Project Overview > What and Why

Project Mthombo is an initiative by PetroSA, South Africa’s national oil company, to build a world-class crude oil refinery in the Coega Industrial Development Zone near Port Elizabeth in the Eastern Cape. The project will cost an estimated $11 bn. Once built, it will be the biggest in Africa.

National demand for refined fuels already exceeds South Africa’s refining capacity.

It is estimated that by 2015 South Africa will have to import 8.5 billion litres of fuel per annum (equivalent to 150 000 barrels per day) if there is no significant new investment in local refining capacity.

Importing this much refined fuel will have a negative impact on the country’s foreign exchange reserves and makes national supply very vulnerable to external factors.

The country’s existing refineries are on average between 40 and 50 years old and use outdated technology. To upgrade these refineries to meet new Clean Fuels product specifications and emission standards will require significant investment. There is no incentive for the oil companies to make such an investment and consequently no plans to upgrade capacity have been announced. The oil companies’ preferred option would be to import.

Security of supply

The South African government is concerned about being dependent on international oil companies to secure the country’s future liquid fuels energy needs. It has introduced an Energy Security Master Plan to address this, which calls for PetroSA to provide strategic leadership to achieve security of supply.

Five alternative sites were considered and Coega Industrial Development Zone was deemed the most appropriate for a project of this magnitude. Besides having sufficient land there is also the potential for secondary industries to develop around the refinery. It is ideally placed to supply domestic markets, with Cape Town, Port Elizabeth and East London being served by ship, the Free State and Northern Cape by rail, and Durban and Gauteng using the existing pipeline. Coega will reduce the country’s reliance on the vulnerable, congested Durban (Eastern) corridor, where the bulk of refining and 75% of crude import activities take place.

There is also a strategic opportunity to provide a second pipeline to major inland markets from Coega. This will contribute significantly to the security of supply logistics by reducing the dependablility on Durban as the only supply channel in the country.

Refinery technology

The country’s existing crude refineries were built to process medium/high sulphur crudes from the Middle East and will not be able to produce fuels that meet stringent emission standards demanded by the modern customer base without considerable investment. Given the relatively low refining margins, this is an unattractive commercial prospect.

Their refining configurations are designed primarily to produce gasoline, not distillates, resulting in expensive imports of diesel fuel. This refining process results in large quantities of low-value, heavy fuel oil that is used as furnace or bunker oil. Still captured in this fuel are significant volumes of higher value light petroleum products that traditional refining processes cannot extract.

The Coega refinery will process heavy sour crude with a deep conversion capability, producing a high-quality (Euro V), high-value, white product yield in excess of 90% per volume.

Environmental requirements have also meant that demand for light sweet crude is increasing. This has widened the price differential between light sweet crude and heavy acid base crude.

The refinery will generate its own electricity. A power plant is planned that would use a by-product from the refinery process, petroleum coke (petcoke) as energy source. It is envisaged that the power station would generate about 800MW of electricity of which the refinery would use around 200 MW. The excess power will be fed back into the national grid.

Economic Impact

A macro-economic study revealed that the refinery could contribute a saving of up to R18bn per year on South Africa’s Balance of Payments for the period 2016 (year of commissioning) to 2035.

Its contribution to the country’s GDP during the development phase is estimated at 0.2% or R3.8bn per year increasing to 0.5% or R12.6bn per year once commissioned.

The Eastern Cape has the lowest economic activity of all the provinces in the country and Project Mthombo provides a much needed investment opportunity for the region. Up to 27 500 temporary jobs will be created during the construction period of three to four years and, when operational, another 18 500 permanent jobs owing to direct and indirect effects in the South African economy.. The multiplier effect on the region will also be significant with considerable opportunities for small and medium companies for the provision of goods and services to the refinery.

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