April 23, 2021- Engen, a proudly South African brand and a progressive energy and solutions partner committed to enriching lives for a sustainable future, announced today that it will be proceeding with its Refinery to Terminal (RTT) conversion initiative. This considered 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.
As a responsible business and a committed corporate citizen, Engen has engaged extensively with Government, particularly with the Department of Mineral Resources and Energy (DMRE) and the KwaZulu-Natal Provincial
Government, on the future of the refinery in its strategic review process. These engagements and the feedback received from Government have proven highly valuable and helped inform our terminal conversion proposal.
At the behest of the DMRE and as part of Engen’s commitment to thorough due diligence, the company also commissioned an independent refinery viability study and an independent socio-economic impact assessment. The reports confirmed 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. Engen expects the RTT to also deliver other economic benefits over the long-term.
Yusa’ Hassan, Engen Managing Director and CEO, comments, “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 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 conversion will also deliver a significant drop in electricity and water consumption, which will mean more electricity and water would be available for under-served households.
Hassan continues, “The investment in new infrastructure to create a world-class import terminal as well as repurposing of the refinery site, will generate much needed economic activity in KwaZulu-Natal. In the current economic climate, this should contribute not just in terms of capital, but also in terms of job creation and skills transfer, something that will support South Africa’s post Covid-19 economic recovery. The RTT will also strengthen South Africa’s long-term security of fuel supply and contribute to lower road transport emissions, with resultant health benefits, and assist the country meet its 2027 Green House Gas (GHG) targets.” The RTT commissioning date is anticipated to be in the 3rd Quarter of 2023, with significant capital investments under consideration. Being a Level 1 B-BBEE contributor, Engen is committed to contributing to meaningful and sustainable transformation in the liquid fuels sector. Strategically reviewing existing proposition 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. With a nameplate capacity of 120,000 barrels per day, it ranks as a low capacity, medium complexity facility with limited upgrading potential. An added consideration for any upgrades is that it sits on a restrictive plot size and is located within a residential area; of which both factors render a potential capacity modification unfeasible. The global refinery landscape has changed significantly in the past decade with the emergence of mega sized, integrated, and complex refineries, many of which operate in countries that are primary suppliers of crude, resulting in a prolonged period of ultra-low refinery margins that are forecasted to persist well into the future. This was exacerbated by the onset of the Covid-19 pandemic, which resulted in further contraction of demand.
Hassan adds, “After modelling multiple scenarios in consultation with external international sector specialists, it has become very clear that the Engen refinery is not commercially viable. In view of this, company leadership has recognised that the Engen refinery cannot move forward in its current structure. We must safeguard the long-term sustainability of the Engen business; therefore, we are proceeding with the conversion to a terminal.”
Throughout this review process, Engen prioritised regular communication with employees, keeping them abreast of all relevant developments. The company also engaged with employees and union representatives to contribute inputs to the development of a well-informed, collaborative decision for the refinery’s future.
“Our people are a priority during the RTT transition, and it is our firm intention to preserve as many roles as possible. We are initiating a re-skilling and retooling programme, as well as evaluating the potential for some employees to be redeployed to other parts of the Engen organisation. We also expect that the repurposing of the refinery site to develop new business opportunities (e.g. a training centre, renewable energy initiatives, shared services, industrial hub etc.) will ensure that we mitigate, as much as possible, the impact on existing roles,” says Hassan.
Securing the future for all
Security of supply remains an over-arching consideration as Engen looks to the future of its business. The company maintains a robust business continuity framework and, as such, through the institution of its enhanced Business Continuity Plan (BCP) following the unfortunate December 2020 fire incident and subsequent safe shutdown of the facility, has been able to continue to meet customers’ core petroleum product requirements. It remains committed to maintaining a stable and secure supply of petroleum products and to managing demand fluctuations effectively and efficiently. Furthermore, exercising
Engen’s option to import advanced Euro 5 specification fuels could also support the automotive industry and provide an expanded and improved mobility experience in the future.
Hassan concludes, “Engen is committed to playing a leading role in growing South Africa’s future economic prosperity. Securing a sustainable Engen business provides the platform for the future development of new investment opportunities in South Africa, whilst the repurposing of the Engen refinery will serve as a catalyst for economic growth in KwaZulu-Natal, support job creation and socio-economic growth, and ensure Engen continues to be a positive contributor to both the provincial and national economies.”