Saldanha Bay oil storage, one of the biggest in the world.
Home BlogGasSaldanha Bay oil storage, one of the biggest in the world.

Saldanha Bay oil storage, one of the biggest in the world.

OilSouth Africa establishes new sources

The visit by South African President Jacob Zuma to Algeria a week ago gave a glimpse of an ongoing shift in the country’s oil relations with other countries. For the past decade or so, the focus has increasingly been to lessen dependency on traditional sources, while engaging new sources in Africa and elsewhere. Other considerations regarding the country’s fuel security have also come into play as oil in South Africa is fast becoming a whole new ball game.

Historically, South Africa has imported most of its crude oil from the Middle East, with a number of major multinationals such as BP, Shell, Caltex, and Total maintaining a dominant presence in the country.

Engen is another player that emerged as a domestic company when Mobil disinvested during the apartheid sanctions years. Engen has since been taken over by Malaysia’s national oil company, Petronas, with which the South African government has a close relationship.

Sasol developed into a major South African oil company in the 1960s, and in recent years into a global player. It supplies fuel-from-gas for the domestic market.

By 2001, Mossgas and Soekor were merged into state oil and gas company PetroSA in a rationalisation of the state’s commercial interests in this sector. PetroSA is involved worldwide in oil and gas exploration, while both Sasol and PetroSA are involved in importing gas and producing liquid fuels from gas.

PetroSA, alongside the Strategic Fuel Fund Association, the Central Energy Fund, and the Petroleum Agency South Africa, all play various roles relating to oil procurement, storage, exploration, marketing and distribution. This includes managing the Saldanha Bay oil storage facility, one of the largest of its kind in the world, built in the apartheid era to counter sanctions.

Apart from exploration, PetroSA operates two offshore oil fields near Mossel Bay as well as various gas fields along the southern African coast. Multinational oil companies in South Africa also operate a well-developed refining and downstream oil industry. However, their refineries at Cape Town and Durban are ageing and becoming less competitive.

In recent years – because of geopolitical volatility in the Middle East – South Africa has worked toward reducing dependence on oil from Iran by increasing imports from Yemen, Qatar, Iraq, Kuwait, United Arab Emirates, Egypt and Saudi Arabia. At the same time, it has tried to lessen overall Middle Eastern imports and spread its sourcing increasingly to non-Middle Eastern countries.

Imports now come from African countries, South America, Russia and others.

This shift in focus has seen a number of significant oil deals being concluded recently. The first major, and controversial, was in September 2008 when President Hugo Chavez of Venezuela visited South Africa. The two countries agreed to co-operate in oil and gas exploration in Venezuela, refining Venezuelan oil at South Africa’s proposed new refinery at Coega in the Eastern Cape, investment by Venezuela’s state oil company in a local refinery and storage facilities, PetroSA sharing its gas-to-liquids technology with Venezuela, and more.

The announcement heralded another important step toward lessening South African reliance on oil from the Middle East. And there were distinct advantages for South Africa relating to the government’s concerns regarding security of oil supply as outlined in itsEnergy Security Master Plan for Liquid Fuels that had been released shortly before.

The South African government at the time also believed that Venezuelan oil processed by PetroSA for local consumption would help reduce domestic fuel prices.

In August 2009, during bilateral trade talks, South Africa and Angola signed a number of trade agreements, including co-operation in the oil sector. The oil agreement would allow Petro SA and Angola’s Sonangol to work together in oil projects, said Angolan President Jose Eduardo dos Santos at the time.

The state-owned oil companies would work together in the areas of exploration, refining and distribution of oil, it was announced.

With Angola already challenging Nigeria as Africa’s largest producer of crude oil, and having enormous hydroelectricity potential, energy was said to have been a key area of discussion. And Brazil and China, two countries with which South Africa has recently been enjoying beneficial and vastly increased trade relations, are already involved in the reconstruction of Angola, including its oil interests.

