PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON ENERGY

Transcription

1 PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON ENERGY (BURGAN CAPE TERMINALS) 26 th May 2015 Dr Rod Crompton National Energy Regulator of South Africa 1

2 The full Reasons for Decision is available on the NERSA website This is a summary for the benefit of the Portfolio Committee and does not substitute nor replace the 51 page Reasons for Decision

3 Decisions made in the public interest...based on conspectus of facts and evidence... 3

4 Background National Ports Act and Transnet National Ports Authority (TNPA) Bidding Round Process started September 2008 TNPA wanted fuel terminal in Cape Town harbour Burgan Cape Terminals was winning bidder 4

5 NERSA DECISION (9 December 2014) Combined licences for the construction and operation of the following: Petroleum Storage facility Petroleum Loading facility Petroleum Pipeline In the port of Cape Town (Eastern Mole Berth) Petrol, Diesel & Biofuels 5

6 Storage Facility Facility Details 12 tanks, total 118,670m 3 design capacity Loading Facility Two 10 inch diameter marine loading arms Two 12 inch diameter, 156m pipelines from the loading arms to the storage facility Pipeline 12 inch in diameter, 1.1 km long, from storage facility to interconnection with Chevron pipeline 6

7 Mode of Operation Storage intake: from Chevron Refinery and from ships Storage Discharge: Road truck loading gantry and ship Biofuels by road only 7

8 Ownership Structure Vitol Tank Terminal International Thebe Investment Corporation & Jicaro (Pty) Ltd 70% 30% Burgan Infrastructure (Pty) Ltd 100% Burgan Cape Terminals (Pty) Ltd. 8

9 Public Consultation Application published in newspapers with 30 days to comment/object 1 objection (Chevron) Public hearing in Cape Town postponed twice to accommodate Chevron Were objectors and supporters 9

10 Objections and Comments 1. Product Supply & Demand (RSA & the Western Cape) 2. Petroleum infrastructure 3. Burgan storage facility capacity & location 4. Interconnection with the Chevron pipeline 5. Sustainable & Orderly Development 6. Impact on the Chevron Refinery 7. Cleaner Fuels 8. Government policy 9. The Energy Regulator Mandate 10

11 National Supply and Demand South Africa (SA) imported up to 22% of its needs between 2008 and

12 The Western Cape Fuels Market is 12.6% of SA total The Western Cape Fuels Market The fact that Chevron production exceeds provincial demand is not sufficient reason to deny the application because... 12

13 National Perspective We must consider the national perspective, SA looks to import for the foreseeable future Chevron is in effect arguing for a special dispensation of protection that no other refiners in South Africa enjoy There is no merit in arguing that because a refinery is situated in a province in which its production exceeds provincial demand, such a refinery should receive special protection from infrastructure that can import product into the province 13

14 National Perspective Durban Comparison 1. In Durban, 2 crude oil refineries compete with one another 2. In Durban several companies have the capability and have imported refined product in competition with the two local refineries for many years, even when SA was a net exporter (in CT only Chevron) 3. This has not "undermined local refining capacity nor been "at variance with Government policy" 14

15 National Perspective Durban Comparison 4. Durban refineries produce in excess of KZN needs. 5. Durban merchant storage capacity is 160% of Burgan capacity 6. Durban has pipelines to inland. CT does not. Insufficient reason to treat CT/Chevron as a special case. 7. In CT importers and Chevron face the same transport choices 15

16 National Perspective Storage Capacity In general there a shortage of storage capacity throughout SA. Investment is needed. Of the NERSA licensed facilities in the Cape Town area, only 3 provide storage for petrol and diesel & only one of these allocates storage for 3rd parties. Occasional and very limited capacity available to 3rd parties. Nationally only 1.7% of storage has been available to 3 rd parties 16

17 National Perspective Fuel movements Source: Chevron 17

18 Loading facilities in Cape Town The only marine loading facilities and pipeline licensed for petroleum products in Cape Town belong to Chevron Chevron: there is spare capacity, Burgan's loading facilities are unnecessary Burgan: W Cape completely dependent on Chevron refinery and its port infrastructure does not provide security of supply 18

19 Loading facilities in Cape Town SAPIA study showed SA refineries are aging & not very efficient Chevron s port infrastructure has operational constraints and limitations as demand grows 19

20 Petroleum Infrastructure New entrants/bee importers have reported that they find it difficult to get access to import facilities and storage. NERSA data shows very low 3 rd party access Burgan as an independent, merchant storage operator hopes to address such barriers to entry 20

21 OBJECTIONS 21

22 Capability of Burgan Facilities Burgan stated throughput = m 3 /yr Chevron estimated a much larger number Both wrong: NERSA found that key bottleneck is the truck discharge rate NERSA estimate of max throughput is m 3 /yr (much less than Chevron estimate) Economies of scale, optimise for ship size & long term view of infrastructure are normal considerations TNPA agreement is for 22 years Burgan has use-or-pay agreements for 50% of capacity shows is demand for the service 22

