Investigation into the economic feasibility of the continued existence of the PetroSA Mossel Bay refinery

McGregor, James Royston (2005-12)

Thesis (MBA)--Stellenbosch University, 2005.

Thesis

ENGLISH ABSTRACT: South Africa's main requirements for power are in the form of electricity and liquid fuels The country's electricity is generated mainly from coal while the liquid fuels requirement is mainly from crude oil. Both coal and crude oil use are coming under increasing pressure locally because of pollution and accompanying environmental awareness. Internationally both energy sources are also increasingly being abandoned as preferred energy sources, in first world countries, in favour of cleaner energy sources.ln view of these developments in the macro environment South Africa's gas to liquids refinery built in the early 1990's seems a well placed past investment ahead of its time. This study project looks at the economic feasibility of the continued existence of the PetroSA gas to liquid plant in Mossel Bay.The study looks at South Africa as well as Southern Africa's energy resources , the effect of changing legislation on the future use of energy resources and the economics of the Mossel Bay facility. The study finds that South Africa's abundance of coal reserves, its lack of oil and gas reserves and the slow pace of environmental legislation delivery means that gas is unlikely to become a major source of energy in South Africa.The Mossel Bay gas to liquids plant is profitable but its high fixed costs and certain growth of this cost component means that the continued feasibility of operations is dependant on favourable movements in the exchange rate and oil price. To answer the question about whether to continue operating or close down the analysis found that although although early closure would provide a return of more than 15 percent it would be even more viable financially to make an investment for more gas and continue operations.The main reason for the better than average projected returns is the high oil price .The decision to close down the Mossel Bay plant is not likely to be based on financial considerations alone. The recommendation is thus to continue operations untill 2016.The investment required to secure more gas would , even in the worst case scenario, provide a satisfactory return on investment.

AFRIKAANSE OPSOMMING: Suid Afrika se energie behoeftes is hoofsaaklik vir elektrisiteit en brandstof. Die meerderheid van die land se elektristeit word deur middel van steenkool opgewek terwyl ru-olie gebruik word om brandstof te vervaardig. Beide steenkool en ru-olie word al hoe meer onder druk geplaas as gevolg van besoedeling en 'n meer omgewing bewuste publiek. Op internasionale vlak , in eerste wereld lande word die gebruik van steenkool en ru-olie al hoe meer afgeskaf ten gunsle van skoner kragbronne. In die lig van hierdie verwikkeling in die makro omgewing mag dit op die oog af Iyk of PetroSA se gas na vloeistof aanleg in Mosselbaai, wat reeds in die vroee 1990's gebou is, as 'n goeie destydse strategiese belegging voorkom. Hierdie studie projek ondersoek die ekonomiese lewensvatbaarheid van die voorgesette bestaan van die PetroSA se Mosselbaai gas na vloeislof aanleg. Die studie kyk na Suid-Afrika sowel as die groter Suider Afrika se natuurlike energiebronne, die invloed van verandering in wetgewing op die toekomstige gebruik van energiebronne en die ekonomiese kenmerke van die aanleg in Mosselbaai. Die bevinding van die studie is dat Suid-Afrika se oorvloed van steenkool, sy tekort aan natuurlike gas en die stadige pas waarteen omgewings-wetgewing ontwikkel word, daartoe lei dat gas nie 'n volmatige energiebron in Suid Afrika sal word nie. Die aanleg in Mosselbaai is huidiglik winsgewind maar sy hoe vastekoste en groei hiervan belemmer sy vooruitsigte vanuit 'n finansiele oogpunt. Die winsgewindheid van die aanleg is afhanklik van 'n verswakkende Suid Afrikaanse geldeenheid en verhogende ru-olie pryse. Die vraag onstaan dus of die aanleg moet toemaak en of produksie moet voortgaan. Die ondersoek vind dat alhoewel die sluiting van die aanleg 'n opbrengs van meer as 15 persent sal lewer dit selfs meer finansieel aantreklik is on te belê in meer gas sodat produksie kan voortgaan. Die hoofrede vir die bogemiddelde opbrengs is die hoe oilieprys. Dit is onwaarskynlik dat die oorweging om die Mosselbaaise aanleg sluit suiwer op finansieele oorwegings sal rus. Die aanbeveling is dus om voort te gaan met produksie tot 2016. Die belegging wat nodig is vir meer gas sal selfs onder die mees pessimistiese omstandighede steeds 'n bevredigende opbrengs lewer.

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