Engen to convert Durban refinery to import terminal

South African energy company Engen will shut its 105,000 b/d Durban refinery and convert it to an import terminal, after an independent report said that it is not financially viable.

Engen chief executive Yusa' Hassan said that the refinery "is unsustainable in the longer-term… primarily due to the challenging refining environment as a result of a global product supply surplus and depressed demand, resulting in low refining margins, and placing the Engen refinery in financial distress."

Hassan said that the decision was partly down to "unaffordable capital costs to meet future CF2 [Clean Fuels 2] regulations compliance". These regulations require South African gasoline and diesel to contain no more than 10ppm sulphur, among other stipulations.

Engen, which is 74pc owned by Malaysian state-owned Petronas, began weighing up options regarding Durban's future in October last year, two months before the plant was closed by an explosion and fire. The blast, which caused around 800mn rand ($55mn) of damage, led to the revocation of Engen's operating permit for the refinery pending the submission of an investigation into the incident.

The Durban downtime has led to an increase in South Africa's oil product import demand. A record 290,000t of gasoline left Europe for the country in December, but flows have eased since the start of the year and so far this month 100,000t of gasoline has departed on the route, according to Vortexa. Tankers discharged around 1.8mn t of diesel and other gasoil in South Africa in the first three months of this year, the highest quarterly imports in at least four years, Vortexa said.

The Engen shutdown, coupled with the prolonged halt of Astron Energy's 110,000 b/d Cape Town refinery after a fire in July 2020, has drastically tightened South African bitumen production and supply. Durban produced between 130,000-160,000t of bitumen in 2019 and 2020, half for export mainly to southern African markets.

A rare bulk bitumen cargo will arrive at Cape Town on 10 May on the 14,911 dwt Puma Energy tanker Palanca Cadiz, which loaded in Barranquilla, Colombia. Such cargoes are discharged directly from ship to truck at South African ports like Cape Town and Durban.

While suppliers and buyers in the country say there is an urgent need for terminals to be set up to handle import cargoes in the future, one major local buyer said today that there was little or no prospect of Engen building a bitumen import terminal at Durban, probably because of costs and environmental concerns. The company is likely to focus investment on closing the refinery and on converting and upgrading any existing storage tanks to oil products.

The Durban refinery was commissioned in 1954, making it the oldest in South Africa. It was responsible for around 17pc of the country's fuel production, according to Engen.

By Benedict George, Keyvan Hedvat and George King Cassell