The South African Petroleum Refineries, which boasted 35% of the country’s crude oil-refining capacity, announced that production had stopped at the end of March. Photo: ALEXANDER JOE/AFP via Getty Images)
Southern Africa’s largest oil refinery, South African Petroleum Refineries (Sapref), is on the market after owners BP and Shell shut it down at the end of March. The closure of the site until it finds new ownership highlights the dire shortage of refineries on the continent.
The Sapref news comes as African oil giant Nigeria struggles with fuel shortages, partly as a result of not having enough of its own refineries.
Africa has fewer than 50 refineries, according to a McKinsey’s Energy Insights report, and the number is rapidly dwindling.
According to analysts who spoke to the Mail & Guardian, Africa’s crude oil production is more than enough to meet demand, but the problem is the low refining capacity, which forces the continent to export a large amount of its raw output and rely on refined imports to satisfy its own needs.
The oil-refining industry contributes to the production of transport fuels such as petrol, kerosene and diesel. It also produces other products, including lubricants for motor oil, wax, and liquefied gases, such as propane.
Relying on imports of refined oil makes African countries vulnerable to fluctuations on global markets. This has been evidenced by the ongoing war in Ukraine which has affected international fuel prices after crude oil rose to as high as $139 a barrel.
To try to secure South Africa’s energy reserves in the face of rising global oil prices, parliament’s portfolio committee on mineral resources and energy recommended that the government consider building a refinery.
Refineries lost to fires
South Africa has four crude oil refineries, one coal-to-liquid fuels refinery and another one for natural gas-to-liquid fuels. Four refineries have closed, either due to fires and explosions or no longer being economically viable.
The Sapref refinery, which boasted 35% of the country’s crude oil-refining capacity, announced that production had stopped at the end of March. KwaZulu-Natal Premier Sihle Zikalala said the province had begun talks with the owners and the national government to purchase the refinery.
Independent energy consultant Niall Kramer rubbished the premier’s proposal, saying . “
Sapref’s closure would likely not have an immediate direct impact on motorists, “because the import arrangements for finished product and their obligations to customers will still be met”.
“The KZN premier’s proposal is ridiculous. If Shell and BP could not make that refinery viable, how does the South African government think they can do that?” Kramer asked.
Elsewhere, Engen’s refinery has been shut since a fire and explosion in 2020. Production at Astron Energy in Cape Town has been halted since another fire the same year, and the Mossel Bay Refinery has been out of production ever since it ran out of offshore gas feedstock, also in 2020.
“The reason the South African refineries are shutting down is economic,” said Dave Wright, the consulting director of the South African Energy Association, noting that the government has said new clean-fuel specifications must be implemented from 1 September 2023.
The government last year gazetted new petroleum products specifications and standards that command the use of ultra-low sulphur petrol and diesel products. Although it is a positive move for the country’s air quality and people’s health, the new limits will have far-reaching consequences for the fuel sector, with thousands of jobs at risk if refineries close, the Mail & Guardian previously reported.
“Everyone has looked at the economics and decided that it is not worth their while to make the investment [in refurbishing and upgrading refineries] for essentially no return and, as a consequence, they have decided to shut the refineries down,” Wright said.
Green-energy laws discourage investment
With new green-energy laws taking root, the owners of refineries have little incentive to cling to investments that have turned sour as countries opt to import finished products.
“If you look at the global system, there is more than enough product to be able to meet the security-of-supply requirements by importing [refined] product rather than importing crude. If you look at the overall refining capacity of the world, it is 100-million barrels a day. Last year, only about 75% of that capacity was used,” Wright said.
Even as they bite, the soaring oil prices as a result of Russia’s invasion of Ukraine are probably not reason enough for African countries to repair or build more of their own refineries, analysts said.
“For example in South Africa, most of our refineries are actually not refining. But it is still more attractive for them to buy refined products such as petrol, diesel, kerosene [and] jet fuel on the open market overseas,” Kramer said. “So, if you can import at a lower rate and lower cost for what you make it for here, then clearly it is to your advantage.”
Wright concurred, saying there was a prevailing myth in South Africa, particularly in the department of mineral resources and energy, that security of supply could be guaranteed only by importing crude:
“I don’t think this is correct. We can be comfortable with importing finished products,” he said.
Wright conceded that the recent oil-price hikes had been a shock to the South African system, forcing the government to take a R1.50-a-litre cut out of taxes. However, he added, there would have been an effect even if the country had more operating refineries, because costs are based on international prices.
African giant not spared
Unlike South Africa, Nigeria is rich in crude oil, being the largest oil producer in Africa and the sixth-largest global exporter. Regardless, it has not been spared the fallout from Russia’s invasion of Ukraine. The West African country imports refined fuel products as its four refineries have been rendered defunct.
Two refineries in Port Harcourt that act as one, as well as one in Kaduna and one in Warri have all been shut for repairs since early 2019. Production is expected to resume only in 2023.
According to market and consumer data platform Statista, Nigeria led the import of petroleum products in Africa in 2020, with a volume of about 466 000 barrels a day.
“The refineries that do exist in Africa tend to be very inefficient. While we have crude and the gas resources in Africa, it’s very expensive to roundtrip that crude and send it somewhere else, to Europe or the US or the Middle East, to have it refined and sent back. It is one of Africa’s tragedies,” Kramer said.
According to Wright, Nigeria’s state-owned refineries have never been run properly and have had a poor track record over many years.
“They have run intermittently at times and the NNPC [Nigerian National Petroleum Corporation] has done lots of different things like outsourcing maintenance and outsourcing operations,” Wright said.
In 2013 Nigerian Aliko Dangote, who is Africa’s richest man, announced that he would build the country’s first privately owned refinery. Dangote Oil Refinery, set to be completed in the third quarter of 2022, will be the biggest on the continent with the capacity to process 650 000 barrels a day (bpd).
“The real test for Nigeria is the Dangote refinery. If it can end up running on a continuous basis, which I am sure Mr Dangote will be able to do because he has been successful with all his other investments, then the answer to the question of why the other refineries don’t work could just be that Mr Dangote has the right people to do the job and NNPC hasn’t been able to get the right people,” Wright said.
Kramer added that the Dangote Oil Refinery was a “very very big and audacious project and that could, if it’s well governed, manage to tighten up the value chain around the refinery. It could significantly change Nigeria’s fate.”
Anathi Madubela is an Adamela Trust business reporter at the M&G.
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