ANC or not, Shell is gone
ENERGY COMPANY PLANS TO DIVEST FROM ITS SA RETAIL OPERATIONS There are stronger forces than anything Luthuli House can throw at the economy.
No matter the failings – or otherwise – of the ANC-led government, Shell was always going to divest its downstream (actually, practically all) operations in South Africa.
There are forces at work that are way stronger than anything Luthuli House and its merry band of mismanagers can throw at an economy.
The clue is in its Capital Markets Day presentation from last year, in which it sketched a future for its “downstream” business. After next year, this would be focused on charging stations for electric vehicles (in markets where this is appropriate) and “low carbon fuels”.
SA is neither of these. There are far too few electric vehicles here and even though there is a cleaner fuels plan in place, South Africans will be using petrol and diesel for many, many decades to come.
Neither the first nor the last
This divestment is not the first such transaction Shell has done globally, nor will it be the last. It has steadily and deliberately been selling downstream assets for over a decade.
In 2011, it announced its intention to divest most of its shareholding in its African downstream business (excluding SA). This included Botswana, Burkina Faso, Côte d’Ivoire, Guinea, Kenya and Namibia.
In 2014, it sold its Australian downstream oil assets (including 900 service stations) to Vitol and the Abu Dhabi Investment Council.
In 2016, it got rid of its Danish downstream assets (230 retail stations) and last year it disposed of downstream assets in Uruguay, Paraguay and Colombia (a total of over 250 service stations).
After “pausing” refinery operations at Sapref in March 2022 – and with little prospect that these will ever be restarted – it was clear that Shell’s remaining operations in the country were effectively on notice.
Exit anticipated
But global oil majors are not designed to be traders of seaborne refined products. So, then, to the commodity traders like Glencore and Vitol, who love this market. This is what they do. Whether it’s a ton of coal, a few hundred carats of diamonds, or a million litres of refined 95-octane petrol, these are trading houses that are honed to eke out every possible percentage of margin in these markets.
In a 2017 post, S&P Global Markets argued that “South Africa has not been a divestment priority for BP and Shell due to the materiality of the market, its oligopolistic structure and high profitability”.
“However, in March 2017, in the context of regulatory uncertainty linked to clean fuels policies, Chevron announced the sale of its 75% owned refining and marketing affiliate (which included some minor operations in Botswana) to Chinese National Oil Company (NOC) Sinopec for $900 million (about R17 billion).
“This opens the door for BP and Shell to sell their South African affiliates, which is expected in the short to medium term.”
Dutch-owned Vitol Group bought Vivo (which was delisted) and, together with the Engen business, now has 3 900 service stations across Africa, primarily across the Shell and Engen brands.
Who will snap up Shell’s assets?
This leaves the 700 Shell fuel stations in SA. These will surely be snapped up by either Vivo (Vitol) or something like Trafigura (or one of the Chinese giants).
Given Vivo/Vitol’s footprint across the continent, it makes sense for this to be folded into that group. Whether competition authorities allow this (a merger of number one and number three) remains to be seen.
The Shell brand will likely not disappear, however. This has been the case wherever the oil major has divested. A licensing deal is typically put in place, and it collects a small royalty.