Two petroleum giants want to enter South Africa

Two of the world’s largest petroleum companies, Abu Dhabi National Oil Company (Adnoc) and Saudi Aramco, are considering buying Shell South Africa’s downstream assets. 

Bloomberg reported that the Middle East oil giants are among other bidders, ranging from Sasol to commodity traders Trafigura and Glencore. 

Shell’s downstream assets in South Africa are valued at more than $800 million (R14.7 billion) and are up for grabs following the company’s announcement that it would exit these operations. 

At the beginning of May, the Anglo-Dutch petroleum company announced its intention to sell its holdings in its South African retail, transport, and refining operations. 

Shell, which has operated in the country for over 120 years, said the disposal is part of a global review of its operations to cut costs. 

In the case of its South African operations, the company deemed them to be non-core and decided to find a way to dispose of its shareholding. 

Shell currently has around 600 forecourts in South Africa and employs thousands of people. It also had a stake in the South African Petroleum Refinery (Sapref), which it sold to the Central Energy Fund for R1 earlier this year. 

The proposed sale of Shell’s $800 million (R14.7 billion) downstream business has attracted attention from many global oil giants. 

Chief among those interested are the world’s largest oil producer, Saudi Aramco, and its regional competitor Adnoc. 

Bloomberg reported last month that these companies were in early discussions regarding the business. 

Investment from either of these two oil giants would significantly impact the industry in South Africa, as both have the capital to reinvigorate the country’s refining capacity. 

However, any potential deal may be scuppered by local regulations, which may have contributed to Shell’s exit from South Africa. 

Prior to announcing its intention to sell the downstream business, Shell had a disagreement with its local BEE shareholder, which some pointed to as the reason for its exit. 

Adnoc and Aramco’s interest in Shell’s South African business comes as global petroleum companies are fleeing the country. 

Shell’s announced exit follows BP and TotalEnergies dumping their stakes in local refineries and reducing their operations in South Africa. 

Europe’s largest oil company, TotalEnergies, pulled the plug on its South African offshore oil and gas venture earlier this month. 

Despite investing R7.4 billion to find oil reserves off South Africa’s cost, the French company has decided to abandon the project. 

The primary reasons cited are the relatively small domestic gas market and South Africa’s sluggish economic growth, rendering the development of these resources economically unfeasible.

Furthermore, the company encountered significant hurdles in navigating the local regulatory landscape. 

According to energy expert Anton Eberhard, TotalEnergies’ decision to withdraw is a veiled critique of the South African government’s lack of support for the project.

TotalEnergies is also reviewing its downstream operations in South Africa in lieu of global cost-saving measures. 

The announcement that it will abandon its plans to develop its discoveries off South Africa’s cost follows its decision to sell its stake in the Natref Refinery. 

The company held an interest of 36.36% in the refinery located in Sasolburg, which has a capacity of 108,500 barrels of oil per day. It is the main supplier of petroleum products to Johannesburg. 

British oil giant BP disposed of its fuel business in South Africa and sold its stake in the Sapref refinery along with Shell earlier this year. It also said this was part of global cost-cutting efforts. 

“We view this agreement as a positive outcome for BPSA, South Africa’s fuel industry, and the country as a whole, said BP South Africa CEO Taelo Mojapelo.

“Sapref is an important refinery, the largest in Southern Africa, but continued ownership does not fit with BP’s global strategy.”

This sale followed BP’s complete cessation of jet fuel operations in South Africa at the beginning of 2023.

In April 2023, the company warned, “For customers flying in South Africa, please note that over the coming months, we will cease all our operations in the region.”

“Air BP reviews its portfolio continuously as part of good business practice. In light of our latest review, BP decided to exit all of its aviation activities, including operating airports and being a direct supplier to airlines in South Africa.”