The Petroleum Industry in South Africa 2022

Introduction

The liquid fuels sector is dominated by private petroleum companies and state-owned PetroSA.

High oil and gas prices, which peaked following the outbreak of the war in Ukraine, have resulted in oil majors reporting record profits globally, but could lead to a decline in demand. Four of South Africa’s six refineries have shut down as rising costs, impending new regulations on clean fuels and power cuts are making it increasingly expensive to operate refineries and more affordable to import refined product. However, Karoo shale gas reserves, two recent local gas discoveries and two new finds in Namibia, could transform South Africa’s reliance on depleting local gas reserves and gas imports.

Opportunities

Recent Namibian finds may boost South African oil and gas sector services.

The discovery of new gas resources in the southern Cape and Karoo will attract investment into the sector. The increase of liquefied petroleum gas and liquefied natural gas imports through newly constructed import terminals with sufficient storage facilities. The use of liquefied petroleum gas, green hydrogen and biofuels contribute to the reduction of greenhouse gas emissions and the decrease in respiratory-related diseases.

Outlook

The outlook for the petroleum sector remains highly uncertain.

Sasol in January 2022 forecast lower than expected fuel production for the year to end-June as continued energy volatility, increased geopolitical tension and the pandemic could influence volumes and prices. Four out of six of South Africa’s refineries remain shut, with investment in renewable energy expected to outpace that of oil in future. Fuel consumption remains constrained by high fuel prices, the high percentage of people still working from home, pressure on new vehicle sales and the poor economic outlook. Recent oil and gas finds off the southern Cape coastline and shale gas in the Karoo, Mozambique and Namibia make the future of the country’s gas sector more promising. However, the gas sector is held back by infrastructure shortages and policy uncertainty, while environmental challenges make it more difficult to take advantage of new finds.

Report Coverage

This report focuses on the manufacture of petroleum products from crude oil and natural gas in South Africa, and the wholesale and retail trade of these products.

Information on the manufacture of lubricating oils and greases, primarily from other organic products, as well as the manufacture of other petroleum/synthesised products is also included. There is comprehensive information on the size and state of the sector, import and production statistics, the performance of notable players and relevant developments. There are profiles of 72 companies including major producers, refiners and retailers Sasol, TotalEnergies, Astron, BP, Engen and Shell, gas companies such as Easigas and lubricants companies such as Fuchs.

Strengths

Fuel retail and wholesale sector contributes to black economic empowerment.

Gas could provide a greener power alternative to produce electricity as South Africa reduces its reliance on coal. The manufacturing, wholesale and retail sectors are represented by strong associations. The multi-product pipeline provides fuel and lubricants across South Africa. The sector is an important job creator.

Threats

Continued slow pace in the establishment of clean fuel regulations.

Development of refining capacity in Africa. Fuel retail theft and pipeline theft is on the increase. Fuel retailers are concerned that proposed deregulation of the petrol price could push many struggling retailers out of business. Lack of fuel demand and weak economy in recent years, which worsened during the pandemic. Oil majors are shifting to renewable energy sources to cut CO2 levels, while growing global demand for electric vehicles and increasing energy efficiency will reduce demand for fossil fuels. Potential reduced demand for lubricants as a result of decreasing vehicle sales. South Africa could face a security of supply crisis with the closing of nearly all the country’s refineries.

Weaknesses

A lack of infrastructure for importing and transporting liquefied petroleum gas and liquefied natural gas. A shortage of inland fuel storage capacity. High operating costs for retailers and refiners are affecting profit margins. Incomplete regulatory environment is preventing development of the biodiesel sector. Oil majors have high market power over independent wholesalers who struggle to access the national infrastructure used by the oil majors. Refinery infrastructure is old and needs investment to be upgraded, with currently just two of the country’s six refineries in operation. In addition, the cost of adapting to clean fuels may cripple refineries.