South Africa Crude-Refinery Upgrades Seen Costing $2.7 Billion

The cost to upgrade South Africa’s six crude refineries to produce lower-sulfur fuel will be about 40 billion rand ($2.7 billion) and this still may not be sufficient to supply the domestic market, Strategic Fuel Fund Chief Executive Officer Sibusiso Gamede said.

“South Africa’s oil refineries are not ready and will not be ready to produce Euro 4 standard fuel, let alone Euro 6, which the world is moving to by 2017 or 2020 in preparation for the introduction of more fuel-efficient vehicles,” he said in an opinion piece in Johannesburg-based Business Report newspaper Tuesday. “Our present crude-oil stocks are suitable for producing products of lower specifications, which means we need to stockpile higher-quality grades of crude oil.”

The country is unlikely to meet a target for its refineries to be able to handle cleaner fuels by 2017. In 2011, the oil industry estimated it would cost the nation about $3.1 billion for all refineries to comply with Euro 4 fuel standards for gasoline, which contains no more than 50 parts per million of sulfur, or $3.7 billion to meet Euro 5 standards, with less than 10 parts.

Last month, the Central Energy Fund, which manages the country’s fuel stock through the SFF, said it transferred titles of 10 million barrels of crude to companies in December as part of a stock rotation, with the contracts stipulating the fund has first right to the oil in an event of emergency. The fund undertook the rotation partly due to deterioration of the oil quality and also because the stock was relatively high-sulfur crude, which isn’t as environmentally friendly, the SSF said.

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