BMI Research says SA will become increasingly dependent on imported fuels, as ageing refineries cannot supply the fuels modern cars need.
Allowing the government to set the petrol price once a month is keeping SA’s cars and fuels stuck in the past, BMI Research warned in a note released on Tuesday morning.
SA had to indefinitely delay its plan to introduce Euro V fuel standards in July because the profitability of local refineries is too low for them to recoup the investment required to upgrade their plants.
Since modern cars are increasingly designed to run on the cleaner fuels that SA’s ageing refineries cannot produce, the country’s dependence on imported petrol and diesel will grow.
“Increases to the new vehicle emissions tax last year will promote the sales of more modern and efficient vehicles. However, domestic refining capacity will be unable to meet the demand for higher-quality fuel,” the report said.
“As a result, SA will face a higher import burden for higher-quality fuel. This poses additional headwinds to domestic refiners due to the increasing competitiveness of fuel imports.
“A build-out in global products capacity has lowered the cost of imports, with production centres in Asia and Europe already upgraded to higher standards.”
BMI said one “flash of positivity” was Sinopec’s purchase of Chevron’s 110,000-barrels-a-day Cape Town refinery.
“The more risk-tolerant Sinopec already possesses experience in upgrading refineries to higher fuel standards in China and, whilst the potential investment in a higher-quality product slate is unlikely with Chevron as operator, Sinopec may view the upgrade as a longer-term opportunity within the country,” BMI said.
“However, upgrading existing capacity will nonetheless be expensive, with Chevron previously estimating the cost of upgrading the Cape Town refinery to be around $1bn.”
Source: Business Day