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SA also has some big decisions to make regarding liquid energy

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SA also has some big decisions to make regarding liquid energy

19th March 2010

By: Terence Creamer
Creamer Media Editor

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South Africa’s energy infrastructure environment is in a serious state of flux. Citizens are all too aware of the crisis regarding electricity. But we are probably less alive to the fact that some serious decisions are also looming in the area of liquid fuels.

Fortunately, the debate is starting to percolate through to the public domain, thanks, in part, to BP Africa, which has raised serious misgivings about the wisdom of pushing ahead with preparations for a $9-billion to $11-billion investment into a 400 000-bl/d oil refinery at Coega, in the Eastern Cape.

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The oil giant has made a strong case for government to delay further planning until a far-reaching review is conducted of all South Africa’s supply-side options, including the expansion of existing refineries.

But the group subsequently announced that it intended exiting its refining and marketing businesses in Namibia, Malawi, Tanzania, Zambia and Botswana to focus all its downstream energies on Mozambique and South Africa.

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PetroSA, which is a strong advocate of a new greenfield refinery, dubbed Mthombo, believes the time is ripe for a serious decision on the refinery. The State-owned petrochemicals company has already spent some R250-million on studies into the project.

It is now seeking board and government sanction, as well as fiscal support, to spend a further R2,4-billion to complete the so-called front-end engineering design. Should such approval be received, the national oil company believes that South Africa will be in a position to make a final investment decision by early 2012.

It has constantly warned that South Africa should not place an overreliance on the oil majors and their megarefineries for future fuel security. In fact, it even argues that it would be a strategic error to leave Africa, which is emerging as a key crude-oil force, with little or no modern refining capacity.

PetroSA warns that, unless an investment decision is made in 2012, South Africa could also run security of supply risks, while the existing refineries would not be in a position to meet surging diesel demand nor tightening fuel specifications.

On the other hand, BP Africa and others argue that, given that the National Treasury is being asked to dip into its already stretched resources to finance the next phase, all the options should be considered.

A similar position has been taken by coal-to-liquids group Sasol, which has its own inland 80 000-bl/d refinery aspirations and which will probably also have to lean on government for some support for its Mafutha development, which could be pursued in Limpopo province.

Indeed, it is increasingly certain that, whichever option is eventually pursued, there will be an element of subsidy, with taxpayers and/or consumers having to foot the bill.

How Urgent?
So the question then is how urgently do we in fact need to move in this regard? I believe the answer for government and PetroSA is more financial than having to do with an imminent security of supply threat.

The reason I say this is that, despite the recently announced one-year delay and budget increases on Transnet’s new multiproduct petroleum pipeline (NMPP) from Durban to Gauteng ( the project will now cost R15,42-billion, and only be fully completed by December 20, 2012, instead of December 20, 2011), there is still likely to be sufficient capacity to meet demand in both the near term and the longer term.

In the short term, the mitigation plan is based on the simultaneous use of the existing, but aged, Durban-to-Johannesburg pipeline (DJP) at a lower rate of operation than is currently the case, together with the partial introduction of 24-inch NMPP trunk line capacity as a single-product (diesel) line.

The NMPP will operate at a flow rate of 500 m3/h, while the flow rate of the DJP would be decreased from 520 m3/h currently, to 400 m3/h in 2011 and 2012.

Road haulage will continue, but should decline markedly in 2011 and 2012 as the NMPP infrastructure is phased in. In fact, Transnet says that road and rail alternatives have already fallen from about 2,5-billion litres in 2006 to around 1,1-billion litres last year on the back of lower demand. It is also unlikely to recover in line with a return to economic growth, owing to the introduction of the new capacity, albeit at a delayed rate.

In the longer term, the full NMPP will have the have the capacity to handle 1 000 m3/h, scalable up to 3 000m3/h through the addition of new pumpstations.

In other words, the pipeline is sufficient for immediate needs as well as needs well into the future whether the product is actually manufactured locally, or imported from the megarefineries of the Middle East and Asia.

Missing Link
Further, should the Coega refinery be built, a key constraint would relate to the movement of that final product to where the demand actually arises: the inland market.

In other words, it will only make sense if the fuel can either be piped up to Gauteng through an entirely new pipeline, or if it can be linked into the existing NMPP either through a pipeline, or through sea transport from the Port of Nqgura to Durban harbour.

Therefore, the Coega plan lacks a key security-of-supply element – a component which is arguably already in place for either a fully imported solution or a combination of imports and local manufacture at upgraded existing assets.

That said, it is likely to make some financial sense to proceed with planning for Mthombo, owing to the fact that engineering services are currently more affordable in light of the recent economic crisis, while it could also be possible to lock in lower costs for key long-lead equipment.

Further, a strong case can be made for South Africa to bite the strategic bullet and ensure that Africa is not stripped entirely of modern refinery capacity and that it begins to beneficiate some of the growing volumes of crude emanating from within the continent.

It is a difficult choice, but one that has to be made. And, as the power crisis has demonstrated, the sooner such decisions are made, the better.

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