Oil Refinery Petrosa. Pic credit SABC
PetroSA’s plans call for an oil refinery with capacity of as much as 300,000 barrels a day at Coega in the Eastern Cape. Pic credit: SABC

In South Africa, state-owned oil company, PetroSA, has proposed a new oil refinery on the south coast, claiming that it would be the largest on the continent, adding 43% to fuel production capacity. The government contends the country needs local sources of additional diesel and petrol.

However, according to Shash Rabbipal, the new chairman at the local unit of Chevron, South Africa does not need another oil refinery because the slowing economy has curbed demand and the country has ample petrol production, reported Bloomberg.

The six South African oil refineries, including Chevron’s Cape Town facility, process a combined 703,000 barrels of crude oil per day, exceeding demand, stated Rabbipal in an interview.

Rabbipal has worked for Chevron, the second largest US energy company, for 25 years and was appointed to the post last week.

“Should another refinery be built, it would mean that the country would have to increase its exports of products and this would mean a change from the current practice of ensuring that supply catered mainly for local demand,” Rabbipal explained in an interview.

South African economy

The economy unexpectedly contracted in the second quarter and the Reserve Bank has cut its growth forecasts four times this year, predicting expansion of just 1.5% for 2015. The rand has dropped 13% against the dollar this year.

“Consumers have felt the pinch of the lower economic growth rate, the depreciation of the rand and the hike in petrol prices we saw in previous years; this means they have become more frugal about using petrol,” Rabbipal said. “The fuel-consumption trend has certainly flattened.”

Potential new oil refinery at Coega

PetroSA’s plans call for an oil refinery with capacity estimated at 300,000 barrels per day at Coega in the Eastern Cape, known as Mthombo. The company reported a record ZAR14.5 billion ($1 billion) loss for the financial year ended March, according to its annual report, which said “radical actions” were need to ensure the business survives.

“Should Project Mthombo go ahead, it will have a significant impact on production at other refineries and the local economies they operate in,” Rabbipal said.

Since the 1960s, Chevron has operated the only oil refinery in the Western Cape, the country’s second-most economically important province. Burgan Cape Terminals is building a fuel-storage facility in Cape Town, a venture Chevron initially opposed and which is due to be completed in early 2017, reported Bloomberg.

“We believe our current storage capacity at the refinery is sufficient, but we believe in competition and coexistence and we are happy to co-operate with Burgan where we can,” Rabbipal concluded.

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