Investing in refineries

Focusing on the refining and marketing of fuels and lubricants, BP South Africa processes crude oil at the Shell and BP South African Petroleum Refineries (SAPREF) while manufacturing lubricants at its Durban-based oil blending plant. BP South Africa CEO, Pricillah Mabelane, talks to AES: SA about BP’s footprint in South Africa.

South Africa has gone from being a net exporter of refined oil products to a net importer. What are the causes?

From a macro perspective, increases in demand for fuel have been driven by long-term economic growth over the last few decades. However, there has not been much investment in refineries for various reasons, including the need for demand to shift significantly against supply before it is feasible to make structural changes to increase that supply.

Another driver has been an aggressive shift toward lower sulfur fuel, particularly D50, which local refineries, including SAPREF, have not been capable of producing. In the past, South Africa exported a lot of fuel but also imported a lot of D50. Although there has been a shift towards increased imports overall, most demand is still met by local fuel supplies.

Please outline some of BP’s recent work and capital investments in South Africa.

BP signed off on a $1 billion, five-year investment plan in 2018 – about 35 percent of that will go into our refinery business, which is a joint venture between Shell and others in SAPREF. The rest will be allocated to our marketing business and midstream operations.

A significant part of BP’s investment will go into upgrades to meet customer demand, particularly the migration to low-sulfur fuels. Our intention is to be D50-capable by 2021 with a major transition in 2019. The second element is in line with pending regulatory requirements involving the transition to low-sulfur, so we need to make sure our foundry is able to meet those specifications in the future. A third element is ensuring the reliability and availability of the refinery so that it remains competitive relative to refined fuel imports.

BP will have approximately 145 sites by the end of 2018 and our intention is to increase that by a minimum of 30 sites next year. We want to invest continuously in our customer value proposition and our partnership with Pick ‘n Pay is one of the ways that we are looking to improve our offering.

How does oil and petrol price volatility affect consumer purchasing patterns?

With the recent uptick in oil prices in South Africa, coupled with the volatility of the rand, we have seen oil prices, increasing substantially. This is on the back of government increases in levies and taxes over the preceding three years when prices were lower. Altogether, the cumulative effect has been significant price increases at the pump.
As prices have increased, consumers have changed their behavior, resulting in a decline in overall volumes at the pump. Significant changes in price differentials between 95 and 93 octane fuel were not experienced, but that is expected to shift if 95 octane fuel prices continue to approach the R20 per liter mark, as they had in the latter part of 2018.

BP South Africa recently launched a partnership with Pick ‘n Pay. Is this one of the strategies taken to adjust to new and changing consumer patterns at the pump?

In November 2018, we launched a partnership with South Africa’s second largest supermarket chain, Pick ‘n Pay, as a way for us to offer appropriate rewards to customers of both the supermarket retailer and BP. Our partnership goes back to 2008 when we opened our first pilot Pick ‘n Pay stores at BP service stations. It is a strong partnership that combines two strong partners and we want to leverage that strength now to understand customer demands and patterns. We are continuously looking to improve this relationship and have invested in technology that allows consumers to redeem points earned at Pick ‘n Pay on BP fuel.

What is your outlook for the South African oil market?

The market has been under pressure in recent years, but we remain positive. The South African government has been enthusiastic about turning it around, which in turn generates optimism throughout the sector. We know it will be a journey to large-scale growth and we believe it will materialize in the long-term. In the meantime, there have been improvements in the economic outlook, which bodes well for the future.

From BP’s perspective, we need to be efficient in how we run our business – to optimize, support and stimulate the economy. Simultaneously, we need to ensure that we balance risk and return for our shareholders. We are committed to South Africa and will continue to invest in its economy.