VALENTINO CHIGWEDERE: SA needs a plan for its future petroleum supply

Many conversations have sprung up on the future of energy security in SA, but one area has been neglected — the role of liquid fuels in the country over the next 20 years.

Energy sits at the core of economic growth. Africa’s population is growing rapidly, and urbanisation is accelerating as rural populations migrate to cities — the economic centres — or as cities expand to swallow rural settlements. These demographic trends are increasing the demand for energy, and placing even greater strain on energy supplies and infrastructure.

In 2022 in Sub-Saharan Africa demand for oil products used by everyday consumers, such as petrol, diesel and paraffin, as well aviation fuel Jet A-1, totalled 91.3-million tonnes, up 3.7% year on year. 

According to energy market consultancy Citac, demand for oil products is expected to rise by 49.7-million tonnes, or 56%, between 2023 and 2040, to reach a total of 142-million tonnes. Continued economic development, population growth and urbanisation trends underpin the growing need for petroleum products over the period.

In SA, suppliers provide 35-billion litres of petroleum every year, of which 30-billion litres are for consumption and 5-billion litres are exported to countries such as Botswana, Lesotho and Swaziland. Diesel and petrol are the most consumed liquid fuels, accounting for 79% of demand, which equates to 24-billion litres.

Over the past 50 years, SA had refined its liquid fuels at six domestic refineries that accounted for close to 80% of supplies of the finished product. But post-2020 SA saw the closure and decline of refining capacity in SA.

In early July 2020, the Astron Energy refinery (previously ChevRef) in Cape Town suffered a major incident that shut down the facility. The shutdown continued through 2022 and by year-end start-up operations were under way.

The shareholders of the Sapref refinery (Shell and BP SA), in KwaZulu-Natal, planned to paused operations from the beginning of April 2022 amid plans to sell it. Unfortunately, severe flooding in late April damaged the plant. The status of repairs at Sapref remains unclear.

The PetroSA facility at Mossel Bay remains shut, but operations continue at Sasol’s Natref and Secunda refineries. Meanwhile, Engen has announced the conversion of its refinery to a world-class import and product storage facility as it repurposes the site.

SA’s refining capacity has declined by 50%, from 718,000 barrels per day (bbl/d) to 358,000 bbl/d of crude oil equivalent, resulting in more imports to fill the deficit and satisfy demand.

It’s clear from this that the energy transition is under way as far as the SA refining sector is concerned as the oil majors divest from legacy projects such as refineries and retail fuel stations across the globe, in line with their clean energy strategies and objectives.

According to the SA Petroleum Industry Association, the regulated price structure of the market, together with overriding regulatory pressures such as Cleaner Fuels Two requirements, environmental compliance and the carbon tax, as well as SA’s deteriorating infrastructure, are making it increasingly difficult for local operations to continue.

It is not feasible to invest in upgrading facilities in the absence of financial incentives. It requires government intervention to support refiners. Without these incentives refiners will run their plants until they can no longer meet required products standards and then terminate operations. This will have a severe effect on SA’s manufacturing and industrial base, as well as a large number of highly paid, highly skilled people and the various industries and linkages that serve the refining sector.

The sector generates over 70% of the oil industry’s GDP contribution, and accounts for over 78% of SA oil industry jobs. A total of 247,000 jobs are supported through the industry, with R163bn (3.2%) of GDP contributed to the economy in 2019 when all refineries were operational. This was larger than the economy of Namibia at the time, according to an economic impact assessment by FTI Consulting.

Imports

Shutdowns will result in SA becoming largely reliant on imports. Secunda is likely to be the only remaining facility, which will place increasing pressure on Durban’s port and associated infrastructure. The outlook for the port as a supply hub to service the liquid fuels requirements of the country (about 70% of liquid fuels imports are currently through Durban) is not favourable, and the risk to security of supply is therefore significant. Already some of the berths dedicated to liquid fuels are fully utilised, which suggests any interruption in production at either Natref or Secunda will result in stockouts.

Looking ahead to 2040, with demand increasing in Africa, meeting that demand is already proving challenging. Demand for oil products is set to continue to grow, as was evident with Eskom and its open-cycle gas turbines for power generation.

Major investments in new refining capacity in the form of a proposed new mega refinery between the department of mineral resources & energy and Saudi Arabia in Richards Bay, which may mimic projects such as the Dangote refinery, along with other major developments and upgrades for local refineries (Sapref and PetroSA), will help narrow the product shortfall and overreliance on imports.

In the transportation (81%), industrial (7%) and agricultural sectors (4%), which make up 90% of SA fuel consumption, the outlook for low-carbon energy solutions remains challenging. Electricity generation challenges, along with limited charging infrastructure, make internal combustion engine (ICE) vehicles the practical and affordable option for the vast majority of citizens today.

With time and innovation, low-carbon solutions will be rolled out across the transportation sector, but they cannot be scaled up to replace ICE vehicles in the near and medium term, especially in SA.

Indeed, with the exception of hydro and solar power, many clean energy alternatives have different levels of technology, commercial readiness and deployment.

Further challenges include price hurdles, as well as insufficient regulatory support. Importantly, parts of the supply chain infrastructure used in traditional fuels, if planned correctly, can be adapted to transitional fuels and lower-carbon energy including sustainable aviation fuels, liquefied petroleum gas for preparation and substitution for gas-powered power stations, and green hydrogen — and also benefit wider trade infrastructure in Richards Bay and Coega (ports and railways). This will complement, not displace, the decarbonisation of the power sector through resources such as wind, solar and hydro.

• Chigwedere is CEO of both Chigwedere Petroleum & Energy Corporation and the African Energy & Economic Youth Council.