BP about building huge refinery

BP mounts bid to put state off building huge refinery

Energy giant BP Africa has taken the unusual step of publicly discouraging the government from going ahead with the building of PetroSA’s project Mthombo, SA’s largest refinery.

BP Africa CEO Sipho Maseko said on Friday SA should not make a “hasty” decision on the 400000-barrel-a-day refinery, and instead touted the benefits of importing fuel.

BP and other oil companies stand to benefit from a delay in Mthombo, which is scheduled to come on stream in 2014.

If the 9bn refinery is delayed, global fuel companies, which largely own SA’s four refineries, would gain breathing space as Mthombo will threaten their existence.

Output from it would be sufficient to satisfy SA’s liquid fuels needs.

SA’s reliance on imports for cleaner fuel would also be prolonged.

Maseko said the government should not make a decision on building the refinery “before considering all options”.

These included expansion of the four existing refineries.

Maseko also said importing fuel was “a better and cheaper option ” to building a new refinery.

He appears to have gone out on a limb as the government has in the past criticised global oil companies for a lack of investment in the four existing refineries.

To meet the new clean fuels standards SA has committed to, existing refineries would have to be upgraded, whereas Mthombo, once operational, would meet the higher specifications.

Imports would therefore be a cheaper option for oil companies, but a more costly one for SA.

Maseko said that due to global surpluses, “it is doubtful that energy security in SA would be better served by building a local refinery”.

Department of Energy spokesman Bheki Khumalo said yesterday the refinery was part of the government’s long-term energy security plan, and SA could not continue to rely on imports.

“PetroSA’s decision to build the refinery is in response to a government policy position through the liquid-fuels masterplan, which identified the need to invest in new refineries.”

He disagreed with Maseko that surplus capacity globally was sufficient to meet SA’s needs and said the surplus was due to the global economic crisis.

“What happens when the global economy turns around?”

According to PetroSA, without investment in additional refining capacity, SA will have to import about 10-billion litres a year, about 25% of demand, by 2015, which would have a negative effect on SA’s foreign exchange balance.

SA’s reliance on imports was unsustainable, Khumalo said.

“If we do nothing, the effect of imports on the balance of payments will be R53bn.”

Maseko said BP was not opposed to investment in local refining capacity “but, in the interests of the country and its taxpayers, a decision to make such an investment should be carefully considered and only taken following a thorough examination of all options”.

He said it was not feasible to construct and commission a new refinery by 2014, “even if the decision were taken today”.

The full cost of the refinery was likely to exceed the projected 9bn by more than 50%.

“No one has pointed out the cost of building a new long-distance pipeline from Coega to the inland market,” Maseko said.

Preparatory work and a feasibility study, which tested and confirmed the commercial viability of Mthombo, have been completed.

Last week, the PetroSA board made a decision on Mthombo’s future, and sent the recommendation to Energy Minister Dipuo Peters for approval.

Source: www.businessday.co.za, 20100222

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