Two petroleum giants fight to get into South Africa

Saudi Aramco and the Abu Dhabi National Oil Company (Adnoc) are locked in a battle over buying Shell’s South African assets after the Anglo-Dutch oil giant said it would sell its downstream unit. 

A potential investment from one of the world’s largest oil producers would mark a significant change for South Africa’s petroleum industry, which European conglomerates have long dominated. 

In recent years, commodities trader Glencore has moved to break this dominance through its Caltex/Astron brand, which has a strong presence elsewhere in Africa. 

Shell’s intention to sell its downstream assets in South Africa, first announced in May, has also sparked interest from Trafigura, another commodities trader. 

Shell said the sale of its forecourts business resulted from a global cost-cutting exercise, during which the company determined that its South African business was non-core. 

The company currently has around 600 forecourts in South Africa and employs thousands of people. Initial estimates value the business at around $1 billion (R17.9 billion). 

Shell has already disposed of its stake in the South African Petroleum Refinery (Sapref) to the Central Energy Fund earlier this year. 

Its downstream business has attracted interest from many suitors, including Aramco and Adnoc, commodities trader Trafigura, and local giant Sasol. 

Bloomberg reported that a deal could be struck before the end of the year, but deliberations are likely to continue into 2025. 

The list of potential suitors is set to be whittled down to a handful of companies that will present binding offers for Shell’s assets in December.

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. 

Shell is not the only oil giant that has cut its operations in South Africa. Fellow European giants BP and TotalEnergies have also sold off some of their businesses in the country. 

It is also not the first to realise that downstream assets in South Africa are simply not commercially viable as the country’s stagnant economic growth negatively impacts demand for petroleum products. 

Malaysian oil giant Petronas sold its entire stake in Engen to Vivo Energy – a subsidiary of commodities trader Vitol – in 2023. 

Engen has the largest forecourt network in South Africa, over double the size of Shell’s, at 1,300 stations. 

Petronas explained that Engen’s sales were part of a global review of its operations to allocate capital to more profitable regions and businesses. 

Europe’s largest oil company, TotalEnergies, is also reviewing its operations in South Africa after pulling out of its offshore oil and gas venture in the country earlier this year. 

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. 

TotalEnergies stated after pulling out of the project that it is currently reviewing its downstream operations in South Africa as part of global cost-cutting measures. 

British company BP has also cut some of its operations in South Africa and has already disposed of its jet fuel business in South Africa. 

It also sold its stake in the Sapref refinery alongside Shell earlier this year. 

BP has completely ceased jet fuel operations in South Africa and announced last year that it would begin winding down this business. 

“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,” the company said.