WATCHING THE WORLD SOUTH AFRICANS PREPARE FOR NORMAL OIL BUSINESS

With David Knott from London South Africa's slowly fading political regime has been as harsh as any among countries closed to the oil industry. Unlike most "no go" areas for oil companies, however, it has a sophisticated infrastructure. Oil trade embargoes that were set up in the 1970s and tightened in the 1980s are likely to be lifted as the long awaited transitional government takes control. Oil industry deregulation is expected soon afterward.

June 7, 1993

3 min read

South Africa's slowly fading political regime has been as harsh as any among countries closed to the oil industry.

Unlike most "no go" areas for oil companies, however, it has a sophisticated infrastructure.

Oil trade embargoes that were set up in the 1970s and tightened in the 1980s are likely to be lifted as the long awaited transitional government takes control. Oil industry deregulation is expected soon afterward.

One legacy of embargoes is the Petroleum Secrecy Act, which makes South African oil companies reluctant to give out information. Another is a market 40% dependent on synthetic fuel. A wealth of coal feedstock and restricted crude oil imports spawned a 60 million bbl/year synthetic fuels industry.

Last year Engen Ltd., Cape Town, opened South Africa's first synthetic fuels plant using natural gas as feedstock. The Mossgas plant takes gas and condensate from Mossel Bay offshore fields for conversion to diesel fuel and gasoline.

REFINERIES BOOST

Mossgas plant capacity is not available because of the secrecy law. The plant received first gas in March 1992 and was running at 50% capacity early this year, with full production expected by yearend.

"There will be no more synfuel plants built in South Africa", said Engen Managing Director Rob Angel, explaining the effects of transition. "They will no longer be economical."

Demand on existing refineries will grow, though.

Engen is upgrading its Durban refinery. A $200 million first phase boosted cracking capability and jumped capacity to 85,000 b/d from 60,000 b/d last year.

Now the company is 10% through a $250 million second phase project to improve gasoline and diesel fuel yield, cut emissions, and increase capacity still further to 105,000 b/d by the end of next year.

When Mobil Corp. pulled out of South Africa in 1989, Engen bought the Durban refinery and 11,000 retail outlets. The fuel stations are being converted to Engen livery in a $40 million program.

UPSTREAM MOVE

Engen owns two other retail chains. Trek brand has a strong Afrikaans customer base, while Sonap stations are in the Transvaal region. Engen is looking at optimization but recognizes that Trek and Sonap will have to be retained after transition to maintain presence in those market segments.

The biggest problem for Engen is that all its income comes from refining and marketing. Angel said a $12 million/year cash injection is needed upstream to acquire production and fund short term developments.

Engen holds small interests in the U.K.'s Alba and Britannia fields and is dealing directly with Middle East suppliers of crude oil. It also has shares in acreage in Gabon, Congo, Angola, Namibia, and South Africa's Bredasdorp basin.

"Engen would welcome deregulation in South Africa," Angel said. "We are in the forefront of discussions. When the economy turns around, gasoline sales growth will be multiplied. We are bullish about the future."