Between a Rock and a Hard Place

Between a Rock and a Hard Place

The extraction of crude oil from the deep bowels of Mother Earth requires drilling down between rock and hard places, and this is good and well, because nothing in life should come easy. It is also ironic that humankind is taking from the planet to pollute the planet. These ruminations were swirling around my head during the South African Petroleum Industry Association (SAPIA) 2015 Annual Report Breakfast, held on Friday 2 September 2016.

The Phoenix

The presentations from Maurice Radebe, SAPIA chairperson; Alan Gelder, of Wood Mackenzie; and Tseliso Maqubela, deputy director general – Petroleum & Petroleum Product Regulation; were interesting, within their predictable parameters, and covered important issues such as transformation; security of supply; health, safety, security and environment; climate change; and fuel price regulation, but I was there primarily to hear about the progress on Cleaner Fuels II.

Cleaner Fuels II (CF II) is about the introduction of new liquid fuels specifications for petrol and diesel that significantly lower sulphur content but also changes other parameters. The primary purpose is to improve the quality of the air we breathe, brought about by using advanced vehicle engine technology in conjunction with these fuels. Sulphur is a major deleterious component - contributes to acid rain and fine particulate matter causing non – communicable chronic diseases. At the manufacturing level CF II is about the implementation of a refinery upgrade programme to produce transport fuels in line required fuels specifications.

What Radebe said on this subject was a little concerning. The refining industry has been tardy in its progress on modernising its plants, and according to Radebe it’s mainly about old infrastructure, and the need for the shareholders to get an acceptable return on investment. He then launched into a plea to government for support, and he sounded a warning that without decisive action, and without certainty of policy (and the accelerated depreciation assistance from Treasury is not enough) the refining industry will be wiped out in the next five to ten years, just like the textile and steel industries. He added that without a refining industry, it would not just be the strategic concerns around security of supply, but it would also be about downstream products, such as chemical streams.

All a little disingenuous because the refining industry has been making healthy profits for decades (and according to Gelder 2015 was a positive year for the SA refinery industry), and some of these profits should have been plied back into capex, just like any other industry. I’m pretty sure that is how overseas refineries kept up with technology.

This is scant comfort for the automotive industry and the South Africa motorist, because while we are paying a CO2 tax, we are being forced to drive cars with engines from the dark ages, because the modern engine cannot use our dirty fuels, and we are breathing in nasty carcogenetics such as benzene. We are truly between a rock and a hard place, and the refining industry and government need to get their act together – FAST.

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