Page 7 - LatAmOil Week 20 2022

LatAmOil COMMENTARY LatAmOil

Refining capacity shortages are causing refining margins to reach record highs (Saudi Arabia Ministry of Energy)
As Europe takes far more Russian diesel, jet likely permanently, the outlook is bleak. In the
fuel and other refined products than any other meantime, a decision on the fate of another
market, it is here that the impact has been most plant (Natref) is due to be taken this year, while
acute. a fourth refinery (Astron) is recovering from
Higher crude prices, also partly tied to Rus- a fire and another (Mossel Bay GTL) is strug-
sian supply fears, have also fed into higher fuel gling to obtain adequate feedstock. Only Sasol’s
prices. Other factors include robust seasonal 160,000 bpd Secunda Coal-to-Liquids (CTL)
demand, low stocks and a lack of local supply. plant is fully functional and is even undertaking
While diesel prices have climbed higher, jet an improvement programme.
fuel is now the most lucrative petroleum prod- Without these refineries, South Africa has no
uct to produce in Europe, with the physical crack choice but to continue depending on imports to
spread soaring to a record $69.4 per barrel on cover the vast majority of its fuel demand. This
April 29. Cracks have seen more than a 10-fold is a logistically challenging practice, as most of
increase compared with averages in 2020 and these imports enter the country by sea, via the
2021, when demand for the product nose-dived port of Durban. From Durban, jet fuel must be
as a result of the pandemic. This tightness in piped to Natref for inspection before it can be
the jet fuel market may be great news for refin- used by airlines, a process that takes weeks.
ers, but it could result in a supply crisis if the It is also expensive. Industry observers esti-
post-pandemic recovery in demand continues mate that the refinery closures could see South
gaining pace. Africa’s petroleum product import bill soar by
If implemented, the EU’s embargo of Russian as much as 300%, presenting a clear challenge to
oil and petroleum products will place unprece- the extension of the fuel tax break. In the mean-
dented pressure on the European fuel market. time, there is further price pain for consumers
In the event of a blanket ban, the markets worst ahead, as the ZAR1.5 ($0.09) per litre tax holiday
affected will be those heavily dependent on Rus- is due to expire this month.
sian crude such as Hungary, which would have Drivers are now set to see gasoline and diesel
to upgrade its refineries extensively and estab- prices rise by 16% and 14% respectively within
lish new infrastructure to receive alternatives to inland areas and 17% and 15% respectively
Russian feedstock. But those same countries are along the coast.
likely to be permitted more time to phase out Elsewhere in Africa, Nigeria’s national oil
Russian imports. company (NOC) is still implementing a major
overhaul programme covering four state-
Africa owned oil refineries, all of which have been idle
Meanwhile, African states, many of which rely for some time. However, the privately owned
on imports to cover to their full demand for Dangote Refinery, which will have a capacity of
refined products even in cases of upstream 650,000 bpd, is due to begin operations later this
abundance, are also being affected. year, giving Abuja hope for the future.
The disconnect between hydrocarbon pro- Inexplicably, though, rather than leveraging
duction and downstream capabilities is particu- the little modular refining capacity the country
larly pronounced south of the Sahara Desert. does have, Nigerian National Petroleum Co. Ltd
The two largest economies in sub-Saharan (NNPC Ltd) has been exporting its full crude
Africa, Nigeria and South Africa, are wrestling slate. This has forced private refiners to make a
with issues around supply and prices of jet fuel, choice between sourcing crude from elsewhere
diesel and gasoline, with the refining slates of or shutting up shop.
both countries largely out of commission. Meanwhile, Abuja has lately been forced to
For South Africa, the shortage is most acute introduce three months of subsidies for jet fuel
for jet fuel. There doesn’t seem to be an easy solu- amid threats by airlines to ground domestic
tion, and with two of the country’s six refineries flights, and such measures are likely to continue
(Engen and Sapref) having already shut down, at least until the refining work is complete.

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