Home Opinion and Features Fuel pricing changes needed, not more refineries

Fuel pricing changes needed, not more refineries

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Parliamentarians this week called for the building of a mega refinery of crude oil to petroleum products for South Africa to address security of supply and fuel price hikes that have been endemic for close to a year now.

File picture: Reuters/Luke MacGregor

PARLIAMENTARIANS this week called for the building of a mega refinery of crude oil to petroleum products for South Africa to address security of supply and fuel price hikes that have been endemic for close to a year now.

The situation has not been helped by the conflict between Russia and Ukraine, which has buoyed the price of crude beyond unprecedented levels of up to $120 a barrel at some stage.

Responding to the call to adjust rising fuel prices, Finance Minister Enoch Godongwana this week made a temporary R1.50 reduction in the fuel levy.

Industry insiders though are sceptical about the addition of further refining capacity given the inefficiency of existing assets on the verge of being closed down.

They said the decision by Godongwana to sell off the only R6 billion crude oil reserves the country stores in tanks in Saldanha Bay highlighted the lack of viability of refineries at present.

“The government does not have the money to hold the oil reserves on behalf of the industry, particularly now with Sapref set to shut down at the end of March,” said an industry insider.

He said South Africa faces no shortage of oil supply and has a great deal of refinery and storage capacity in various areas on the coast.

The fuel-from-gas refinery in Mossel Bay, the Astron refinery in Cape Town and the Engen refinery in Durban are all in stages of non-production, while the Shell and BP joint venture refinery in Durban, Sapref, has indicated it will “pause” production from the end of the last month while it seeks a buyer.

Sasol said in its latest annual report it has not yet taken a decision on the future of its crude oil refinery in Sasolburg, Natref, which it operates apart from its synfuels or coal-to-liquid fuels business.

Parliament’s Portfolio Committee on Mineral Resources and Energy had a lengthy discussion this week about the best way to address the escalating fuel prices and one suggestion was to build more or better refining capacity.

They debated whether the country should invest in upgrading the existing refineries, or build a new mega refinery in line with international trends.

With 35 percent of South Africa’s crude oil refining capacity producing 2.7 billion litres of petrol per year, Sapref is the country’s largest refinery, and the KwaZulu-Natal provincial government, aware of the big impact on job creation and other businesses the closure of a refinery entails, has already suggested that the government buy this refinery.

Engen recently announced a similar decision around its refinery operations.

“The decision has been taken to allow an informed finalisation on the various options available to the shareholders, a sale option being the most preferred.

“Until decisions about the future of the plant have been made – including a possible change of ownership – shareholders are unable to commit to further investment in the refinery.”

The discussion to build a new refinery takes place in a world fast moving off carbon emitting fuels and the rapid uptake of electric vehicles in many developed country markets.

Sasol plans to be at net zero emissions by 2050, and said it was committed to accelerating its transition to a low-carbon world in support of the objectives of the Paris Agreement.

“In aligning with this 2050 ambition, we are stepping up our 2030, scope 1 and 2 GHG emission reduction target, from an initial 10 percent for our South African operations, announced last year, to 30 percent for our Energy and Chemicals Businesses, off a 2017 baseline. We are also introducing a scope 3 reduction target, for our Energy Business, off a 2019 baseline,” it said.

South Africa imports about  85,000 barrels a day of petrol and diesel which has been ramped up to 180,000 barrels a day as most of the refineries are shut down.

“There is no shortage of crude oil or petrol imports. It is just they have become more expensive in current global conditions. Relief for consumers has to come through the reduction or scrapping of some of the levies, some of which are from the colonial era.”

Parliamentarians said the need for local refinery capacity was not only apparent from the impact of the conflict in Ukraine, but that as a security concern.

For example, any of the countries where South Africa sources its crude oil could in the future be subjected to conflict themselves, leaving the country vulnerable, they said.

They said the timelines of the mitigation plan were important as fuel prices affected consumers and downstream industries.

An urgent review of strategic stock policies was called for, including policies to the upstream petroleum industry, the enhancement and strengthening of the petroleum industry.

“We must look at the exploration option, the harmonisation of energy resources in the continent, for countries to trade amongst themselves on oil and gas,“ they said.

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