Strategic decisions about South Africa's future liquid-fuels supply system were now urgent, national oil company PetroSA said on Tuesday, while making an aggressive case for its proposed 400 000-bl/d refinery project, which it described as the most "sustainable, long-term" solution for meeting the country's need for supply security and improved fuel quality.

Speaking at the eleventh Southern African Energy Week, organised by Global Pacific & Partners and hosted in Sandton, vice-president for new ventures, midstream Jorn Falbe went so far as to suggest that it was "now or never" for the project, which is being proposed for development at Coega, in the Eastern Cape, at an estimated capital cost of more than $10-billion.

PetroSA had already spent some R250-million on feasibility studies and was seeking board sanction to spend a further R2,4-billion to complete the so-called front-end engineering design. Should such approval be received, the national oil company believes that South Africa will be in a position to make a final investment decision by early 2012.

However, PetroSA could not finance the full project, which would probably have to be pursued as a special purpose vehicle, partly financed through resources garnered from the National Treasury (up to $2,5-billion is mooted), as well as from private partners. The national oil company had already recommended that it retain only a noncontrolling 37,5% equity position in the eventual refinery, opening the way for the 62,5% balance of the shares to be held by strategic equity partners.

Falbe, who previously worked for Shell in Germany, argued that South Africa should seek to capitalise on the prevailing climate of lower refinery construction costs, precipitated by the recent economic crisis, as well as by perceptions of there being a glut in refining capacity globally.

Overcapacity was an immediate reality, but Falbe argued that South Africa's relatively remote location, made an over reliance on the importation of final fuel products from the new megarefineries, which were concentrated in the Middle East and Asia, a high-risk alternative to the Coega project.

Falbe also dismissed suggestions that South Africa's demand, both for diesel and cleaner fuels, would be met by the existing international oil majors, which he argued were disinvesting from downstream activities in Africa.

The project, dubbed ‘Project Mthombo', was also being punted as a regional concept, with PetroSA estimating that there would be a 800 000-bl/d refining shortfall across the continent by 2016, despite rising crude oil output. Costing benchmarks suggest that it would be 35% cheaper to build such a facility in South Africa as compared with Angola, where some of the crude could be sourced, while financing costs would be about 13% lower cost.

Coega, which was sited on South Africa's newest deep-water harbour Ngqura, could tap into the expanding oil trade routes between South America and Asia and Africa and Asia. It was also possible that it could source some of its crude requirements from new territories such as Madagascar.

"South Africa needs to make immediate strategic decisions regarding the future of its fuel supply," Falbe averred, acknowledging that a number of short-term incentives in the liquid fuels environment would make it a difficult decision for government.

"But we are convinced that we offer a sustainable solution for South Africa," he concluded.