Shortly after the Angola agreement was signed, it was announced by the Industrial Development Corporation (IDC) in an economic report that South Africa’s trade with the world’s four largest emerging markets – Brazil, Russia, India and China (BRIC countries) – had increased from $20.3 billion in 2001 to about $162bn in 2008. Among the bulk of these imports, excluding China, were crude oil and non-crude petroleum products.

During President Zuma’s visit to Algeria last week, he signed, among other things, a memorandum of understanding involving increased trade and co-operation between PetroSA and Algeria’s Sonatrach.

PetroSA has been involved in oil production in Nigeria since 2004 and it was said some time ago that the company would be pursuing an interest in two oil blocks in the Democratic Republic of Congo (DRC).

In April, President of the Republic of Congo (Congo-Brazzaville) Denis Sassou-Nguesso announced in Pretoria that the South African company would be given oil production rights in his country.

Equatorial Guinea is another African country with which South Africa has in recent years been stepping up its trade relations, believed to also involve oil.

In addition, PetroSA and Sasol are already importing gas, mainly with a view to boosting the local gas-to-liquid fuel production. These imports will assist to extend the life of PetroSA’s gas-to-liquid refinery at Mossel Bay.

Apart from that, PetroSA has focused its natural gas exploration activities in southern Africa, and exploring for oil in Egypt, Sudan and Equatorial Guinea.

Sasol Synfuels and Qatar Petroleum (QP) signed an agreement to jointly construct an $800-million gas-to-liquids plant.

A development that is symptomatic of the changes taking place in South Africa’s oil supplies is the fact that, after years of secrecy, overriding political and security considerations and protected monopolist practices, the fuel industry in South Africa is heading for a new showdown as competing players variously promote and resist new options in a changed global and local environment.

While state-owned PetroSA wants the government to invest billions of taxpayers’ rands in a new 400 000 barrels-per-day refinery at Coega, known as the Mthombo Project, one of the largest petroleum groups active in South Africa, BP Africa, is cautioning the government against approving the refinery project of more than R77bn.

In fact, BP chief economist Christof Rëhl recently visited South Africa to promote BP’s argument that the proposed refinery would cost a great deal of money for relatively little employment and would not improve anything.

BP also argues that the costs are likely to be much more than envisaged, and that there is a surplus refinery capacity worldwide at present which is likely to be the case beyond 2020.

A new refinery now would be an unfair burden for taxpayers, the company argues, and calls for a comprehensive review of all supply-side options that could have far-reaching implications for the industry. It maintains that the surplus capacity is such that a new refinery would hardly improve South African fuel security.

But the government has so far rejected objections from oil companies such as BP. Last month, Energy Minister Dipuo Peters said the project was key to providing a solution to domestic liquid fuel challenges. According to her, it would address the gap between demand and supply, further reduce the dependence on imported finished product, and promote new standards for clean fuels.

PetroSA has also maintained that building the Coega refinery is the most sustainable solution for meeting the country’s need for supply-side security and improved fuel quality. Of course, PetroSA is also concerned about the fact that it has already spent more than R250m on the project, with a further pending investment of R2.4bn to complete the front-end engineering design of the project.

On the other hand, it is widely suspected in industry circles that BP and the other large oil companies operating in South Africa have every reason to resist the competition from a new player which could cut heavily into their super profits, particularly as their conventional refineries are ageing, uncompetitive and not living up to the latest emissions standards.

Mthombo, some say, could threaten the very existence of the oil multinationals in South Africa.

On the local oil exploration front, after years of showing no interest it, it seems Petro SA’s activities, along with new foreign partners, may have prompted the oil giants into action. It has just been announced that Shell hopes to explore for oil and natural gas over an extensive area of South Africa’s West Coast. With seawater depth in the proposed region ranging from 150m to about 4 000m, this is likely to be the deepest that Shell has ever prospected for oil.

Indeed, when it comes to South Africa’s oil interests, the times they are a changing.


News sponsored by West Coast Office National