According to Business Monitor International (BMI), despite South Africa’s substantial refining capacity, refined fuel imports will rise sharply in the next 10 years as smaller, lower complexity refineries struggle to remain cost competitive in increasingly saturated global products markets.
For 2013, BMI estimates refined fuel products production of 403 500 bpd. Refined fuels consumption is anticipated to be significantly higher, at 462 400 bpd. As the downstream sector struggles to grow production, domestic consumption will increasingly outstrip supply. From an estimated 58 900 bpd in 2013, BMI projects refined fuel imports to reach 96 800 bpd in 2018 and 139 500 bpd in 2023.
South Africa’s downstream has suffered from the relatively poor configuration of its refineries, BMI explains. However, refiners have proved reluctant to upgrade their facilities, given the high capital outlay involved and the relatively low returns on investment.
The Government is looking to tighten fuels emissions standards, which would require substantial upgrading at all four refineries, and could drive forward the necessary investment. However, little progress on the new emissions policy has yet been made.
According to the South Africa Petroleum Industry Association (SAPIA), operating costs at South African refineries are now on average 40% higher than at refineries in Western Europe and 100% higher than at new refineries in South East Asia. South African refineries are also more expensive to maintain, costing on average 37% and 400% more than their Western European and South East Asian competitors, respectively. Labour conditions are generally less favourable, due to the high unionization of the workforce, comparatively frequent industrial action and inflated wage costs.
South Africa also lacks the structural advantages of the major refineries in Asia and the Middle East, from where it imports the bulk of its refined fuels. South African refiners are typically smaller and do not benefit from the same economies of scale. Many refiners in South East Asia and the Permian Gulf also profit by access to low cost domestic feedstock, whereas South Africa has only limited domestic crude production. It’s low complexity refineries also largely rely on expensive, light sweet crude feedstocks.
Finally, midstream infrastructure is critically lacking. South Africa has limited refined fuels pipeline capacity and much of the refineries’ output is transported by road or rail, raising transport costs. The government has plans to build a new multifuel pipeline between the major demand centres in Johannesburg and Durban. However, to finance the project it recently increased pipeline tariffs, putting further strain on refiners’ margins.
BMI highlights that although refinery upgrades would answer many of the problems above, companies increasingly favour refined fuel imports. Several factors drive their preference.
Firstly, a major new capacity is brought online in Asia and the Middle East, global product markets are becoming increasingly saturated. With comfortable supply and slower demand growth, global fuels prices are declining. From an average annual global price of US$ 116.6/bbl in 2013, unleaded gasoline is expected to fall to US$ 107.30/bbl by 2018. For diesel, similar decreases are expected, from YS$ 124.80/bbl to US$ 114.30/bbl, over the same period. Hence, due to the poor cost competitiveness of South African refiners, global fuel imports are gaining in cost efficiency, compared to domestic output.
Secondly, there is a growing mismatch between fuels produced in South Africa, and the fuels consumed. South Africa’s basic refinery configuration offers a relatively high yield of low end products, such as residual fuels, and a lower yield of higher end products, such as gasoline and diesel, which account for the bulk of forecast demand growth. By 2023, net imports of gasoline and diesel are anticipated to reach 127 400 bpd, in contrast South Africa will remain a net exporter of residuals, averaging 21 000 bpd over the next ten years.
Adapted from a report by Emma McAleavey.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/21102014/south-africa-import-dependency-1467/