Major oil companies withdrawing from Southern Africa

BP is no longer trading in Kenya, Tanzania, Zambia, Zimbabwe, Malawi, Namibia, Swaziland, Lesotho, Botswana or Malawi.

In some of these countries had a BP presence for almost a century. Were all these BP associate companies suddenly unprofitable or was something deeper at work?

The sub-Saharan oil industry has registered the withdrawal from the region of major oil companies.

A clue could be the recent spat between Chevron and a new oil industry entrant in Cape Town in the shape of a black economic empowerment company called Burgan. Chevron claims it threatens the viability of their refinery with its ability to import, store and sell motor fuels.

Chevron’s complaints go further. Probably speaking for the other South African crude oil refiners, it points bitterly to the refusal or delay, by the government, to allow a “cost recovery mechanism” to make it worthwhile to upgrade local refineries to produce the higher quality fuels demanded by motor manufacturers.

Chevron argues that our regulated oil industry is a strategic asset with sacred status. It believes nothing should be changed without industry approval.

A more powerful reason for a reluctance to invest in new plant without a sweetener from the Treasury may be found in what has been happening in Saudi Arabia and India. In both countries there are now new and massive crude oil refineries producing, and selling to all comers, large volumes of motor fuels and other petroleum products.

The nearest customers for production surpluses of these huge refineries are in Africa, particularly those on its eastern seaboard – South Africa being the biggest.

The economies of scale is deadly. Saudi Arabia can undercut any refinery far from crude oil sources – such as those in Durban, Cape Town, and Gauteng. It can also produce the new higher quality fuel. Local refineries cannot do so.

South Africa’s crude oil refining capacity is 553 000 barrels a day. Saudi Arabia production is huge by comparison. Estimates are 3 million barrels a day and upwards. Some analysts (The Wall Street Journal) expect Saudi Arabian refining capacity to rise to 8 million barrels a day within a decade. Others predict 12 million barrels a day within 10 years.

Not only Saudi refineries pose a severe threat to our local ones. There are large ones in India too. In particularly the one recently completed by Reliance. It alone can produce more that all six of our refineries (including Sasol) combined. It has a reported capacity of 1.2 million barrels a day. It is the world’s largest.

Source: IOL