Transnet subsidiary Petronet is to spend at least R3-billion on a new pipeline to move petrol, diesel and jet fuel from Durban to Gauteng, in a move that is expected to shake up a fuel market still shaped by apartheid-era logistical constraints.
The company confirmed this week that Transnet had approved R3-billion for the project. Nhlanhla Gumede, chief director for hydrocarbons in the Department of Minerals and Energy, said the cost could run as high as R5-billion.
Gas and liquid fuels transport capacity is among the most contested issues in the local industry, with inland refiners — essentially Sasol — and the coastal refineries constantly battling for space to move their products. The proposed project will double the volume available between Durban and Johannesburg.
New capacity, it is hoped, will break Sasol’s stranglehold on fuel supply to the country’s economic heartland.
On the other hand it may also smooth the way for Sasol’s proposed merger with Engen to form Uhambo Oil, by fundamentally increasing the scope for competition in the wholesale fuel market — currently a substantial obstacle to the deal.
But the project is still in its early stages and faces several hurdles — including a view in the Department of Minerals and Energy that it might make more sense to start the pipeline from Richards Bay or Maputo because relying on one port (Durban) for all supplies is too risky, Gumede said.
The Highveld — which accounts for 40% of national fuel consumption — is currently serviced by two pipelines. One moves crude oil from Durban to the Natref refinery in the Free State. The other transports refined product, also from the east coastal plants of Engen, Shell and BP towards Gauteng, but demand along the way means it is all but empty by the time it reaches Sasol’s giant plant at Secunda. Sasol then fills it up and sells its product on to retail franchises operated by other fuel companies.
Shell, BP and others are no longer required by law to meet a percentage of their requirements from Sasol, but lack of space in the product pipeline means that, short of trucking petrol in from the coast, they have no practical alternative. Industry executives say this gives Sasol extraordinary leverage in pricing negotiations, which it is not afraid to use.
PetroNet CEO Charl Moller said the company’s mandate is to manage capacity in such a way as to ensure that physical constraints do not become bottlenecks in economic growth.
“We plan to start work in 2006 and complete it by 2010. Our models show that, by that stage, the capacity will be used up.”
At present, he said, the Durban to Johannesburg product line is full, but the crude oil line, which can also be used to move refined products, is not.
“There is enough capacity to supply the Highveld until 2010, the current constraint is a market constraint,” Moller added, alluding to bruising, but largely unproductive, negotiations between Sasol, Natref (in which Sasol owns a major interest) and coastal refiners over supply lines.
Gumede said the new pipeline will give coastal refiners the opportunity to get their own product to the Highveld, and improve security of supply.
While Sasol may lose some of its power at the negotiating table, it may benefit from the removal of objections to the merger of its fuel sales business with Engen.
Gumede explained that other fuel companies are currently objecting to the merger on the basis that it consolidates control of both wholesale and retail markets by combining Engen’s huge retail network, with Sasol’s dominance of wholesale.
“If they could get their own product to the Highveld, the competition argument falls away,” he said.
But Gumede warned that there is a view — not yet policy — that the pipeline should start somewhere other than in Durban to spread risk.
“Maputo is interesting, but complicated because of border issues, although there is already a pipeline servitude [for natural gas] and we want to develop the Maputo corridor,” he said, but Richards Bay and other local ports are also being considered.