Oil majors seek help for S.Africa refinery upgrades

* S.African crude oil refineries push for incentives

* Govt expected to release new fuel specs before Dec 31
* Up to $4 bln needed to upgrade existing plants

By Wendell Roelf

CAPE TOWN, Dec 7 (BestGrowthStock) – South Africa’s four crude oil
refineries need up to $4 billion for a cleaner fuels upgrade,
but companies such as Shell (RDSa.L: ), BP (BP.L: ) and Engen want a
cost-recovery deal before investing, an industry body said on
The South African Petroleum Industry Association (Sapia) is
representing major oil companies in talks with government on the
roll-out of new Euro 4 or Euro 5 fuel specifications, designed
to reduce harmful exhaust emissions.

Government, which controls the retail price of petrol and
wholesale price of diesel, is expected to release draft
regulations before year-end as it ramps up a cleaner fuel drive
since eradicating lead from petrol in 2006.
Besides the lack of clarity on what fuel specifications will
be gazetted for public comment, oil companies are also seeking
some sort of return on their investments, Avhapfani Tshifularo,
Sapia’s executive director told Reuters.

“If you think about future clean fuels, if you want to
invest you expect a return. Unfortunately with this type of
investing the return is almost nil,” Tshifularo said.

“We need a cost-recovery mechanism and for government to
introduce incentives, such as lowering its fuel tax or
increasing the cost of fuels at service stations and passing
that on to oil companies,” he said.

Africa’s biggest economy is also a net importer of petrol
and diesel, with future demand seen rising rapidly from an
estimated 3 billion litres currently imported.

Market leader Engen, with about 26 percent of South Africa’s
petrol and fuel sales, said it would cost in the region of 10
billion rand ($1.44 billion) to upgrade the country’s second
largest refinery in Durban, the 125,000 bpd Enref plant.

“Everybody needs to make massive investments but there is no
return on the investment for oil companies and that’s why I
think nobody is coming forward with proposals at existing
refineries,” said Dave Wright, corporate planning general
manager at Engen, which is majority owned by Malaysia’s national
oil company Petronas [PETR.UL].


Wright said Engen believed the cost of fuel at pumps would
need to increase by a 30 cents average for its Enref upgrade to
be attractive. The upgrade will mainly target increasing the
octane production capacity and boosting sulphur removal.

“Government, including national treasury, will first need to
study all cost-recovery options before a final decision is
made,” said Tseliso Maqubela, the department of energy official
responsible for petroleum products.

He added government was mindful of passing additional costs
on to motorists as South Africa slowly emerges from its first
recession in 17 years.

Oil companies, supported by automobile manufacturers geared
towards exports, are in favour of the gradual implementation of
the new regulations over a five-year period, where a specific
amount of higher grade fuels could be imported.

“This notion of transition fuels is not one that’s been
agreed to yet by government. It has been proposed to them and
they are considering it… and we think the transition fuels
approach is a sensible way to go,” Wright said.

For a factbox on South Africa’s refining sector, see
(Reporting by Wendell Roelf)

Oil majors seek help for S.Africa refinery upgrades