that Eskom buy the power that IPPs produce, with the contracts fully guaranteed by government.

“There is hope that, when open, window five prices will drop even further.

“The government funded the risk of introducing the technology and it was the correct decision. But as the technology is established in the economy, it is important for government to say we are not going to take the risk; producers take on your risk,” Mantashe said.