Page 10 - AfrOil Week 39 2021

AfrOil POLICY AfrOil

SAPIA urges financial support

for South Africa’s oil refineries

SOUTH AFRICA THE South African Petroleum Industry Associ- week, Sasol’s CFO Paul Viktor said that current
ation (SAPIA) this week warned that the coun- margins mean that the required investment
try’s remaining refineries could become obsolete to make Natref comply with CF2 would be
within two years without financial support. “sub-economical.” CF2 is equivalent to Euro 5.
The warning comes as authorities push for He said that converting Natref would be
cleaner fuels under the incoming Clean Fuels much more costly than the conversion of the
2 (CF2) legislation which has already rendered 160,000 bpd Secunda coal-to-liquids (CTL)
at least one facility “sub-economical.” South refinery, which is expected to cost $400mn.
Africa’s Department of Mineral Resources and Sasol holds a 63% of Natref with TotalEnergies
Energy (DMRE) gazetted these new regulations holding the remainder.
regarding in August. These regulations mandate Viktor said that embarking on such a pro-
the use of ultra-low sulphur petrol and diesel gramme “is not going to happen. We are not
products from September 1, 2023, much to the going to put that money in at that quantum, only
association’s dismay. Sapia wants to extend this to not make a return on it,” he added. Alternative
deadline. options are to convert Natref into a storage and
SAPIA represents several oil majors, includ- blending facility, sell it or close it, he said.
ing BP and Royal Dutch Shell, that operate local In April, Engen Petroleum, a subsidiary of
refineries. It has been working with the govern- Malaysia’s state-owned Petronas, announced it
ment to find a resolution to issues such as fund- would convert its 120,000 bpd refinery in Dur-
ing the upgrade of six refineries in the country to ban into an import terminal following years of
allow them to produce cleaner fuels. losses and a fire in December following which
In January, the group warned that the impact it has not resumed operations. The company’s
of the coronavirus (COVID-19) pandemic CEO Yusa Hassan said that the decision had
meant it was unlikely oil firms in South Africa been taken following an “extensive strategic
would upgrade refineries at an estimated cost of evaluation”, with the fuel terminal expected to
$$3.9bn, unless the government allowed them to be commissioned in the third quarter of 2023
pass the costs on to consumers or offered some and limited refining operations carrying on in
sort of financial support. “This is going to raise the meantime.
considerable questions about the security of Hassan said: “The conclusion of the strategic
supply of products, resulting in a negative trade assessment is that the Engen refinery is unsus-
balance,” it stated. tainable in the longer term. This is primarily
A further consequence of these regulations due to the challenging refining environment
is risking tens of thousands of jobs, SAPIA as a result of a global product supply surplus
warned. This includes jobs in refineries, as well and depressed demand, resulting in low refin-
as the industries associated with refineries – ing margins, and placing the Engen refinery in
those that supply services to the plants and those financial distress.”
that rely on the production of specialty products He added that refitting the plant, which
from these plants, the industry body said. opened in 1954 making it South Africa’s old-
Sapia has started consultations with the est, to meet emissions regulations would be too
DMRE, with a view to proposing amendments costly. “Furthermore, unaffordable capital costs
to the regulations so that a “mutually acceptable to meet future CF2 regulations compliance con-
and possible implementation date is obtained”. tinues to be a challenge for the long-term sus-
“But without a financial support mechanism, tainability of the refinery.” ™
it would be difficult to justify the refineries’
upgrade,” said Sapia.

Investors’ plans
Meanwhile, in August, local firm Sasol and its
French joint venture (JV) partner TotalEnergies
revealed they were discussing whether to close
or sell their Natref refinery at Sasolburg.
Following internal assessments, the partners
have decided that making alternations to the
107,000 barrel per day (bpd) facility to comply
with South Africa’s incoming Clean Fuel 2 (CF2)
legislation is not viable. Speaking to Argus this Locations of South Africa’s refineries (Image: SAPIA)

P10 www. NEWSBASE .com Week 39 29•September•2021