South Africa Willing to Reduce Planned Fuel Refinery Size By Half, BP Says

South Africa may reduce the size of a planned new fuel refinery by half and delay construction to ensure current producers aren’t forced to close, said Gerard Derbesy, chief executive officer of BP (BP/) Plc’s local unit.

“My understanding is that the problem of overcapacity is understood,” Derbesy said in an interview. “There is no intent to build something that will be too big. We’re more talking a 200,000 barrel-a-day refinery as opposed to 400,000 barrels.”

BP estimates only 2 million barrels a day of extra global refinery capacity outside of China will be needed by 2030 as vehicle efficiency and refinery technology improves.

“There is no urgency to rush into a big investment” in South Africa, Derbesy said. “Anything too early and too big will create overcapacity and will result in shutting existing capacity, which is not what anybody wants.”

State-owned PetroSA, based in Cape Town, began studying the Mthombo project about five years ago as diesel and gasoline imports rose. Demand exceeded local refinery production for the first time in 2007. The country has six refineries, with a combined capacity of about 692,000 barrels a day, according to data from the South African Petroleum Industry Association.

“The best-case scenario we see is a 200,000 barrel-a-day refinery by 2020,” Derbesy said. The company bases its outlook on an assumed 4.5 percent rate of economic growth a year, steady refinery capacity elsewhere and and stable fuel efficiency, he said. The economy is expected to grow 2.7 percent this year, Finance Minister Pravin Gordhan said at his budget Feb. 22.

PetroSA Review

PetroSA initially planned a 400,000 barrel-a-day refinery to start in 2015. The company should finalize its business study, including a review of the size of the project, in “the next month or two,” spokesman Thabo Mabaso said by mobile phone today, declining to elaborate on the capacity of the refinery.

Expanding capacity at current refineries would make more economic sense than a new facility, and more studies are needed before a decision is taken, Derbesy said. BP and Royal Dutch Shell Plc (RDSA) operate the Sapref refinery, the country’s largest.

To contact the reporter on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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