Venezuelan president Hugo Chavez is set to jet into South Africa this week to sign a bi-lateral energy agreement with the government that could see PetroSA establish oil production capacity in the South American country.
This could be one of the first preferential concessions that Venezuela has granted outside of Latin America. The country has given subsidised oil deals to a number of South American trading partners, including Argentina, Bolivia, Paraguay, Cuba and Uruguay.
But experts question whether South Africa will be able to capitalise on any oil that might come out of the deal as well as what Chavez will be expecting in return from South Africa — in terms of political support for his country.
The deal, which will see Chavez sign a memorandum of understanding with South Africa, will open the way for PetroSA to acquire oil-producing assets in Venezuela, said Everton September, vice-president of new ventures at PetroSA.
Early media reports suggested that PetroSA will be entitled to a short-term allocation of crude oil until more details are finalised regarding opportunities such as offshore natural gas exploration and commercialisation of the PetroSA’s gas-to-liquids technology.
But September said that this is not the case. ”Everything is subject to negotiation,” he says. ”We would like to negotiate an operational asset in the area of hydrocarbons. We would like to get, as is normal with these types of concessions, the highest amount of recoverable oil.” What that amount might be he could not say.
Lyal White, research associate and expert on Latin America at the Institute for Global Dialogue (IGD), said the agreement is an important ”symbolic gesture” between the two countries, but the technicalities of the arrangement ”could be more complicated” than they appear.
One important concern, said White, is the fact that the grade of crude oil found in Venezeula is a far denser type of crude known as heavy crude oil.
South Africa’s oil refineries are designed to process light crude oil and White said that the investment required to capitalise on this deal might be more expensive than they are worth. September said that PetroSA is well aware of this fact.
”How we overcome that technically is part of our strategy. We are aware that it’s heavy crude and we would try and make it work in terms of South Africa’s refinery infrastructure.” He hinted that any future oil supply could be earmarked for PetroSA’s Coega refinery, also known as project Mthombo, scheduled to come on-stream in 2015.
”We are designing the refinery so that so that heavy crude can be used as a feed stock,” he said.
He said that time between gaining a concession and the first production of oil takes about five years. ”This is not an overnight process,” he said.
Earlier this year PetroSA stated that the projected refining capacity at the Coega plant would be about 400 000 barrels a day.
The South African Petroleum Industry Association puts our refining capacity at 660 000 barrels a day. Project Mthombo could increase South Africa’s oil refining capacity by more than 50%. But White said although South Africa should engage with Venezuela, ”we should engage with caution”. ”[Chavez] will expect political support, in particular support for Venezuelan expansion into Africa.” He also said that Chavez could be looking to harness greater affinity with South Africa’s emerging leadership, particularly within the ANC.
But September said that one of South Africa’s biggest challenges in the future is security of fuel supply.
”Since we are not an oil-producing country, the benefit [to South Africans] will be in securing supply,” he said.
”The way to mitigate that cost is to have our own production capacity, even if it’s in another country, rather than being a permanent customer for oil. If we can gain a concession and produce profitably, that will benefit the country.”
