Depressed demand from pandemic and low margins may see Engen Refinery become fuel storage facility Picture: Doctor Ngcobo/African News Agency(ANA)
Depressed demand from pandemic and low margins may see Engen Refinery become fuel storage facility Picture: Doctor Ngcobo/African News Agency(ANA)

Engen refinery set to shut down

Time of article published Oct 9, 2020

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By Shirley le Guern

Durban - The Engen oil refinery (Enref) is expected to close its doors in 2023 and the facility may be converted into a fuel storage facility for imported product, according to sources close to the refinery.

Suppliers to the refinery, who did not want to be named, said they had been informed last week that they should plan ahead for its probable shutdown, although Engen’s head office says that no formal decision has been made.

Combined with depressed demand as a result of Covid-19 and persistent low gross refining margins, the outlook for the refining business remains negative and continues to deteriorate, Engen spokesperson, Gavin Smith, said in a statement.

“Despite an excellent track record of operational efficiency, our refinery continues to be negatively impacted by the external global refining environment,” Smith said.

He added that Engen had initiated consultation with employees regarding a multibillion-rand proposal to increase its import and supply capacity in Durban.

“The proposal, which will ensure Engen meets South Africa’s growing demand for petroleum products, remains at a consultative stage with employees during which time alternatives are being evaluated,” it said.

Engen confirmed that it is considering several options with regards to the refinery but no decision has been made.

The refinery employs 650 people and it is unclear how many jobs are in jeopardy should it close.

Smith added Engen would consult stakeholders at the appropriate time should a decision be taken.

Yesterday, KwaZulu-Natal MEC for Economic Development, Tourism and Environmental Affairs Nomusa Dube-Ncube said she had assigned Trade and Investment KZN chief executive Neville Matjie to engage with Engen to look into this matter.

“This forms part of the implementation of the economic transformation and reconstruction plan which is aimed at turning around the situation,” she said.

Commissioned in 1954, the refinery is 66 years old. It has, however, undergone consistent modernisation and routine statutory inspections and maintenance work on its process equipment.

It currently produces Euro 2 spec fuel, according to Smith.

It is South Africa’s third largest oil refinery with a capacity of 135000 barrels a day.

As South Africa does not have its own oil deposits, liquid fuels are either imported in finished form or as crude oil which is refined at the country’s oil refineries.

Although no official figures are available, the World Bank estimates around 18.63% of South Africa’s liquid fuel was imported in 2018. As demand has continued to outstrip supply from local refineries, this has continued to climb.

According to the South African Petroleum Industry Association, the fuel sector contributes about 8.5% of the country’s gross domestic product.

It said that investment in South Africa’s ageing refineries was necessary to avoid widening the trade deficit for liquid fuels.

Smith said that approximately 60% of Engen products sold in Southern Africa were produced by Enref with the remainder imported or procured from other local oil companies.

“The global refining environment is evolving with the emergence of mega sized, integrated and complex refineries resulting in excess global fuel supply and low refining margins. This is forecasted to persist well into the future.”

Transnet, which operates the R30billion multi-product pipeline that transports four different petroleum products, including refined petrol and diesel, between Durban and Gauteng, said it had not been informed of any proposed changes at Enref.

It added it could not comment on the impact of the refinery’s closure on the port of Durban or on the operation of the single buoy mooring about 2.5km off the coast of Durban, through which both crude oil and refined products are offloaded.

Engen, together with other companies in the fuel sector, is a part owner of this single buoy mooring.

Dube-Ncube said that as part of the province’s implementation of the economic transformation and reconstruction plan, they had adopted a business support, retention and extension programme which focused on:

Supporting businesses that are weak but that have sound foundations and can become viable through accessing existing short-term industrial policy support programmes to contain further job losses and protect important production capabilities.

Supporting existing businesses’ need to expand by creating an environment that is conducive to new investment.

She added it was also focusing on the key interventions that are catered for in the KZN Growth and Development Plan, which are to ensure that they improve access to economic development funding and performance monitoring of the value chain in key sectors.

“Engen remains a key player and a leader of the downstream South African petroleum market. We are proud of the fact that this company is located in this province and on the South Durban Basin, where it contributes towards job creation.

“Our wish is for the company to remain in this province for many more years to come,” she added.

“Importantly, as KZN we potentially have access to the abundant resources of the ocean, including fisheries, offshore oil and gas and maritime tourism.

“Our ports of Durban and Richards Bay handle over 60% of the country’s seaborne cargo. We remain determined to work with companies such as Engen to increase the participation of previously disadvantaged communities in sectors such as oil and gas - maritime industry,” Dube-Ncube added.

She said the department was also determined to position Richards Bay Industrial Development Zone as a site for energy infrastructure.

“The importance of the energy supply sector lies both in improving the quality of life for the previously disadvantaged majority as well as supporting large-scale industrial development.

“In particular, the oil and gas industry presents many opportunities for partnerships in this province. Ahead of lockdown, statistics showed that the oil and gas industry employed an estimated 7500 people and had an estimated annual turnover of over R196billion, with the refining segment of the industry contribution almost 99% to the total industry’s turnover,” said Dube-Ncube.

The industry is believed to account for more than 90000 indirect jobs in the distribution and marketing segment of the industry value chain, she added.

The Mercury

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