Three major fuel companies are bailing on South Africa

 ·10 Jul 2024

Three global fuel companies, BP, Shell, and TotalEnergies, are either downsizing their operations in South Africa or have completely pulled out of the country.

These exits include parting ways with South African refineries. Total sold its stake in the Natref Refinery last year, while BP and Shell sold the Sapref Refinery for R1 last month. 

TotalEnergies, Europe’s largest oil company, has announced plans to give up its license to drill for oil and gas off the shore of South Africa.

The company spent billions finding significant oil reserves off the coast of South Africa but doubts their commercial viability due to the country’s low demand for fossil fuels.

Instead, TotalEnergies will focus on reserves found on Namibia’s coast, which would be cheaper to operate and export to global markets.

Energy expert Anton Eberhard suggested that the company’s decision is due to problems with local authorities and policymakers.

This announcement follows the company’s decision to sell its stake in the Natref Refinery, aligning with its strategy to divest non-core assets that are no longer economically viable.

Shell’s decision to sell its downstream South African operations, including retail, transport, and refining, was anticipated due to its plan to divest non-core assets from its portfolio.

Despite initial speculation, Shell clarified that the decision was purely business-related.

As a result of a cost-cutting exercise, it was determined that the South African operations were non-core and should be disposed of.

This included selling its stake in the South African Petroleum Refinery (Sapref) to the Central Energy Fund for R1 following floods in 2022 that led to its closure.

BPSA also sold its jet fuel business in South Africa and its stake in the Sapref Refinery, citing reasons similar to those of Shell.

BP cited cost-cutting efforts and global strategy alignment as reasons for the divestment.

This move followed the complete cessation of jet fuel operations in South Africa at the beginning of 2023.

BP also decided to exit all its aviation activities in South Africa.

From 1 May 2023, BP ceased aviation activities at OR Tambo and King Shaka International Airports, and Sterling cards will no longer be accepted at these hubs, along with East London.

Sapref Refinery, Durban, Kwa-Zulu Natal.

Some experts have suggested that the reasons for their exits in statements are ‘polite speak’ and that the main reason is South Africa’s economy’s poor performance over the past decade, with growth averaging only 1.1% from 2000 to 2023. 

The South African economy shrank by 0.1% in the first quarter of 2024, following a growth of 0.3% in the previous quarter.

This growth is lower than the International Monetary Fund’s projected rate of 0.9% for 2024.

On a year-on-year basis, the national GDP decreased by 0.7 percentage points from 0.6% in the first quarter of 2023.

Emerging markets and developing economies are expected to grow 4.2% in 2024 and 2025, while Sub-Saharan Africa’s growth is estimated to be 3.8% in 2024, increasing to 4.0% in 2025.

One of Africa’s two biggest economies, Nigeria, is projected to grow 3.3% in 2024.

However, the biggest economy, South Africa, is only projected to grow a meagre 0.9%, significantly behind its peers.

This also resulted in a decline in the value of private projects planned for South Africa, such as Total, Shell, and BPSA.

Nedbank’s Capital Expenditure Project Listing showed a decline in new private company investments in South Africa.

The value of new projects announced in 2023 was R148.8 billion, down from R259.9 billion in 2022 and R392.7 billion in 2021.

Global oil giants have also reduced their operations in the country due to economic challenges and investor pressure to reduce costs amidst declining demand for fossil fuels.

This has led to the conclusion that their operations in South Africa are no longer economically viable, resulting in their exit.

To address the absence of these global companies utilising local refineries, some have suggested that they could be reopened and run by local private companies or the government, which would also help lower fuel prices in South Africa.

However, economist Dawie Roodt told BusinessTech that this is very unlikely.

Roodt said the reopening of refineries in South Africa would potentially work. However, it would be incredibly difficult.

This is because South Africa would struggle to find someone willing to invest in such activities and have the skills to operate the refineries.

Alternatively, if the state ran it, it would follow many other state-owned entities and would become a complete disaster, said Roodt.

Read: Another major company in South Africa enters business rescue

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