PetroSA Makes Plans for New Oil And Gas Facilities

PetroSA, the state-owned oil company, has announced plans to invest about R50bn over the next six years in building a new crude oil refinery and a liquified natural gas receiving terminal.

If both projects are located in Coega, Eastern Cape, as is envisaged, they will represent a major boost for the economy. A state-owned refinery will secure SA's oil supplies and make a favourable contribution to the country's balance of payments.

CEO of PetroSA Sipho Mkhize told Parliament's minerals and energy committee yesterday that partners would be sought for a R39bn oil refinery which was expected to come on stream in 2014-15 with a capacity to produce about 200000 barrels of refined oil a day.

He said Minerals and Energy Minister Buyelwa Sonjica was awaiting the outcome of the feasibility studies -- likely to be concluded in 2009 -- before giving the project the green light.

PetroSA would be looking for an equity investor or a co- investor to either supply crude oil feedstock or take off some of the production. At a media briefing , Mkhize said that Sasol could participate if it wanted to.

PetroSA, which produced a net profit of R2,8bn in the year to end-March, has a cash pile of R10,7bn of its own that it can use for the project and is in negotiations with its holding company, the Central Energy Fund (CEF), about getting a dividend "holiday" over the next few years so it can accumulate more funds. Through the CEF, PetroSA has paid the government about R1,2bn in dividends in the past two years.

The planned refinery will contribute to greater security of energy supply for SA, which is forecast to need about 280000 more barrels a day by 2020.

The refinery project, dubbed Project Mthombo, is a direct response to the government's energy security master plan, which recommended that PetroSA procure about 30% of all crude oil consumed in SA.

"Based on the current rate of demand growth, the demand for fuel in SA will justify a new crude oil refinery within the next five to seven years. Once the technical specifications and commercial aspects of the project have been clarified, the final investment decision will be made around 2010-11," Mkhize said.

Coega was chosen as a tentative site over Saldanha Bay, Richards Bay and Newcastle. Mkhize estimated the project would generate about 1000 direct jobs, about 5000 indirect jobs during operations and about 10000 jobs during construction.

The South African Petroleum Industry Association welcomed the announcement, saying any effort to help address the shortfall of petrol supply in SA was crucial.

Executive director Connel Ngcukana said the shortfall in liquid fuel by the time the refinery came on stream in 2014 was expected to exceed 7-billion litres. This meant SA's increased importation of the refined product would be at a huge cost to the fiscus and have implications for the country's balance of payments.

Ngcukana questioned the location of the refinery, noting that the primary demand for liquid fuel was inland and that a refinery on the south coast presented problems in getting the product to its primary market.

" The decision could be linked to the need to provide jobs in the area and the large automotive industry in the region, but the planned volumes are too big and the demand is really inland," Ngcukana said.