Engen to convert “financially unsustainable” Durban refinery into import terminal
27 April 2021
Engen has announced that it will be converting its 120,000 barrel-per-day Durban refinery into an import terminal. Engen began to consider the refinery’s future in October before a December explosion closed the plant. Repairs have been estimated to cost as much as 800 million Rand (£39.1m), however Engen has said global product supply surplus and depressed demand were the primary reasons behind the company’s decision.
In a statement on April 23 announcing its intention to proceed with its Refinery to Terminal (RTT) conversion initiative, the South African energy company said its decision was not taken lightly and follows an extensive strategic evaluation of Engen’s refining business, in which every facet of the refinery was scrutinised and assessed against market demand, future growth potential and the ability to contribute sustainably. The substantive cost of investment for upgrades required to bring the refinery in line with evolving quality and emissions regulation, were also part of the strategic review considerations, Engen adds.
After consulting local authorities, Engen also commissioned an independent refinery viability study and an independent socio-economic impact assessment. The reports confirmed the that the refinery is not financially viable and indicated relatively minor impact on overall GDP and taxes, while identifying upside benefits such as better security of supply, trade balance improvements and positive environmental impact.
In the statement, Engen Managing Director and CEO Yusa’ Hassan, commented: “The conclusion of the strategic assessment is that the Engen refinery is unsustainable in the longer-term. This is 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. Furthermore, unaffordable capital costs to meet future CF2 [Clean Fuels 2] regulations compliance continues to be a challenge for the long-term sustainability of the refinery.
“The RTT is part of a long-term business sustainability strategy to ensure Engen is resilient against future market threats and can respond with agility to new opportunities. It also has a knock-on benefit of a reduction in emissions and carbon footprint that will contribute towards Engen’s environmental stewardship commitments.”
The Engen refinery, located in the south of Durban and commissioned in 1954, is the oldest refinery in the country and is responsible for approximately 17% of the country’s fuel production. The closure of the refinery in December, together with the closure of Astron Energy’s Cape Town refinery following a fatal explosion in July 2020, has resulted in a steep increase of oil product import demand as South Africa struggles with meeting production and supply targets.