The Engen oil refinery in South Africa, the country’s oldest, will be converted into a into a terminal capable of importing cleaner fuels after suffering annual losses for much of the last decade.
It would be too costly to refit the plant in Durban, which opened in 1954, to meet evolving emissions regulations, Yusa Hassan, chief executive officer of Engen, a unit of Malaysia’s Petroliam Nasional Bhd, said in an interview. The move will be closely watched by companies including Glencore Plc and Royal Dutch Shell Plc, which own stakes in processors in the country that have experienced accidents or are under review.
Most of South Africa’s refineries halted production temporarily last year as lockdown measures to control the Covid-19 pandemic eroded fuel demand. Glencore unit Astron Energy’s Cape Town plant was shut by an explosion in July and is expected to resume production some time in 2022. Engen restarted until a fire broke out in December, forcing it to shut again.
The company will convert the 120,000 barrel-a-day refinery into a terminal in 2023 to “help the sustainability of the business,” Hassan said. Limited operations will continue in the interim. It will seek to preserve jobs and may turn part of the site into an industrial hub, the CEO said.
Older refineries with small capacity designed for domestic consumption are finding it difficult to compete with bigger and more agile plants that export fuel. Exxon Mobil Corp. will convert its processor into an import terminal in Australia and is looking to do the same for another in Norway.
The virus-induced demand slump has hit refiners’ finances hard. There are also concerns that gasoline and diesel consumption may never return to previous highs as climate change regulations change traditional energy use.
The Engen refinery’s logistics have been complicated ever since U.S. sanctions on Iran cut crude supplies. Designed to run on oil from the Persian Gulf nation, it was forced to use a blend of other crude grades. Importing fuels instead makes more sense since it takes about half the time, Hassan said.
The refinery, located within a residential area, has also drawn opposition due to health and environmental concerns over pollution.
The volumes of fuels imported into the converted Durban unit will depend on the expansion of Engen’s retail business, Hassan said. The company runs over 1,000 service stations in South Africa and about 230 more in sub-Saharan Africa.
South Africa was expected to implement low-sulfur Clean Fuels II rules in 2017, but has failed to do so. “The market is going to force the industry to move” to higher specification products and the terminal will be well placed for that change, he said.