The South African base oil market will become completely import-dependent from March when Sapref – the joint venture between BP and Shell – halts operations at its fuels refinery in Durban.
In a joint news release issued Feb. 10, the companies said the halt is currently considered temporary as BP is exploring the possibility of selling its stake in the business.
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Established in 1963, Sapref is the largest crude oil refinery in South Africa with 35% of the country’s refining capacity. The refinery’s base oil plant has capacity to make 172,000 metric tons per year of API Group I oils.
The joint news release said the refinery will pause operations no later than the end of March. “This will be for an indefinite period but with a restart possible in the future, including in the event of any future sale,” the companies stated.
The statement did not give a reason for the shutdown, but refiners in South Africa have warned that their facilities are at risk of becoming obsolete unless the government helps pay for upgrades needed for them to meet a 2023 deadline to reduce sulfur levels in fuel. In addition to pausing operations, BP and Shell said they have frozen spending at the refinery.
“The decision has been taken to allow an informed finalization on the various options available to the shareholders, a sale option being the most preferred,” Sapref said in a news release. “Until decisions about the future of the plant have been made, including a possible change of ownership, the Sapref shareholders are unable to commit to further investment in the refinery.”
Each company said it has taken steps to ensure continued supply of fuels and other oil products in South Africa.
Hloniphizwe Mtolo, country chair for Shell Downstream South Africa, said: “The decision to pause the refinery was a difficult one for both shareholders. Shell remains committed to security of supply to our customers over this production pause. South Africa continues to be a key location for Shell as we progress our growth agenda as an energy provider of choice and a Nation Builder.”
Steve Ames of SBA Consulting in Pepperpike, Ohio, noted the refinery is a likely shutdown or sales candidate as it would otherwise require a large – U.S. $700 million to $1 billion – capital expenditure spend to meet the government-mandated clean fuels initiative. “Margins are forecast to be insufficient to recoup the needed investment as the refinery, although having a small delayed coker, it is otherwise a relatively low complexity operation,” Ames told Lube Report. “Shell must certainly want out as it does not fit their combined refining/chemical park downstream strategy that has led to their sale of those refineries that does not have such synergies.”
Cliff Classen, sales director at Penthol Group, said that the halt of operations at Sapref will make the South African base oil market import-dependent. “The halt of operations at Sapref will shut the last remaining base oil plant in southern Africa,” Classen told Lube Report. “South Africa will then have zero base oil production and move to 100% import dependency.”
South African Institute of Tribology President Patrick Swan said base oil imports have an advantage over domestic production because in “South Africa at the moment, the cost of running a base oil refinery is greater than the cost of imported material.”
He contended that loss of base oil production in Durban – whether temporary or permanent – should not have a large impact on the market since it is already relying significantly on imports. “We will still receive base oils, but it will be imported, and most of it is already imported,” he said.
Swan cautioned that technical problems could arise “if imported base oil is not being checked correctly. The quality of each batch of base oil must be correctly checked.”
George Gill contributed to this article.