April 2024, Vol. 251, No. 4


South Africa’s Transnet Pipelines Lays Out Investment Plan

By Shem Oirere, Contributing Editor, Africa 

(P&GJ) – Southern Africa’s largest multi-product pipeline operator, Transnet Pipelines, plans to spend R891 million ($61.6 million) in 2024 in building its fuel handling capacity, including construction of a delayed import fuel terminal at the port of Durban and new line to supply the country’s biggest airport, OR Tambo.

Construction of a Transnet pipeline (Photo: Transnet Pipelines)

The state-owned pipeline operator, with a network of 2,360 miles (3,800 km) of pipeline infrastructure, says the capital expenditure plan for this year is like that of 2023, but its implementation has been constrained by inadequate financial resources. 

Although Transnet Pipelines allocated $48 million (R891 million) for building its fuel handing capacity and for pipeline maintenance activities for 2023, only $18 million (R330 million) was spent, due to what the company attributes to “resource challenges within the department.” 

In its latest performance report, Transnet Pipelines has outlined two key projects to sustain and create fuel handling capacity of its pipelines, including the “development of the Coastal Terminal (TM1) in Durban, for product accumulation and an import terminal to enable security of fuel supply, for existing and new entrants in the petroleum sector.” 

Although no firm details are currently available on the capacity of the terminal, Transnet had previously indicated Durban’s fuel imports could increase from 5.2 billion liters in 2016 to 34.5 billion liters in 2044. The project costs had been estimated at $40 million (R750 million) as of 2018. 

Transnet also plans to construct a 10-inch pipeline from Jameson Park to OR Tambo International Airport this year, to “ensure security of jet fuel supply to the airport. 

In 2022, Transnet Pipelines spent $1.4 million (R26 million) of the budgeted $70 million (R1.3 billion) on creating capacity and maintenance purposes. 

“The focus for the 2024 year will be the establishment of a project management office to facilitate execution of projects,” the company said.  

Furthermore, the company’s report adds, “a detailed plan has been developed to ensure that capital spend is executed as planned and slippages are mitigated.” 

The construction of an independent import and storage facility in Durban that is connected to South Africa’s pipeline system “is important for the effective and efficient operation of the liquid fuels market in South Africa.” 

South Africa is a net importer of most petroleum products, except for illuminating paraffin, and it is also the largest consumer of petroleum and other liquids in Africa, with an estimated consumption of 623 bpd, ahead of Nigeria and Algeria — the 2nd and 3rd largest, respectively — by at least 25%, according to the Paris-based International Energy Agency. 

The Durban fuel import terminal would come in handy especially with the projection by the country’s department of energy of an increase in imports, as well as the annual planned shutdowns and refinery turnarounds. 

Currently, South Africa refineries include Astron Energy, which is 72% owned by Glencore, Engen’s Enref. Natref is owned by Sasol mining (Pty) Ltd and TotalEnergies, as well as Sapref refinery, a 50/50 joint venture between oil majors BP and Shell. They have a combined refining capacity of 508,000 bpd. 

However, the collapse of the ambitious Mthombo refinery project — designed to process 300,000 bpd of crude oil and the largest in Africa — means South Africa is expected to remain a net importer of processed petroleum products, and hence, there is a need for more fuel storage infrastructure. 

South Africa’s national oil and gas company PetroSA had given the $11 billion (ZAR200 billion) project the go-ahead in 2007, with feasibility studies completed two years later and China’s Sinopec Engineering Incorporation having completed the project’s technical work in December 2013. 

The Mthombo refinery was billed as the catalyst for pipeline development in South Africa — if it was to be completed according to Transnet’s long-term planning framework (LTPF). 

Transnet had envisaged that between 2016 and 2045, there would have been two pipeline infrastructure development options for transporting the new refinery’s refined fuel to the hinterland of South Africa. 

For instance, a new 18-inch pipeline was to be constructed to transport refined fuel via the proposed port of Ngqura-to-Gauteng pipeline, if the refinery project was to be built as planned by 2025. 

Transnet had envisioned the pipeline delivering fuel products to Bloemfontein and Kroonstad along the way, as well as connecting to the Jameson Park terminal, from which product would be distributed to other depots in the inland pipeline network. 

The other pipeline development option anchored on Mthombo refinery would have been to ship refined fuel from Ngqura to Durban and then transport it via the 24-inch, multi-product pipeline (MPP24) to Gauteng. 

The refinery project has since been terminated, creating demand for expanded fuel storage infrastructure in South Africa, such as in the case of the Durban fuel import terminal. 

With the Mthombo refinery project off the table, demand for refined petroleum products in South Africa is expected to reach 15.5 billion gallons (59 billion liters) by 2045, according to a previous projection by Transnet Pipeline. 

The Durban fuel import terminal is also expected to be a common user import fuel facility that could be accessed even by new entrants in South Africa’s liquid fuel market, especially after the country promulgated the Liquid Fuels Charter to support the “transformation of the fuel supply sector and further ensuring security of fuel supply in South Africa,” according to Transnet Pipelines. 

“The fuel import terminal would also facilitate SADC’s initiatives toward better regional integration, especially for landlocked countries that border South Africa, by facilitating a more independent logistics channel through South Africa, thereby better ensuring their own security of supply,” Transnet added. 

The commitment by Transnet to build the Durban fuel import terminal is also informed by the pipeline operator’s previous study that “confirmed a common user import terminal would allow new players to import liquid fuel products, mainly by way of consolidating smaller, individual orders, to achieve economies of scale in chartering liquid bulk vessels.” 

Currently, Transnet handles an annual average throughput of approximately 16 billion liters of liquid fuel and more than 450 MMcm of gases. 

Last year, Transnet transported an estimated 1.98 trillion gallons (7.4 trillion liters) of petroleum — the equivalent of a 7.2% decline, from 7,979 billion liters transported in 2022, due to “a refinery maintenance shutdown during the first quarter of the financial year.” 

Meanwhile, Transnet Pipeline Ltd. is optimistic on future investment opportunities within South Africa’s pipeline market, such as the opportunity to “develop, finance, construct, operate and maintain LNG midstream infrastructure to enable the import of LNGs into the ports of Richards Bay and Ngqura.” 

Transnet Pipelines Ltd., which expects a 5.8% surge in revenues in 2024, to R6.1 billion, is also exploring the future possibility of offering seamless integrated rail and pipeline services to customers at OR Tambo International Airport, to ensure jet fuel security of supply. 

Furthermore, Transnet also says there is potential for the company to provide “import infrastructure to enable historically disadvantaged South Africans or new entrants to meaningfully participate in the petroleum and gas sector supply chain.” 

South Africa’s fuel security is partly governed by a commitment by the Department of Energy to ensure that the country holds at least 60 days of net imports — equivalent to strategic stocks split between crude oil and finished product — with 42 days comprised of crude oil and 18 days comprised of finished product. 

Government reports have previously lamented lack of adequate strategic storage facilities for finished product as opposed to crude oil storage capacity that is considered adequate. 

The Department of Energy had previously indicated that South Africa requires 343 gallons (1.3 billion liters) of finished product as strategic stock, which translates to at least 65 tanks of size of 20,000 cm3. 

Going forward, Transnet says the fuel security it seeks is not only in terms of supply but also in terms of ensuring safe pipeline operations and minimizing the impact of fuel theft on the company’s operational and financial performances. 

With security of supply and safety of pipeline infrastructure and operations, Transnet hopes to focus more on improving capacity utilization and service delivery achieving higher volume targets.

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