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INTERVIEW: South Africa to grow more reliant on fuel imports as refinery closures loom: SAPIA

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INTERVIEW: South Africa to grow more reliant on fuel imports as refinery closures loom: SAPIA

Highlights

Country's refining sector under threat, all plants under review

More economical to convert refineries into import terminals

Unlikely to see any refinery upgrades in near future

London — South Africa will grow even more dependent on imports for its fuel needs as the country's refining sector faces an uncertain future, Avhapfani Tshifularo, Executive Director of the South African Petroleum Industry Association (SAPIA) said Jan. 27.

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"Imports are becoming more attractive," Tshifularo told S&P Global Platts in an interview. "[Refiners] can redirect capital...rather than putting billions in upgrading the refinery. [They] can put a quarter of that into building an import terminal."

Shortage of funds from the government and a lack of sufficient demand in South Africa to warrant significant investment is putting increasing pressure on refiners and there has been talk among some shareholders about withdrawing from existing projects.

Tshifularo said all the country's six refineries are "currently under review" and some of them will have to make some very difficult decisions.

The likely scenario will be to either "to convert a refinery into import or dispose [of] the refinery altogether" instead of an expensive upgrade program.

Import mode

South Africa is currently reliant on imports for 40% of its needs because of a halt in operations to two refineries. This number rose sharply last year as two of its key refineries – the 125,000 b/d Engen refinery in Durban and Astron Energy's 110,000 b/d Cape Town plant – shut down after they suffered fires.

"In the long run we might go into 60:40 balance, with 60% accounting for imports," he added.

The outages in 2020 mean the country is already in "import mode" and along with environmental and regulatory pressures, imports are becoming increasingly attractive to meet demand for higher quality fuels, compared to home production, Tshifularo said.

South African imports of refined products rose to 321,000 b/d in January, according to estimates from energy intelligence firm Kpler. This is the highest in almost a decade, according to Platts estimates.

In 2020, South African imported 200,000 b/d of oil products compared with 174,000 b/d and 165,000 b/d in 2019 and 2018 respectively, according to Kpler data.

Almost half of the country's imports were diesel, which the country depends on heavily for its power generation. Gasoline and gasoil also make up a key share of the imports. South Africa's mining industry, which contributes the bulk of the country's export revenues, is a key consumer of gasoil and diesel.

India, the UAE, Oman, Saudi Arabia, Singapore, the Netherlands, the US and Italy have been some of the key suppliers of product into South Africa.

Upgrades unlikely

The reliance on imports is also because most of South Africa's refineries are in urgent need of upgrading.

The refining sector has been riddled with underinvestment, and its capacity mostly comprises non-complex refineries, which will require costly upgrades as South Africa pushes toward using refined products with lower sulfur content.

But Tshifularo said the South African refineries are unlikely to see any upgrades soon as there is no financial appetite for it.

"The question of upgrades is up in the air. I cannot see anybody justifying putting $1 billion into...a refinery kit at this juncture," he said. "It is just too much money that you need to invest for no return at all especially when shareholders are going through so much strain."

The coronavirus pandemic and the clamor for a faster and smoother energy transition has had a profound impact on the global refining sector, especially in countries with old refineries, like in in Europe and South Africa.

It could be 75% cheaper to convert a refinery into an import facility than to upgrade it, Tshifularo said.

"Without any financial support they are not going to invest in an upgrade. The world has moved on now," he said. "If there is any investment, it will be very minimal, and will be done just to stay in the game."

South Africa, a net importer of transport fuels, has ramped up its intake of diesel and gasoline, with a large chunk of the country's total refining capacity of 700,000 b/d offline due to recent refinery hitches.

This comes as the country's oil demand remains under pressure due to strict lockdowns caused by the spread of a mutant strain of the coronavirus.

Tshifularo said SAPIA is hoping the country's push to use lower-sulfur or clean fuels will bear fruit.

The country's oil sector is currently consulting with the automotive industry to get more details on the technology needed to change fuel specifications.

There have been talks about upgrading South African specifications for the last 10 years, but these have so far come to little and it looks unlikely that South African refiners will be able to provide the higher-spec fuel.

Refinery hitches

The 125,000 b/d Engen refinery in Durban -- the second largest in the country -- remains shut following a fire and an explosion on Dec. 4. Meanwhile, Astron Energy's 110,000 b/d Cape Town refinery has been offline since July, when it suffered an explosion.

Of the two, Astron looks more likely to return, he said.

"Nothing formal has been communicated about whether these refineries are likely to return to service... but it appears that Astron is definitely coming back, based on the discussions I had with them. Engen is up in the air."

There have been media reports of the Engen site becoming an import terminal.

Spokespersons at both Astron Energy and Engen were unavailable for comment.