The South African chemicals and petrochemicals sector produces only 1% of the total global market’s consumption, despite the industry being the largest in sub-Saharan Africa, with a refining efficiency of 85%, says Frost & Sullivan chemicals research associate Patrick Nkomo.

“This small market share is because South Africa has to compete with countries like China and India that have low labour costs, larger economies of scale and higher bargaining power during the procurement of raw materials. These factors contribute to a competitive advantage and result in the production of cheaper products of the same quality as those produced in South Africa.

“To tackle this challenge, South Africa needs to increase research and development (R&D) expenditure so as to target niche markets, increase refining capacity using more energy efficient plants, and geographi- cally expand, especially into sub-Saharan Africa countries,” he adds.

However, the country’s chemicals and petrochemicals sector is expected to grow at an average rate of between 3% and 4% this year. This is because the demand for chemical and petrochemical products will have a high positive correlation with South Africa’s growth in gross domestic product (GDP), which is projected to increase by 2.5% this year. Therefore, prices are expected to increase by between 2.5% and 3.5%, in line with the growth in GDP.

“The South African chemicals and petro- chemicals sector generates revenues of more than $31-billion a year. Base chemicals account for 70% of total market revenues, followed by speciality chemicals at 23% and polymers at 7%,” highlights Frost & Sullivan regional director for Africa Mani James.

Meanwhile, national oil company PetroSA’s Project Mthombo, a new refinery at the Coega Industrial Development Zone, outside Port Elizabeth, in the Eastern Cape, is being planned to reduce the forecast additional deficit of 1.5-billion litres of fuel by 2015, states Frost & Sullivan.

PetroSA’s Chinese partner, China Petroleum Corporation (Sinopec), should complete the market and business case studies for Project Mthombo by the end of 2013. This will aid the selection of a business case and prepare the project for the front-end engineering design stage.

In light of Project Mthombo’s develop- ment, the South African chemicals and petrochemicals sector is experiencing steady growth; however, the speciality chemicals sector is expected to be the major driver of growth, as it will be driven by demand for construction chemicals, says Nkomo.

In 2011, the PetroSA board formally approved Project Ikhwezi, which is expected to play an instrumental role in sustaining the life of the gas-to-liquids refinery in Mossel Bay, in the Western Cape, for spe- ciality chemicals production. This project entails tapping into gas reserves in PetroSA’s F-O field, located 40 km south-east of its F-A production platform off South Africa’s south coast.

First gas is scheduled to flow from the F-O field in June or July and PetroSA esti- mates that production will continue for about six years. Further development of other gas prospects near the F-O field could potentially help sustain the life of the Mossel Bay refinery to 2025.
“Project Ikhwezi started in 2009, when PetroSA drilled eight wells, of which two were F-O appraisal wells. After detailed subsurface modelling and studies, our exploration and production specialists earmarked five wells in the F-O field for a development case. Following a period of intensive development and assessment, the teams presented a business case, based on drilling five long, horizontal wells into the complex and challenging target formations,” states PetroSA.

Having obtained board approval, the project passed its first key milestone in May 2011, when PetroSA awarded a drilling rig contract. Drilling at Project Ikhwezi, which started in November 2011, is scheduled for completion by the first quarter of 2015.

Research and Development Needed
The South African chemicals and petrochemicals industry spends less than 1% of its revenues on R&D, compared with the world average of about 3.2%. “Only international energy and chemicals company Sasol spends between 3% and 5% of its turnover on R&D in the South African chemicals and petrochemicals sector,” notes James.

In November last year, Sasol unveiled a $17-million research and technology facility at its Sasol One site, in Sasolburg, in the Free State.

“This is more than a new facility. Sasol is a global leader in the gas-to-liquids and coal-to-liquids technology and processes for the production of liquid fuels and chemicals. This facility will enable us to be more competitive and further push bounda- ries when it comes to our ambitious global growth programme,” Sasol Technology MD Flip de Wet said at the Sasol One launch.

Sasol’s technology expertise includes coal and gas processing technologies, Fischer-Tropsch catalysis and engineering research, refinery and fuels technologies, chemicals technologies, environmental sciences and engineering, as well as alternative energy and advanced analytical solutions.

“The new facility will complement Sasol’s research and training campus, which houses 14 laboratories, several piloting facilities, 150 PhD graduates, about 100 engineers, more than 200 scientists and over 100 chemists and technologists combined,” says De Wet.

Sasol’s current combined capital and opera- tional expenditure for Sasol Technology’s R&D function is more than R1-billion a year, of which over 90% is invested in South Africa. Sasol Technology is executing further capital projects worth more than R450-million to support its development activities.

“The research and training facility marks one of the many investments that Sasol continues to make in its home base, South Africa. Sasol increased its capital expendi- ture in South Africa by 14% in the 2011/12 financial year to R18.8-billion, which represents about 70% of the company’s total capital expenditure,” adds De Wet.

Regulatory Compliance
Chemicals are highly hazardous; therefore, the supply chain in the chemicals and petrochemicals sector is tightly regulated, which hinders the entry of small, medium-sized and microenterprises (SMMEs).

The regulation encompasses compliance with the following sector-specific Acts: the Medicines and Related Substances Control Amendment Act, No 90 of 1997; the Atmospheric Pollution Prevention Act, No 45 of 1965; the Environment Conserva- tion Act, No 73 of 1989; the National Road Traffic Act, No 93 of 1996; emissions control under the National Environmental Management: Air Quality Act, No 39 of 2004; and local water regulations under the National Water Act, No 36 of 1998.

“SMMEs trying to enter the industry rarely succeed, as compliance is a costly process. Another factor hindering SMMEs, particularly those in the base chemicals segment, is the high initial capital require- ment and running costs because the resources required in this sector are very expensive,” Nkomo points out.

As adherence to these regulations cannot be compromised, failure to comply can result in an SMME being penalised and even lead to cancellation of the con- tract. To assist in this regard, government should provide training and adherence incentives to the SMMEs. “SMMEs in the base chemicals segment should rather approach contract tenders as a group than as individuals, so as to easily meet the capacity constraints, one of the stumbling blocks in this segment,” Nkomo concludes.