The closure of the Sapref refinery in Durban will have a knock-on effect on the economy but is unlikely to directly impact the price of fuel in the short to medium term.
This was the word from economists on the announcement that BP and Shell will halt operations at Sapref indefinitely from March 2022 as they consider the future of the refinery.
Sapref, the largest crude oil refinery in southern Africa, contributed substantially to national and provincial GDP, economists said.
It accounts for 35% of South Africa's refining capacity.
"The decision has been taken to allow an informed finalisation on the various options available to the shareholders, a sale option being the most preferred.
Until decisions about the future of the plant have been made – including a possible change of ownership – the Sapref shareholders are unable to commit to further investment in the refinery,” the firms announced in a joint statement on Thursday.
Shell and BP said that operations would be paused for an indefinite period, by no later than next month.
The firms said they would embark on a “spend freeze”.
Economist Mike Schussler said that the refinery's closure would have a negative impact on the country’s GDP figures.
“I don’t think it will have an impact on the fuel price now, but over time it could lead to a few cents’ increase.
But this is probably the largest manufacturing plant in KZN and it is certainly going to have a very big economic impact.”
Petroleum, chemical products and rubber account for 25% of manufacturing per quarter nationally, with refinery processes accounting for 12% of the total weight, of which Sapref contributes 35%.
“It is going to have a detrimental impact on manufacturing production in the GDP.
“There is going to be a 3.8% to 4.1% decline in our total manufacturing.” Schussler added that the closure of the refinery would also impact the upstream production of chemicals in the region and that it was likely that policy uncertainty and the insecure electricity supply had informed the petroleum giants’ decision to shut the operation.
On a positive note, he said load-shedding might be reduced due to the withdrawal of Sapref, which was one of the country's heavy energy guzzlers.
Economist Dawie Roodt said the closure was unfortunate.
“I was wondering why they have decided to close it down, because first of all I think they are still making quite nice money.
“But one of the reasons I think they are closing it down is because they were hoping to find something nice on the east coast of South Africa, but now, because of the green movement shutting that down, they have put it (the refinery) on hold,” Roodt said.
He added that the inability to secure oil feedstock for the refinery, a lack of capital investment, the “general condition” of the local economy, and the international trend towards green energy had probably contributed to the decision.
“Refineries in South Africa are low on capital investment and most of them are needing capital.
“The world is currently finding itself between two worlds, and those are the old world of dirty energy, like coal, gas and oil – carbon-based energy - and the new world of renewable, green energy.
“Everyone is trying to move away from the old world and people are stopping investing in old energy, but we have not invested enough in the new energies,” he said.
“We are in an in-between transition period, which is why oil, gas and electricity prices are at record highs.”
