Coal's dominance of South Africa's energy market is likely to continue for at least 10 years.
One reason is that environmental drawbacks of coal are seen as less important short term than improving the country's living standards.
Another reason, says Mostefa Ouki, senior economist at Penspen Economics, London, is continuing debate over the country's synthetic fuel industry, which mainly uses coal as feedstock.
Ouki said South Africa's gasoline sales amount to an average 159,000 b/d. Synfuel, manufactured largely by Sasol Ltd., Johannesburg, accounts for 46% of the market.
"South Africa's crude oil refiners are trying to corner Sasol," Ouki. said. "They want to ensure that protection of the synfuel industry will be removed."
The South African Petroleum Industry Association includes all the country's refiners: Caltex Oil SA with a 90,000 b/d refinery in Cape Town, Engen Ltd. with a 65,000 b/d refinery in Durban, National Petroleum Refiners of South Africa PL with its 86,000 b/d Sasolburg plant, and Shell & BP South African Petroleum Refineries PL with a 160,000 b/d unit in Durban.
SUBSIDY CLAIMS
"The association is saying government should review its 1.5 billion rand ($410 million) support to date for the synfuel industry," Ouki said. "The argument is that if South Africa is going to restructure, it must first create the right conditions, so government needs to remove the subsidy first."
Sasol says refiners also have benefited from the subsidy system under which they received payment from government for Sasol's share of wholesale gasoline sales.
Ouki estimates total compensation paid to refiners during 1985-94 at 3.5 billion rand ($960 million).
South Africa's new Government of National Unity has not made its position clear on petroleum industry restructuring, Ouki said.
GOVERNMENT INERTIA
The energy department's position reflects South Africa's history of exclusion from normal world trading because of the apartheid regime and its past determination to go it alone.
"The department's view is that, as long as oil is a volatile market, South Africa as a nonproducer should maintain its synfuel option," Ouki said. "It cannot accept that the country can now rely on imports. And South Africa is sitting on large volumes of coal that can be produced at low cost."
Ouki said synfuel is more expensive to produce than gasoline, but costs have not been made public.
"Critics are saying that all Sasol's profits are coming from synfuel subsidies," Ouki said. "The tariff for synfuel is based on a price of $21.84/bbl, which means a guaranteed income for Sasol."
However, a Sasol official said the company had been first to propose deregulation, and it was refiners who were initially against the move. Sasol has said it would welcome an investigation into tariff protection.
Ouki said petroleum industry restructuring will not come about until price controls are relaxed. He believes restructuring also will involve oil companies making room for Sasol, excluded from retailing at present, in refining and marketing of conventional gasoline.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.