Shutdown of South Africa’s biggest fuel refinery — what it means for jobs and power cuts

The impending shutdown of the South African Petroleum Refiners (Sapref) joint venture between Shell Downstream South Africa and BP will result in thousands of job losses and help reduce the likelihood of load-shedding.

That is according to an analysis of the closure’s potential impact by well-known economist Mike Schussler.

Schussler said on Wednesday that the closure of Sapref would see the country producing less than 30% of the petroleum it did in 2005.

A chart shared by Schussler showed the country’s petroleum and nuclear fuel output had consistently hovered around 90-100% of 2005’s levels up until 2019.

But in 2020, this dropped to 70%, likely driven by Covid-19 reducing demand for petrol with strict lockdowns limiting people’s movement.

The downward trend continued in 2021 until production hit 55% of 2005’s levels.

The chart below shows the relative production output of petroleum and chemical products in South Africa compared to 2005.

Last year’s decline was likely due to Astron Energy and Engen shutting down their refineries in 2021 after fires at the respective facilities in July and December.

Executive director of South African Petroleum Industry Association (Sapia), Avhapfani Tshifularo, previously told S&P Global Platts the Astron Energy plant was likely to return to service.

However, Tshifularo said they expect Engen would convert its plant into an import terminal.

Sapref also had to temporarily pause operations due to the July riots cutting it off from the essential materials needed for refining oil.

The loss of Astron and Engen’s plants led to 40% of the country’s petroleum needs being met by imports.

With Sapref estimated to provide around 35% of the country’s crude oil refining capabilities, that figure could theoretically skyrocket to 75% unless Astron or Engen’s plants come back online.

It would leave South Africa with only two refineries — Sasol’s Secunda and Sasolburg facilities, which convert coal into petroleum.

Mineral resources and energy minister Gwede Mantashe recently said that the government was taking “drastic measures” to intervene in Sapref’s shutdown, but the exact nature of these steps are unknown.

Bloomberg has since reported that the Central Energy Fund is considering buying the refinery, citing sources close to the matter.

Sapref workers

Schussler blamed higher input prices, economic policy from 1918, and July’s riots in Durban for scaring of investment in South Africa’s refineries.

Tshifularo said the lack of investment in refineries has resulted in crucial upgrades to process cleaner fuels being “up in the air”.

Instead, petroleum players in South Africa were more likely to increase their appetite for imports, as converting a refinery into an import facility was 75% cheaper than upgrading.

Schussler said the decline in production had already cost 15,000 jobs in the sector, while another 15,000 cuts would occur due to Sapref’s demise.

He also warned that the “Other Chemicals” segment, which was once South Africa’s biggest manufacturing export sector and the fastest-growing, had also seen its growth flatline.

Impact on load-shedding

On the flip side of the coin, Schussler said the refinery’s shutdown would mean less demand on Eskom’s grid.

Production facilities and mines are among South Africa’s biggest power consumers.

“The good news is that from the end of March, South Africa will in total use 3.5% less electricity that Engen, Astron, Mossgas and Sapref will no longer use,” Schussler stated.

“South Africa will and already has avoided some load shedding due to that. Add the aluminium smelters, and South Africa is now using about 8% less power.”

Experts have also warned the closure could also see significant increases in the costs of road repairs.

That is because South Africa will likely have to import more bitumen, also known as asphalt, an oil refining by-product.

Now read: Shell and BP “greedy” for shutting down South Africa’s biggest fuel refinery — Mantashe

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Shutdown of South Africa’s biggest fuel refinery — what it means for jobs and power cuts