Chevron Sees Additional South African Oil Refinery Causing Glut

  • Economic slowdown has curbed motorists' demand for fuel
  • Government has proposed building Africa's largest refinery

South Africa doesn’t need another oil refinery because the slowing economy has curbed demand and the country has ample gasoline production, said Shash Rabbipal, the new chairman at the local unit of Chevron Corp., the second-largest U.S. energy company.

“Should another refinery be built, it would mean that the country would have to increase its exports of products and this would mean a change from the current practice of ensuring that supply catered mainly for local demand,” Rabbipal, 47, said Friday in an interview in Cape Town. He has worked for Chevron for 25 years and was appointed to the post last week.

The six South African refineries, including San Ramon, California-based Chevron’s Cape Town facility, process a combined 703,000 barrels of crude a day, exceeding demand, according to Rabbipal. State-owned PetroSA Ltd. proposes a new plant on the south coast that would be the biggest on the continent and add 43 percent to fuel production capacity. The state contends the country needs local sources of additional diesel and gasoline.

MAP: South Africa's oil refineries
MAP: South Africa's oil refineries

The South African economy unexpectedly contracted in the second quarter and the central bank has cut its growth forecasts four times this year, predicting expansion of just 1.5 percent for 2015. The rand has dropped 13 percent against the dollar this year.

“Consumers have felt the pinch of the lower economic growth rate, the depreciation of the rand and the hike in petrol prices we saw in previous years, this means they have become more frugal about using petrol,” Rabbipal said. “The fuel-consumption trend has certainly flattened.”

PetroSA’s plans call for a refinery with capacity of as much as 300,000 barrels a day at Coega in Eastern Cape province, known as Mthombo. The company reported a record 14.5 billion rand ($1.09 billion) loss for the year ended March, according to its annual report, which said “radical actions” are need to ensure the business survives.

“Should Project Mthombo go ahead, it will have a significant impact on production at other refineries and the local economies they operate in,” Rabbipal said.

Since the 1960s, Chevron has operated the only oil refinery in the Western Cape, the country’s second-most economically important province. Burgan Cape Terminals Ltd. is building a fuel-storage facility in Cape Town, a venture Chevron initially opposed and which is due to be completed in early 2017.

“We believe our current storage capacity at the refinery is sufficient, but we believe in competition and coexistence and we are happy to cooperate with Burgan where we can,” he said.

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