Without question, one of the more maddening energy challenges currently confronting South African policymakers relates to the best timing for the introduction of new oil-refining capacity.

In a recent address, Minister in the Presidency Responsible for the National Planning Commission Trevor Manuel acknowledged that the issue of liquid fuel security was a “complex area of policy and planning”.

He also admitted that the country had already run out of refining capacity and that new and cleaner capacity would have to be introduced in the longer term. But the prevailing low global refining margins were making it extremely difficult to time the investment decision. “Too early and we will spend lots of money with little benefits, too late and we will unduly raise costs for motorists”.

Adding to the complexity is the debate around feedstocks. Should South Africa raise its fuel capacity using coal, gas, oil, or biofuels – or should it simply import the refined product.

The immediate urgency has been lessened through the introduction of Transnet’s expensive and oversized new multiproduct pipeline, which started operating earlier in the year and will be ramped up to full capacity in the coming months. This enables the country to meet its refined product shortfall through higher levels of final-product importation.

However, given the volatile nature of the global liquid fuels market (epitomised recently by the debate and price changes associated with the possible imposition of global sanctions on Iran) how long can South Africa wait before making a call?

Here the opinions vary widely.

On the one hand, South Africa’s national oil company, PetroSA, believes it is past time to make an investment decision regarding its proposed 360 000 bl/d Coega refinery, which could cost R200-billion to develop. It argues that the higher and higher import levels is already placing an increasing burden on South Africa’s current account and will, ultimately, have an impact on security of supply. In other words, the situation is undesirable and unsustainable.

On the other hand, South Africa’s existing refiners, comprising many of the world’s oil majors, are arguing against pressing ahead and have also argued that South Africa may be better served through an investment into the existing refining base.

Leading the opposition to an immediate decision is BP, which has questioned the economic logic of South Africa’s plan to build a new crude oil refinery. It says such a development would go against two key global trends: the prevailing surplus of refining capacity and the expansion of the international trade in liquid fuels.

It also argues that South Africa needs to weigh up all its capacity addition options before proceeding with the PetroSA plan and argues that the window for adding new capacity is between 2020 and 2030, rather than now.

In the meantime, the Department of Energy had also initiated an audit of South Africa’s refineries to determine the “real status” of their production capacities and capabilities. The audit, the department says, will inform a 20-year infrastructure road map that will be completed by year-end.

As I argued earlier it’s a maddening challenge. It is also one that is probably best resolved through an open dialogue involving all the main protagonists, with government as arbiter rather than shareholder. Unfortunately, though, the current climate appears more adversarial than collegial.