South African energy company Engen is to convert its 120,000 bpd Durban refinery into an import terminal, saying that it is no longer financially viable.
The refinery was commissioned in 1954 and is responsible for 17% of South Africa’s fuel production, although it has been shut down since December 2020 following a fire. Engen conducted a review of operations at the site, including market demand, future growth potential and its ability to contribute sustainably. The company consulted with government, including the South Africa’s Department of Mineral Resources and Energy (DMRE) and the KwaZulu-Natal provincial government, and commissioned an independent refinery viability study and an independent socio-economic impact assessment
Engen found that the cost of upgrades to bring the plant into line with current regulations was ‘unaffordable’, and the refinery has limited upgrade potential. In addition, the plot is in a residential area and is restricted in size, making capacity modification unfeasible.
Engen also blames in part the changes in the global refining landscape, which has seen a shift towards integrated, complex mega-refineries in crude-supplying countries, with ultra-low margins. The situation has been exacerbated by the contraction in demand caused by the ongoing COVID-19 pandemic.
Yusa’ Hassan, Engen managing director and CEO said that closing the refinery and moving forward with the import terminal plan is necessary to safeguard the sustainability of the Engen business.
The new terminal is expected to have some benefits, including better security of supply, trade balance improvements and positive environmental impact, such as reduced emissions. The drop in electricity and water requirements locally will make more available for underserved households in the area. The development of the terminal will create jobs and generate economic activity. Hassan has pledged to preserve as many existing roles as possible, and to initiate a re-skilling and retooling programme, as well as looking at redeployment possibilities for other staff members.
Commissioning of the terminal is expected in Q3 2023.
‘Engen is committed to playing a leading role in growing South Africa’s future economic prosperity. Securing a sustainable Engen business provides the platform for the future development of new investment opportunities in South Africa, whilst the repurposing of the Engen refinery will serve as a catalyst for economic growth in KwaZulu-Natal, support job creation and socio-economic growth, and ensure Engen continues to be a positive contributor to both the provincial and national economies,’ says Hassan.
The company is the latest in a lengthening line of energy companies around the world to announce the conversion of an older refinery into an import terminal. In February 2021, ExxonMobil said that it would convert its Altona refinery in Victoria, Australia, into an import terminal in February 2021, and on 22nd April 2021, BP announced the first storage contract for the planned terminal at its Kwinana refinery site with Triangle Energy. Finland’s Neste, Marathon Petroleum in the US and Pilipinas Shell in the Philippines have also recently closed refineries in favour of terminals, while Australia’s Viva and Ampol are considering similar measures.