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Oct 22, 2012

SA should take ‘proactive’ steps to deal with refined-fuel deficit

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South Africa should take proactive steps to address the current national and regional deficits in refined liquid fuels, which had the potential to undermine growth in the territory, PFC Energy senior director Marc Seris said on Monday.

PFC Energy is a global consulting firm specialising in the oil and gas industry and is currently an adviser to South Africa’s national oil company PetroSA, which is promoting the concept of a new domestic refinery.

Speaking in Johannesburg, Seris said demand in the Botswana, Lesotho, Namibia, Swaziland and South Africa (BLNS-RSA) supply zone could gradually increase to about 870 000 bl/d by 2030.

Such growth could weigh on South Africa’s external balance of payments, with imports arising mainly from the Middle East, India and Europe. Increased reliance on imports from outside the region could also expose consumers to greater risk of supply disruptions.

Seris argued that Southern Africa had the market potential to support a new large-scale refinery, or an expansion of existing facilities.

The statement came amid an increasingly assertive move by PetroSA to market the development of Project Mthombo, a crude-oil refinery project earmarked for development in the Coega industrial development zone, in the Eastern Cape.

The State-owned company believes the multibillion-rand 360 000 bbl/d project would contribute to the security of liquid-fuels supplies in the Southern African Development Community and usher in a cleaner-fuels era for the region. However, there is currently no distribution infrastructure linking Coega to the main hinterland markets.

“An oil product pipeline from the refinery to the Gauteng region would provide an alternative route to main demand market and would ensure supply reliability,” Seris argued.

He added that, even with the introduction of the first train, in 2020, and the second by 2025, the project would be insufficient to erase the anticipated regional product shortfall.

“A 360 000 bl/d refinery in Coega would create a short-lived surplus of middle-distillates – the BLNS-RSA region would remain short in gasoline … under this scenario, demand in the BLNS-RSA supply zone would outstrip supply from the middle of the 2020 to 2030 decade.”

Seris indicated that refinery owners in South Africa currently lacked an appetite for refining investments, but suggested that the country could further alleviate its oil product deficit by debottlenecking its existing logistics and integrating its supply chain internationally.

South Africa’s domestic refining industry was currently in a vulnerable state, as most refineries were old and lacked flexibility, while the Port of Durban was congested.

“With upcoming change in fuel specs, government needs to decide which of these options is the better route,” he argued, adding that the existing refineries required material investment to reduce operational costs and improve reliability.

Other refineries in the sub-Saharan African region also lacked scale and complexity.

The country’s fuel sector would also require significant investments to meet the emerging Clean Fuels 2 specification, with the South African Petroleum Industry Association estimating a need for industry-wide investments of about R35-billion to R40-billion.

“Getting South Africa supplied with large volumes of 10 ppm [parts per million] motor fuels could be problematic, because only a few refineries outside of Europe can make these specifications,” Seris pointed out.

Between 2004 and 2012, major oil and gas companies have been stampeding out of Africa, today only remaining in the Southern African region and Nigeria.

Seris explained that this was owing to oil companies having downsized their downstream portfolios, reducing their exposure to refining and exiting nonstrategic regions or countries.

“These stakes in African refineries have all be purchased by State interests, except for Kenya, Côte d'Ivoire and Senegal,” he noted.

He said renewed government participation in the oil and gas sector reflected rising energy nationalism.

“Moving forward, African national oil companies will gradually gain more operational and strategic autonomy from the State to make higher-level decisions."

Edited by: Terence Creamer
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