South Africa establishes new sources

The visit by South African President Jacob Zuma to Algeria a week ago gave a glimpse of an ongoing shift in the country’s oil relations with other countries. For the past decade or so, the focus has increasingly been to lessen dependency on traditional sources, while engaging new sources in Africa and elsewhere. Other considerations regarding the country’s fuel security have also come into play as oil in South Africa is fast becoming a whole new ball game.

Historically, South Africa has imported most of its crude oil from the Middle East, with a number of major multinationals such as BP, Shell, Caltex and Total maintaining a dominant presence in the country.

Engen is another player that emerged as a domestic company when Mobil disinvested during the apartheid sanctions years. Engen has since been taken over by Malaysia’s national oil company, Petronas, with which the South African government has a close relationship.

Sasol developed into a major South African oil company in the 1960s, and in recent years into a global player. It supplies fuel-from-gas for the domestic market.

By 2001, Mossgas and Soekor were merged into state oil and gas company PetroSA in a rationalisation of the state's commercial interests in this sector. PetroSA is involved worldwide in oil and gas exploration, while both Sasol and PetroSA are involved in importing gas and producing liquid fuels from gas.

PetroSA, alongside the Strategic Fuel Fund Association, the Central Energy Fund and the Petroleum Agency South Africa, all play various roles relating to oil procurement, storage, exploration, marketing and distribution. This includes managing the Saldanha Bay oil storage facility, one of the largest of its kind in the world, built in the apartheid era to counter sanctions.

Apart from exploration, PetroSA operates two offshore oil fields near Mossel Bay as well as various gas fields along the southern African coast.

Multinational oil companies in South Africa also operate a well-developed refining and downstream oil industry. However, their refineries at Cape Town and Durban are ageing and becoming less competitive.

In recent years – because of geopolitical volatility in the Middle East – South Africa has worked toward reducing dependence on oil from Iran by increasing imports from Yemen, Qatar, Iraq, Kuwait, United Arab Emirates, Egypt and Saudi Arabia. At the same time, it has tried to lessen overall Middle Eastern imports and spread its sourcing increasingly to non-Middle Eastern countries.

Imports now come from African countries, South America, Russia and others.

This shift in focus has seen a number of significant oil deals being concluded recently. The first major, and controversial, was in September 2008 when President Hugo Chavez of Venezuela visited South Africa. The two countries agreed to co-operate in oil and gas exploration in Venezuela, refining Venezuelan oil at South Africa’s proposed new refinery at Coega in the Eastern Cape, investment by Venezuela’s state oil company in a local refinery and storage facilities, PetroSA sharing its gas-to-liquids technology with Venezuela, and more.

In August 2009, during bilateral trade talks, South Africa and Angola signed a number of trade agreements including co-operation in the oil sector. The oil agreement would allow PetroSA and Angola's Sonangol to work together in oil projects, said Angolan President Jose Eduardo dos Santos at the time.

With Angola already challenging Nigeria as Africa's largest producer of crude oil, and having enormous hydroelectricity potential, energy was said to have been a key area of discussion. And Brazil and China, two countries with which South Africa has recently been enjoying beneficial and vastly increased trade relations, are already involved in the reconstruction of Angola, including its oil interests.

Shortly after the Angola agreement was signed, it was announced by the Industrial Development Corporation (IDC) in an economic report that South Africa’s trade with the world's four largest emerging markets - Brazil, Russia, India and China (BRIC countries) – had increased from $20.3 billion in 2001 to about $162bn in 2008. Among the bulk of these imports, excluding China, were crude oil and non-crude petroleum products.

During President Zuma’s visit to Algeria last week, he signed, among other things, a memorandum of understanding involving increased trade and co-operation between PetroSA and Algeria's Sonatrach.

A development that is symptomatic of the changes taking place in South Africa’s oil supplies is the fact that, after years of secrecy, overriding political and security considerations and protected monopolist practices, the fuel industry in South Africa is heading for a new showdown as competing players variously promote and resist new options in a changed global and local environment.

While state-owned PetroSA wants the government to invest billions of taxpayers’ rands in a new 400 000 barrels-per-day refinery at Coega known as the Mthombo Project, one of the largest petroleum groups active in South Africa, BP Africa, is cautioning the government against approving the refinery project of more than R77bn.

It is widely suspected in industry circles that BP and the other large oil companies operating in South Africa have every reason to resist the competition from a new player that could cut heavily into their super profits, particularly as their conventional refineries are ageing, uncompetitive and not living up to the latest emission standards. Mthombo, some say, could threaten the very existence of the oil multinationals in South Africa.

On the local oil exploration front, after years of showing no interest, it seems Petro SA’s activities, along with new foreign partners, may have prompted the oil giants into action.

It has just been announced that Shell hopes to explore for oil and natural gas over an extensive area of South Africa's West Coast. With seawater depth in the proposed region ranging from 150m to about 4 000m, this is likely to be the deepest that Shell has ever prospected for oil.

Indeed, when it comes to South Africa’s oil interests, the times they are a changing.

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