1. STATE OF THE DOWNSTREAM LIQUID FUELS SECTOR IN SOUTH AFRICA
DEPARTMENT OF ENERGY
STATE OF THE DOWNSTREAM LIQUID FUELS SECTOR IN SOUTH AFRICA
24 JULY 2013

2. Historical Excursion On The Downstream Petroleum Sector
Downstream Petroleum sector is more than 100 years old in SA
Almost all petroleum products sold in South Africa were imported as refined product by the respective wholesale companies who distributed this to their branded retailers and various commercial customers.
In the first half of the 1950s, the government-initiated project to produce oil from South Africa’s abundant low-grade coal reserves, which saw the formation of the South African Coal, Oil and Gas Corporation Limited, later called Sasol Limited
In 1955 the first oil-from-coal-synthetic fuel plant – Sasol One – was constructed

3. Historical Excursion On The Downstream Petroleum Sector
Period of the Sasol Supply Agreements (SSA) or the Main Supply Agreement (MSA) between Sasol and the major distributors.
The international oil crisis of 1973 accelerated government’s plans to expand the capacity of Sasol’s oil-from-coal facilities
The UN’s imposition in 1977 of a mandatory crude oil embargo underlined these concerns, as did the Iranian revolution of 1979.
Sasol Two and Sasol Three were commissioned at Secunda, also in the inland region, in 1980 and 1982 respectively.

4. Historical Excursion On The Downstream Petroleum Sector
In 1987 when natural gas condensate was discovered off shore, the Government built a gas-to-liquids plant Mossel Bay (now owned and operated by PetroSA).
The Mossgas plant commenced production in late 1992.
Government, in addition to its direct intervention through Sasol to secure indigenous sources of petroleum product, also encouraged private sector initiatives aimed at addressing these concerns. These included incentives to invest in local refining capacity.

5. Historical Excursion On The Downstream Petroleum Sector
The first crude oil refinery was commissioned by Mobil in This is the Enref refinery as it is known today.
In 1962 a Shell-BP joint venture commissioned a second crude refinery in Durban. This is known as the Sapref refinery.
At about the same time Caltex also decided to establish a refinery in Durban but it was ultimately incentivised to locate its refinery in Cape Town.

6. Historical Excursion On The Downstream Petroleum Sector
This is the Calref refinery which was commissioned in 1966.
In 1969 government initiated the formation of a company whose shareholders were Sasol, Total and the National Iranian Oil Company (NIOC) with the intention of establishing an inland crude oil refinery. Natref was commissioned in 1971 and is located in Sasolburg.

7. Significant development post-1994 in the Downstream Petroleum Sector
Energy White Paper Policy, 1998
Liquid Fuels Charter, 2000
End of the Sasol ‘Blue Pump’ Agreement 2003
Petroleum Products Amendment Act, 2003 (Act No. 53 of 2003)
Phasing out of lead in Petrol (Clean Fuels 1), 2006
The Petroleum Licensing Regime, 2006

8. Significance of the Petroleum Downstream Sector
The strategic significance that fuel products assume in all countries
There is South Africa’s historic reliance on imported crude oil
Establishment of refinery capacity at the coast, some considerable distance from the country’s inland industrial hub, the major market for fuel products.
Sector contributes 6.48% to the national GDP in 2012
Slow transformation in the sector

9. Petroleum Downstream Sector
The downstream petroleum industry is integrated throughout the value chain.
The dominant petroleum companies in South Africa are BP, Chevron, Engen, PetroSA, Sasol, Shell and Total SA, and they are major distributors of Petroleum Products in the country.
They operate storage terminals and distribution facilities at the major ports and have distribution facilities throughout South Africa

10. Petroleum Downstream Sector- Consumption of Petroleum Products (million litres)
Category
2010
2011
2012
Petrol
11455
11963
11714
Diesel
10170
11225
11262
Jet Fuel
2308
2434
2367
Paraffin
545
581
537
Fuel Oil
468
477
568
LPG
612
717
656

11. Petroleum Downstream Sector
Three steps to get petroleum products to consumers:
Firstly the product has to be produced,
Then it must be transported to depots and storage facilities around the country and
Finally it must be distributed from depots to the service stations or customers.
These steps are commonly referred to as refining; distribution and retailing.

