State-owned oil and gas company PetroSA expects the capital expenditure costs of its planned Coega refinery to fall by about 25% because of the unfavorable global economic conditions, said CE Sipho Mkhize.
Delays or cancellations of other major projects around the world enabled PetroSA to negotiate favorable terms as the market had swung from a supplier's market to a buyer's market.
Speaking at a conference in Johannesburg yesterday, Mkhize said the 400,000 barrel per day project was "perfectly timed." He said PetroSA started pursuing the project when there was a peak in construction costs and those costs were slipping back.
He said if PetroSA initiated negotiations with suppliers in the next 18-24 months, the company would be in a position to negotiate "the most competitive terms".
Mkhize said the global economic slowdown and the subsequent freezing of major projects around the world would free up crucial skills, into which PetroSA would tap.
PetroSA vice-president for new ventures midstream, Joern Falbe, said the costs of building the refinery could fall by about $2bn, from the initially forecast $11bn to about $9bn. "That is a significant improvement in this tight capital funding environment."
He said during the pre-feasibility phase of the project, when the $11bn was forecast, that prices of inputs such as steel were at a peak.
In his presentation, Mkhize said PetroSA's decision to increase the capacity of the refinery from the original 250000 barrels a day would reduce the operational and capital costs between 20% and 30%.
He said the refinery would be the new central distribution hub for clean fuels in sub-Saharan Africa.
PetroSA has said the refinery would be designed to meet the highest clean fuel standards. Local refineries still produced relatively dirty fuel, only adhering to the so-called Euro 2 requirements. Other countries have moved to Euro 5, which indicated the lowest fuel sulphur content. SA's fuel quality was "far behind" even fellow developing countries, Mkhize said. "South African refineries require significant investment to comply with future specifications."
Mkhize said SA's crude supply infrastructure was not sustainable. He counted as a threat to security of fuel supply the ageing refineries "with availability problems".
Also speaking at the conference, Rod Crompton, head of pipelines regulation at the National Energy Regulator of SA , said the country's inland areas were not in immediate danger of running out of fuel as the economic slowdown had reduced demand. "We are back to (second quarter) 2007 levels," he said.
Meanwhile, PetroSA has made two offshore blocks available for oil and gas exploration, said executive David van der Spuy.
Speaking at the conference, Van der Spuy said the agency would next month invite exploration companies to bid for the Tugela licence off the country's east coast and the Orange basin license off the west coast. He said details of the bidding process would be included in tomorrow's Government Gazette.
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