Shell and BP dump South African refinery 

The Central Energy Fund (CEF) has received approval from the Competition Commission to acquire the assets of the defunct SAPREF Refinery. 

This acquisition is seen as a strategic move to bolster South Africa’s energy security and create new economic opportunities.

The Competition Commission announced today that it has approved the proposed transaction whereby the CEF intends to acquire various assets that collectively comprise the SAPREF Refinery.

The SAPREF Refinery, a joint venture between Shell and BP, has been dormant for several years due to operational challenges. 

CEF, a state-owned company, plans to revitalise the refinery and use its infrastructure to produce a range of petroleum products, including gasoline, diesel, and jet fuel.

Through its subsidiaries, PetroSA and Avedia Energy, the CEF already has experience in the energy sector. 

PetroSA formally operated a gas-to-liquids refinery in Mossel Bay, which produced petroleum products using primarily natural gas from its offshore fields and some imported feedstock, being condensate.

This refinery has not been operational since 2020 due to feedstock challenges.

Avedia Energy is involved in the exploitation, development, distribution, marketing and manufacture of energy solutions, in particular, coal, oil, gas and renewable energy.

It was established in 2007 as a liquefied petroleum gas (LPG) company and currently operates a bulk import and handling facility in Saldanha Bay, as well as a bottling plant in Airport Industria, Cape Town.

Avedia Energy supports market distribution of LPG gas for residential, business and industrial applications.

Shell Downstream South Africa (SDSA) and BP Southern Africa (bpSA) are the primary target firms for this acquisition. The SAPREF Refinery is jointly controlled by SDSA and bpSA and is currently dormant.

The SAPREF Refinery is located in Durban, KwaZulu-Natal Province. When it was still operational, the refinery produced 10 main products: petrol, diesel, fuel oil, jet fuel, lubricants, bitumen, LPG, solvents and paraffin.

“The Commission is of the view that the proposed transaction is unlikely to substantially lessen or prevent competition in any market,” the Commission said.

“To address employment concerns arising, the Acquiring Firm shall transfer the SAPREF Refinery employees to the Acquiring Firm post-merger on no less favourable terms and conditions as the current employer.”

Oil giants leaving South Africa

Three major oil companies – BP, Shell, and TotalEnergies – have been scaling down or exiting their operations in South Africa in recent months.

This is primarily due to South Africa’s struggling economy, which has seen an average growth rate of only 1.1% over the past two decades. This decline began under Jacob Zuma’s presidency and has continued under Cyril Ramaphosa.

These oil giants have been pressured by investors to cut costs and have found South Africa’s operations to be no longer economically viable. 

TotalEnergies, Europe’s largest oil company, is abandoning its plans to drill for oil and gas off the South African coast. 

Despite significant discoveries, the company believes that the reserves are not economically viable due to low local demand and the failing economy.

The company’s decision is influenced by several factors, including the withdrawal of a project partner, the potential for cheaper operations in Namibia, and global cost-saving measures. 

Local authorities and policymakers have also been blamed for hindering the development of these offshore gas resources.

TotalEnergies’ departure aligns with its strategy to divest non-core assets and follows its recent sale of a stake in the Natref Refinery. 

Shell, like TotalEnergies, is exiting its South African downstream operations. The company’s decision is part of a broader strategy to divest non-core assets and follows a cost-cutting review.

Shell’s operations in South Africa include a network of 600 forecourts and a stake in the SAPREF refinery. 

The company has been seeking to sell SAPREF, which it jointly owns with BP, due to its operational challenges and declining commercial viability.

Aside from selling its stake in SAPREF, BP has also exited its jet fuel business in South Africa. The company cited global cost-cutting efforts as the primary reason for these decisions.

BP’s exit from the jet fuel market in South Africa began in early 2023. The company ceased all aviation activities, including operations at major airports like OR Tambo and King Shaka.