SOUTH AFRICA:

Apartheid era oil storages fill up as US cuts import from Africa

open | 19 March, 2014

IN THE spring of 2012, under pressure from the US, South Africa switched about 100,000 barrels a day of its crude oil imports away from sanctions-plagued Iran to, primarily, Angola. In fact, South Africa’s move to obtain more oil from Africa has proven to be beneficial, the US Commission on Energy and Geopolitics points out in a new report entitled Oil Security 2025.

South Africa, the report states, can get involved more closely in refining Africa’s oil and that way "reduce the need for oil product imports" and "take advantage of the higher value of oil product exports versus unrefined crude oil exports". South Africa’s location is beneficial, too. The ease of importing and exporting oil from the rest of the continent would allow South Africa to become more integrated in Africa’s oil supply chain, be it production, exploration, refining or storage facilities.

The oil security report points out that South Africa’s collaboration with producers in sub-Saharan Africa could lead to a necessary increase in continental refining capacity. Among Sino-South African projects on the go in South Africa is PetroSA’s and Chinese state oil company Sinopec’s planned refinery at Coega. South Africa and China also have shares in the same African exploration fields.

South Africa’s increased energy footprint in Africa also facilitates intracontinental trade and investment, a priority when Finance Minister Pravin Gordhan presented his budget in Parliament on February 26.

One of President Jacob Zuma’s pet projects would also fit a scenario where South Africa integrates more with the continent to improve the balance of payments and also oil security — the planned international crude hub in Saldanha Bay, which includes blending and storage capacity.

"South Africa is, to my knowledge, alone in Africa to offer oil storage capacity. There is a lot more that can be done there," says a former employee of a large international storage construction company.

The Saldanha Bay storage was built during the sanctions era when SA also used the Ogies coal mine complex to store oil.

Integrating Africa’s energy industry is a key policy goal of Nigeria’s oil minister, Diezani Alison-Madueke.

Nigeria is forced to find new markets now that the US has backed out of virtually all of Nigerian crude imports — still 1-million barrels a day just seven years ago — and replaced it with rising domestic production, up by 3-million barrels a day since 2009, thanks to shale oil discoveries.

Still, Nigeria and South Africa, the two largest domestic oil markets in sub-Sahara Africa, can benefit handsomely if they are using their full potential, the Oil Security 2025 report suggests.

One of Nigeria’s "new" replacement markets can be Africa, Ms Alison-Madueke told reporters at the December meeting of the Organisation of the Petroleum Exporting Countries in Vienna.

"I think … we start to look at the African continent as a whole. Africa has to look how best it can work together, even in terms of the export markets."

Nigeria has found new clients in Europe, Asia and elsewhere, including South Africa.

Angola was the first to send its crude oil to Asia in a big way. China, for example, typically buys more than 1-million barrels a day of African crude, up to 70% of that coming from Angola.

But with increased Chinese import dependence — smaller volumes are coming from the Republic of Congo, South Sudan, Sudan and Equatorial Guinea — there may be problems ahead.

The US expects China, like itself, to become keener to protect its oil supplies, militarily and politically.

This could lead to confrontations, but the scenario the US is working towards is that it and China are on the same page.

The US’s tolerance of China’s activities in Africa’s energy sector is high, as long as China does not become too big and continues to stay out of domestic politics. US oil security officials say there is no threat from China as long as predominantly western influences prevail in Africa.

Oil major BP’s former CEO John Browne argues that all consuming countries want to balance their energy risk. At a New York Centre on Foreign Policy seminar, Mr Browne said that "all countries are keen to diversify, not be dependent on one or two oil and gas suppliers".

South Africa is not taking sides — it is hedging its bets.

It partners with China and it partners with the US, including three US oil companies — Chevron, Anadarko Petroleum and ExxonMobil — that have been given shale gas licences in the Karoo basin.

The Obama administration has launched the $7bn Power Africa initiative, topped up with $14bn in private finance, aimed at improving Africa’s electricity output by 50% in five years.

Western countries are still by far the largest investors in, and trading partners with, Africa, and this extends to the oil sector. US companies have oil and gas investments in 22 of the 51 countries in Africa where production of exploration is taking place.

Africa’s oil and gas industry shows no sign of slowing down. The continent has less than 10% of the world’s oil output today, but that is expected to grow considerably as new oil and gas fields are discovered.

Africa is expected to be on the receiving end of $2.1-trillion in investments until 2035, according to the Washington-based Centre for Strategic and International Studies.

Africa, therefore, will not fall off the radar.

American companies require continuous protection against terrorism, disadvantaged communities and pirates.

However, with the sudden change in the US’s own oil fortunes, government officials and economists are busy recalculating and downsizing some of the oil security risks abroad.

(This story was published in Business Day March 10 2014.)