BURGAN Cape Terminals is an independent black empowered fuel storage company that is hoping to build a storage and distribution facility in Cape Town harbour to address the continuous problems with fuel supply to the Western Cape. Global oil company Chevron, which controls fuel supply in the Western Cape, is opposing this facility on the grounds that it will result in the closure of its Milnerton-based refinery. This is not true.
In Business Report on Friday, Chevron argues that this is because fuel imports will increase, including, but not limited to, clean fuels. Burgan believes this is a red herring in an attempt to prevent competitors from entering the Western Cape and to maintain Chevron’s control of the supply of fuel in the region. Analysis from some leading experts indicate that the project will not jeopardise Chevron’s existence and that at worst the introduction of an alternative supply of fuel may reduce Chevron’s profits in its combined marketing and refinery business as the company is vertically integrated.
The Chevron refinery is part of Chevron Downstream, which includes Chevron’s distribution business (retail stations). We believe Chevron Downstream is a highly profitable business as a result of the refinery and its supply dominance.
In fact, Chevron’s concerns with reference to the importation of all fuel types are unfounded. This is because companies that rent storage space from Burgan will mainly get their products from the Chevron oil refinery, which is the main supplier of fuel to the Western Cape. Oil companies in the Western Cape will and intend to continue to support Chevron’s supplies in preference to imports and coastal supplies even if the Burgan terminal is installed. This is because the supply of domestic fuel in the market is cheaper than imports and coastal supplies.
When Chevron is unable to meet market demand, customers have the option to import product, but importantly, these are subject to the import regulations governing the fuel industry. Importers of fuel cannot do so without a permit from the Department of Energy. The permit guidelines indicate that local manufacturing and security of supply should be taken into consideration during the issuing process. This legislation, imposed by the Department of Energy and the International Trade Administration Commission of SA, ensures that domestic fuel supplies are exhausted before imports are approved.
It is true that the Chevron facility can only produce a limited amount of clean fuels. The reason for this is that Chevron has to date failed to make the requisite investment upgrades to its refinery, which would allow it to produce clean fuels in substantial amounts. However, since clean fuels are more expensive than higher sulphur fuels, Chevron’s contention that imported clean fuels will displace its locally produced higher sulphur fuel is commercially unlikely and unviable.
South Africa is likely to be energy constrained for many years to come, so the more contingencies we put in place to address this energy challenge the better. Secure and plentiful energy means a growing economy and much needed jobs.
Chevron using strong arm tactics to hold on to its dominance in the Western Cape doesn’t serve the region, South Africa or its people. This should not be an either or scenario, our country needs all options. The fact that the facility has been selected as an Operation Phakisa project indicates that our government believes this too.
Muziwandile Mseleku is the chief executive of Burgan Cape Terminals