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Chevron: Local production should be enhanced

Chevron South Africa, oil company which trades under the Caltex brand in the country, says it is deeply concerned by the reasons recently published by the National Energy Regulator of South Africa (NERSA) for its decision in granting licences to Burgan Cape Terminals for the construction and operation of a loading and storage facility in the Port of Cape Town.

“It is difficult for us to accept the regulator’s decision given that their reasons provided have a number of significant flaws. The regulator disregarded vital information we have shared with them, and failed to seek clarifications from us in areas they didn’t understand in order to formulate objective conclusions in its decision,” says Nobuzwe Mbuyisa, Chairperson of Chevron South Africa.

She continues, “In this, we are disappointed and surprised that the regulator shows a limited understanding of the petroleum sector – in particular the challenge the industry is facing with clean fuels policy implementation.”

In the published reasons, Nersa concluded that, "Chevron has shown risk to its refinery from Burgan’s facility, but that is not the same thing as certainty of consequence. Business is about investors taking risks and being rewarded for them. Denying Burgan a licence on the grounds of risk to Chevron, especially limited risk that it faces, cannot be justified. Indeed it would appear that it is Burgan that faces a greater risk in finding customers for the 50% of its capacity that is not yet contracted."

Muziwandile Mseleku, CEO of Burgan, said, "We welcome the comprehensive reasons published by Nersa. The development not only addresses the country’s need to increase fuel infrastructure and capacity but it will also have a positive effect on the economy, on global skills transfer and on the transformation of the local energy sector.”

Mseleku said that Chevron’s concerns with reference to the importing of all fuel types were unfounded.

"This is because companies that rent storage space from Burgan will mainly off-take their products from the Chevron Oil refinery which is the main supplier of fuel to the Western Cape 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," Mr Mseleku said.

Chevron’s primary challenge with the Burgan Cape Terminals facility is that of its import capability in relation to clean fuels. NERSA’s decision has come at a time when government decisions regarding local manufacturing of clean fuels have been deferred. As a result refineries are unable to progress plans to produce a product that can now be imported ahead of local investment and jobs. 

“We do believe there is a win-win situation in which Chevron and Burgan co-exist and we have provided NERSA with solutions in this regard. Our main concern and what we have to question is whether NERSA and the Department of Energy, as governing authorities, realize that without regulated restraints on clean fuel imports, our local manufacturing sector, which provides jobs to over  100 000 people, is at risk,” says Mbuyisa.

Areas of Chevron's concern in relation to the Reasons For Decision (RFD) include:

Regional supply and demand differences

  • Whilst Cape Town has one refinery, and Durban two, the fundamental differences are product supply. The market supplied by the Cape Town refinery is long (oversupply) on product, whereas the market supplied by the Durban refineries is short (i.e. insufficient product is manufactured) because it includes inland areas such as Gauteng. . Increased supply in a market where it is not needed effects viability of manufacturing. This was a fundamental flaw in its decision namely a failure to understand the supply/demand mechanics and differences between the two markets.

Clean fuels

  • "NERSA fails to appreciate that the lack of finality and clarity from government on a cost-recovery mechanism and import policy places local refinery industry under threat," says Chevron.
  • NERSA maintains Chevron fails to invest in its own refinery for production of clean fuels. NERSA fails to understand that oil companies are not able to invest billions in upgrading refineries until a cost recovery mechanism enabling a return on such investments are put in place. This is not only a Chevron issue, but an industry wide issue.

Regulation and oversight

  • "NERSA passes the buck to the Department of Energy (DOE) by not recognising the consequences and taking appropriate action where the refining sector is placed at risk. In stating this, a decision could have been delayed to either seek guidance, or recognise this risk upon making a sound decision.  Chevron is however encouraged by the fact that NERSA acknowledges that the relevant import policy decision has not been taken and is something that the policy maker, in this case the Department of Energy, has to attend to," says the oil company.

Eskom diesel supply

  • NERSA states that the Burgan facility will provide an option to assist in reducing diesel shortage.
  • Chevron notes that Eskom diesel demand is erratic and unplanned. Supply from international markets would take up to three weeks to reach Cape Town. Therefore, Burgan will not improve this situation. Strategic stockpiling is the solution to Eskom, not increased import capability.

“Chevron would not like to see another energy crisis like Eskom risking security of fuel supply and local manufacturing jobs.  This decision not only puts us at risk, but an entire industry’s future,” says Mbuyisa.

She concludes, “We will continue to fight for our industry and its employees. Ironically – this is what Government asks of us.”

Chevron continues to challenge the Burgan Cape Terminals facility in an Environmental Impact Assessment (EIA) process. The company is currently evaluating all alternatives related to NERSA’s decision with its legal team and will action next steps in due course.

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