12. Petroleum Distribution Sector - Refining
Refined petroleum products such as petrol, diesel, fuel oil, paraffin, jet fuel and LPG are produced by the following methods:
Crude oil refining;
Coal to liquid fuels and gas to liquid fuels; and
Natural gas to liquid fuels

13. Petroleum Distribution Sector - Refining
South African Refinery Ownership and Crude Throughput
Crude Oil Refined at the following refineries:
Name
Crude throughput
Ownership
Chevref
100,000 bpsd
Chevron South Africa
Enref
125,000 bpsd
Engen Petroleum
Natref
92,000 bpsd
Sasol/Total South Africa (64/36%)
Sapref
180,000 bpsd
Shell South Africa/BP Southern Africa (50/50%)
Coal and Gas Processed and Refined at:
Sasol Secunda
150,000 bpsd
Sasol
(Crude average yield)
Gas Processed and Refined at
PetroSA
45,000 bpsd

14. Petroleum Downstream Sector - Distribution
Petroleum products are moved from refineries by pipelines, rail, sea and road to approximately 200 depots, service stations and direct consumers who are mostly farmers.

15. Licensing of the Petroleum Downstream Sector
Since 2006, any person who manufacture, wholesale and/or retail prescribed petroleum products is required to be licensed by the Controller of Petroleum Products
In considering licences, the Controller must give effect to the objectives of the Act and the transformation of the South African petroleum and liquid fuels industry
Number of Issued Petroleum Licences as of 31 March 2013
Manufacturing Licences
Wholesale Licences
Site Licences
Retail Licences 5
311
3743
4453

16. Transformation in the Petroleum Downstream –
Retailing (Exc. Shell and Sasol oil)
Dealer Owned
Company Owned
Indians do better in volumes than other black groups
The Ownership of and volumes pumped by Whites outnumber those of the HDSA’s collectively.
White dealers pump 3 x more than Indians
who are 2nd in dominance.
There is still a challenge of ensuring equitable site allocation to HDSA’s for various reasons, including limited site availability. 16

17. Generic Challenges in the Petroleum Downstream
Lack of Capacity to negotiate and manage contracts e.g. the structure of royalties and rental payments
And the treatment of unreliable product suppliers.
Goodwill is not regulated, therefore the seller is at liberty to charge any price.
Entrepreneurship and business skills are not provided in the initial training
The modus operandi for stock items is not friendly towards local small businesses
Financial constraints – e.g. high guarantees required
Low gross profit margins due to high costs of loans to Black retailers

18. Generic Challenges in the Petroleum Downstream
Some old evergreen agreements with white retailers, property owners and developers.
Especially with respect to the more lucrative opportunities e.g. transient sites.
Rules to on-sell are very stringent and restrict the black retailers from selling in the event of financial challenges
Black Africans and Coloured's are overlooked for the more lucrative opportunities like high volumes sites
The process of applying for funding has serious hurdles for Blacks and Coloureds.
The transferability of site licences impact the transformation agenda

19. WAY FORWARD Alignment of the LFC to the BBBEE codes of good practice
Consider establishment of Charter Council
Auditing of the Transformation in the retail sector
Use licensing to enforce transformation in the retail sector
Address legislative gaps that have been identified
Strengthen enforcement

20. Conclusion
The major companies in the South African downstream petroleum industry remains BP Southern Africa, Chevron South Africa, Engen Petroleum, PetroSA, Sasol Oil, Shell South Africa and Total South Africa.
They operate storage terminals and distribution facilities throughout South Africa.
Until recently, there were very few non-refining wholesalers or distributors supplying petrol and diesel in South Africa.
Today, there are many that are registered with the Department of Energy.

21. Thank You