With time running out, the Department of Energy (DOE) has still to finalise the questions of a cleaner fuels strategy, increasing refinery capacity or importing refined products as well as decide on a carbon tax strategy. These are immensely challenging decisions that need to be taken soon if South Africa is to remain competitive and capable of growing the economy, assuring fuel safety and fulfilling our role as the largest economy in Africa.
Way back in April 2010, the DOE told parliament that following discussions with the National Association of Automobile Manufacturers of South Africa (NAAMSA) and the Sout African Petroleum Industry Association (SAPIA), a strategy for cleaner fuels would be announced by December 2010. At the time of writing, other than eager anticipation of an imminent announcement, there is no reliable indication of when the DOE will announce what it calls their commitment to improving people’s health and improving the performance of petrol and diesel engines.
Deciding on the specifications of cleaner fuels to meet the country’s needs should be a fairly straight forward matter once NAAMSA has indicated what its members will require in terms of sulphur content, particles and other relevant factors to suit the Euro 4 and Euro 5 technology they are champing to introduce.
This is the vital step that needs to be taken before SAPIA can address the question of how best to upgrade some – or all , of the existing local refineries or support the building of a new mega refinery or even a combination of both options. Whatever is decided, it will take at least five years from the time all the ducks are in a row and gaining access to billions of Rand to make it happen.
This, of course, is not as simple as it sounds. There are numerous questions to be addressed including: fuel security, transport and distribution , particularly for Gauteng and North West where a large share of the liquid fuels market must be assured. Then there is the agonising choice government must make as to whether it should support the PetroSA project to build a 400 000 bpd refinery at Coega, or choose to go in the opposite direction that foresees major upgrades of at least some of the existing refineries and importing refined products to cover the shortfall in meeting the country’s needs. South Africa already imports a few billion litres of refined diesel every year to meet existing demand.
The nature of South Africa’s economic structure and development creates a significant demand for diesel far away from the coast. Most of the refineries are located at the coast, close to where imported crude oil can easily be transported or transferred to a refinery. There is an existing pipeline from Durban to Gauteng. This aging pipeline is capable of transporting refined products or crude oil. However, it is showing severe signs of stress and is presently operated at below the optimum level.
A new pipeline is under construction but has encountered delays and has a long way to go before it can be commissioned. BPSA and Shell Oil, joint owners of Sapref, are said to have approached the DOE to reconsider the PetroSA’s 400 000 bpd project and rather invest in Sapref, thereby creating a joint venture with government to upgrade the facilities to introduce cleaner fuels.
BPSA has for some time promoted the notion that excess refining capability in China and India will provide ongoing access to importing refined product. Followers of FuelWatch will recall the question of ‘˜refine or import and store’, has been discussed in previous issues. However, with the efflux of time, the need for the DOE to put this issue to bed has become a priority.
As the South African economy recovers and several neighbouring countries show impressive GDP growth, the demand for diesel will grow. The BPSA stance presupposes that the PetroSA refinery would make the country a net exporter of refined product at a time when there is likely to be a glut of refined product from various sources including some in Africa.
BPSA also believes the cost of a large local refinery cannot be economically justified. However, creating sufficient local refining capacity says a lot for ensuring fuel security. PetroSA say it can go to the markets in search of investors. China has already indicated it would be an interested player. Increased local refining capacity would inevitably reduce BPSA’s and other oil majors’ market shares from both their local refineries and the opportunity to import refined products.
Various vehicle importers are not happy with the slow progress towards finalising the cleaner fuels strategy. They want to get on with bringing to the market cleaner burning engines and making a further contribution to improving fuel consumption. This is so much so that Scania has introduced Euro 4 technology that operates well on our current 50 ppm diesel. Mercedes-Benz has introduced some Euro 5 powered trucks to demonstrate the benefits of the AdBlue technology.
The DOE, in finalising its decisions, needs to focus on what is best for the country and the future of our economy by including the input and commonsense of those that drive the logistics, transport, agricultural, mining and construction industries and not be confined to two of the most powerful agendas in the world.