South African refineries are facing severe competitive pressures. They operate under higher energy and personnel costs than Western European and South East Asian refineries, despite lower electricity rates, and investment to upgrade the ageing refineries is also constrained, says South African Petroleum Industry Association chairperson Avhapfani Tshifularo.

“Investment in refining in South Africa is constrained because it is informed by the slow progress towards clean fuels regulations in the country. Regulation drives investment in refining, as evidenced by the move towards clean fuels in Europe and the commensurate investments in refineries.”

Investment in the petroleum sector in South Africa will be driven by government regulations, clean fuels legislation and the need for petroleum companies to meet air quality and minimum emissions standards, but the slow pace of government in establishing clean fuel regulations is hampering investment, says Tshifularo.

Operating costs at South Africa’s four crude oil refineries, which have an average age of 36 years, are 40% higher than those of Western European refineries and 100% higher than new-generation South East Asian refineries.

“Energy consumption is 30% higher than that of Western European refineries and 40% higher than that of South East Asian refineries. The ages of our refineries does contribute to this, but age is not the only factor, as many Western European refineries are of similar age.”

The cost of maintenance at South African refineries is also 37% higher than that of Western European refineries and four times higher than maintenance costs at the new- generation South East Asian refineries, Tshifularo emphasises.

“Salaries at South African petroleum refineries are significantly higher than those of the other two markets, especially when compared with the level of productivity,” he says.

The operational availability of South Africa’s four refineries is 3% lower than that of its South East Asian and Western European peers, with average utilisation being about 15% lower. The average downtime for South African refineries is 5% – two to three times higher than that of its international peers, states Tshifularo.

“Lower operational availability is a significant contributor to higher maintenance costs in South Africa and more process unit incidents lead to higher operating costs.”

However, Association for the Study of Peak Oil South Africa chairperson Dr Jeremy Wakeford says that a new refinery in South Africa will not be affordable and does not make economic sense, as cheap oil will be depleted before the refinery is fully depreciated, reducing the business case for developing a new refinery.

“The increase in oil prices will lead to an absolute decrease in demand for liquid fuels by 2020 and investments should rather be made in other infrastructure, with primary refining left to the oil producers,” he concludes.