Vital South African industry disappearing in front of everyone’s eyes

South Africa’s only domestic source of oil, its synthetic fuel industry, is now a shadow of its former self, with only one operational plant that can cover a declining share of the country’s demand. 

This stands in stark contrast to the industry of old, which used to supply over a third of all oil consumed in South Africa. 

A stagnant economy, which has translated into flat oil demand, rising electricity costs, and deteriorating infrastructure, has made the industry increasingly uncompetitive in the 21st century. 

Furthermore, it has become significantly cheaper to purchase refined petroleum products from Asian refineries over the past decade, undermining the need for a bigger domestic industry. 

Once sanctions on South Africa were lifted after apartheid ended, local oil producers were exposed to international markets, and synthetic production proved uncompetitive due to its complexity and cost. 

This has seen the synthetic fuel industry steadily decline over the past two decades, along with many of South Africa’s oil refineries, with only two left standing. 

However, the repeated oil supply shocks from the Russian invasion of Ukraine and successive conflicts in the Middle East have issued a sharp reminder of why domestic oil production is so important. 

Econometrix chief economist Dr Azar Jammine explained that South Africa is highly vulnerable to external shocks of this nature due to its highly open and relatively small economy. 

This is exaggerated by the lack of meaningful domestic oil production, which puts South Africa at the mercy of geopolitical events and international supply. 

“Unfortunately, one of the sad stories of our economic decline in the past 15 years has been the deindustrialisation of the South African economy,” Jammine told the State of the Nation podcast. 

“One area that has played a big role has been the virtual disappearance of our synthetic fuel industry, which used to be substantial.”

Jammine explained that the sector used to supply over a third, and at times almost half, of South Africa’s fuel demand. Now, it supplies a fraction of that. 

Coal-to-oil pioneers

South Africa pioneered the development of synthetic fuel produced from coal, with it developing the first commercial facility capable of such production in August 1955. 

Construction of the facility in Sasolburg took nearly a decade, with the government granting Sasol a licence to develop a coal-to-liquid (CTL) plant in 1947. This predates Sasol’s establishment as a public company, which was in 1950. 

Sasol pioneered the commercial application of the Fischer-Tropsch process, invented in Germany, that uses chemical reactions to create synthetic oil. 

The process typically converts carbon monoxide and hydrogen, which are produced from coal, natural gas or biomass, and converts them into synthetic lubrication oil and synthetic fuel. 

Outside of South Africa, the process has received sporadic bursts of attention, seen as a means of producing low-sulphur diesel and reducing the reliance of countries without natural oil reserves on imports.

Sasol invested heavily in the technology in the 1940s and 1950s, not only to prove that it could be done commercially, but also to support the state’s desire to make South Africa less reliant on oil imports. 

The company’s Sasolburg plant proved highly successful, with the first petrol being produced on a commercial scale in November 1955 and symbolically used to fill up the cars of Sasol executives. 

Over the following years, Sasol began distributing its synthetic fuel across South Africa. By 1958, Sasol supplied 1,245 filling stations with the fuel from its Sasolburg plant. 

In the 1980s, the company began developing a more modern CTL plant in Secunda, which used more efficient coal liquefaction processes to produce synthetic fuels. 

The plant in Secunda is still the largest CTL plant in the world and is one of the largest single sources of greenhouse gas emissions. 

Secunda CTL consists of two production units. The Sasol II unit was constructed in 1980, and the Sasol III unit in 1984. It has a total production capacity of 150,000 barrels per day.

The plant’s scale is immense, with the Sasol III Steam Plant having a 301-metre-tall chimney. This is the tallest structure in South Africa and the second-tallest free-standing construction in Africa. 

By 1988, Sasol’s domestic synthetic fuel production was the lifeblood of the local economy, with these two plants supplying 27% of all of South Africa’s fuel needs. 

The company revealed at the 50th anniversary of the first commercial CTL production in 2005 that it had produced over 1.5 billion barrels of synthetic fuel from 800 million tonnes of coal. 

Regarded as a world technology leader in CTL production, Sasol still operates the world’s only commercial-scale synthetic plant at Secunda. 

Extrapolating its production rate to the present day, Sasol has produced well over 2 billion barrels of synthetic fuel. 

However, little investment has gone into expanding the production of fuel domestically, resulting in local production making up an increasingly smaller portion of South Africa’s needs. 

Road Freight Association CEO Gavin Kelly has called on the government and other stakeholders to encourage Sasol to increase production from its CTL plants in the near term. 

This would help South Africa avoid the worst impacts of disrupted supply from the Middle East, Kelly told Newzroom Afrika.  

Any sustained increase in production would require significant investment from Sasol, which is unlikely given South Africa’s stagnant fuel demand and the immense pressure on the company to reduce its greenhouse gas emissions. 

The company’s CTL production is also relatively expensive compared to the easily extractable oil in the Middle East, making it far less profitable and potentially loss-making when oil prices fall.