Standalone South African energy company Astron Energy is upbeat about investing in both its Cape Town refinery, as well as its Caltex-branded service stations over the next few years.
“Investment in South Africa has positive potential. South Africa has the highest fuel consumption in sub-Saharan African. It is 25% higher than Nigeria’s demand, yet has a population three times smaller,” said Astron CEO Jonathan Molapo.
He told delegates at the African Refiners & Distributors Association (ARA’s) annual ARA Week, in Cape Town, on Tuesday, that South Africa had a growing demand for fuel products.
Astron's Cape Town refinery has a 100 000 bbl/d capacity. The company also owns 850 Caltex-branded service stations in South Africa and Botswana. It makes up 19% of the retail market in South Africa, with 810 local service stations.
The company has recently emerged from a three-year transition. Astron entered the South African market through a majority acquisition of the former Chevron South Africa. Chevron Global Corporation announced in January 2016 that it intended selling its South African assets. On March 15, 2019 the Competition Tribunal conditionally approved a shareholding transfer to Glencore. It acquired 75% of the issued share capital of Chevron South Africa in a deal valued at $1.1-billion.
Malopo said six companies had participated in the bidding process, "which indicates the value potential of the assets".
He said significant investment was needed in refineries in South Africa on the back of the changing refining landscape. This included an increased demand for higher octane gasoline, with the penetration of ULP95 now at 79%. Climate change regulations, with the introduction of the carbon tax in South Africa by June this year, as well as the focus on clean fuels, was largely driving the change.
Malopo said, traditionally, the investment philosophy had been to ‘maintain and sustain’ with no investment in growth projects over the years. Capital investment in the refinery was limited to meet product specification changes, compliance – regulatory and environmental – as well as statutory and reliability requirements. But he said change was essential.
“The refining landscape is changing and refineries will need to invest strategically to enable increased competitiveness and sustainability.”
He said some catch-up was needed in South Africa.
“Traditional majors have disinvested but have been replaced by traders looking for downstream integration. South Africa appears to be lagging the rest of the continent in this regard.”
Malopo said South Africa still represented an attractive investment opportunity with strong demand potential amid a healthy regulatory framework and governance environment that supports market security for a safe return. This is evidenced by the significant interest in the Chevron asset sale.
Malopo said a strong regulatory framework in South Africa, with robust components including a basic fuel price approach, was attractive for investors.
In terms of the recent Competition Tribunal ruling, R6-billion must be invested to develop the Cape Town refinery within the next five years.
Molapo said Astron Energy would also invest in the retail and commercial sales channels to grow its market share. The company also has a lubricants plant in Durban, with a total blend capacity of 60-million litres.