23 Location of Burgan s storage Chevron s objections seem contradictory Location is product of several years long official process resulting in agreement between TNPA and Burgan 23

24 Interconnection with Chevron Pipeline Burgan wants to interconnect to Chevron s pipeline from refinery to harbour so it can store product from the refinery Chevron contested technical feasibility of interconnection without evidence Interconnection rights part of Chevron s licence Such interconnections common likely an engineering solution can be found 24

25 Sustainable and Orderly Development NERSA has considered the impact this licence will have on other energy infrastructure and whether this constitutes orderly development. NERSA has the responsibility to promote competition in the petroleum pipeline industry. Currently Chevron controls entry of product to the W Cape market by sea and manufacturing (road and rail not serious contenders) This situation is obviously open to anticompetitive behaviour and abuse 25

26 Sustainable and Orderly Development Chevron s position is essentially one that is resisting possible competition from Burgan's customers but presents this as undermining sustainable economic development Licensing Burgan gives those companies that currently supply the W Cape another option through which to bring in product to CT Chevron (dominant firm) will have reduced control of access routes into W Cape market 26

27 Impact on Chevron Refinery Chevron can only produce x% of W Cape demand for 50 ppm diesel ( CF2 compliant) balance is imported Chevron: if Burgan licensed it may shut its refinery. Seems improbable. No definite proof that it will shut its refinery. 27

28 Impact on Chevron Refinery Paul Buley: Mass imports into W Cape have not been viable to date. Why will that suddenly change when Burgan facility is built? Paul Buley Worst case scenario: unlikely to impact the financial viability of the Refinery. It could be addressed by cost cutting and revenue enhancement initiatives. 28

29 Impact on Chevron Refinery Chevron also has other options such as: it can invest in its refinery to increase its output of Cleaner Fuels 2; it can negotiate with Government for a subsidy to produce more Cleaner Fuels (started few years ago); it can apply to ITAC for import tariff protection just like any other producer; it can request Government to prohibit the import of cleaner fuels; it can request Government to introduce a levy on imported cleaner fuels as a disincentive to imports; and it can request Government to subsidise its refinery. 29

30 Impact on Chevron Refinery Closure of the refinery is not a foregone conclusion. It will depend on several variables: Market competition is possible for diesel, jet fuel and paraffin Transport cost advantage over Durban and rest of world How Chevron responds How its customers behave: (2 have taken half of Burgan s capacity. Both prefer to buy from Chevron so only 50% of capacity at stake) (Chevron s concerns exaggerated) 30

31 What is Chevron seeking? In essence Chevron requesting the Energy Regulator to restrict the degree of competition it faces Because Chevron cannot keep up with demand for CF2 compliant fuels in the market it has put forward arguments designed to protect its market position & to slow down the market transition away from fuels that it does produce towards fuels it cannot produce enough of This would be in contradiction to the Energy 31 Regulator s duties and mandate.

32 The Bigger Picture Cleaner Fuels Chevron s objections occur at particular point in SA s oil industry history Cleaner Fuels 2 announced years ago Refiners refuse to invest without a subsidy ( cost recovery mechanism ) - holding Govt policy to ransom. Chevron/SAPIA trying to get a subsidy out of Government Chevron s share of SAPIA estimate could be R2 000 mil to R million Blocking Burgan strengthens Chevron s negotiating position 32

33 Cleaner Fuels & Import Control Fuel imports are controlled by DoE/ITAC: Policy is allow only when not available from local refiners Local refiners have strongest possible import protection physical import control Chevron refinery is virtually guaranteed the opportunity to sell every litre of petroleum products that it can produce, before imports will be allowed. Chevron worried that DoE will allow imports of cleaner fuels that will cost it market share. Market demand for cleaner fuels growing strongly but Chevron not responding with investment. It wants protection. Chevron wants NERSA to deny Burgan a license because it does not trust Government to implement its policy of import 33 control

34 Cleaner Fuels From a competition point of view Chevron is implying that other investors should be denied the opportunity until it has finished its attempts to procure a subsidy from Government and upgraded its refinery and after that other investors may possibly be given the opportunity to compete in the W Cape market. In the short term, even by Chevron s own account, the importation of CF2 fuels will continue. Therefore, licensing facilities to allow this to happen is not at variance with published Government policy. 34

35 Government Policy NERSA is required to make decisions that are "not at variance with published Government Policy". NERSA s powers are clearly outlined in Section 4 of the Petroleum Pipelines Act. NERSA regulates infrastructure that can be used for importation of petroleum product The DOE and ITAC regulate the importation of the product according to Government policy. 35

36 Government Policy Therefore the issue of concurrent jurisdiction does not arise NERSA s role takes over where the role of the DOE and ITAC ends. Once permission to import product has been granted by ITAC, its regulatory mandate on the issue ends. How product is brought into the country is a matter that is regulated by other authorities like NERSA. Chevron wants license conditions that will double up physical import control Legally not possible Two regulators for same thing undesirable from administration point of view. 36

37 Government Policy Keep the lights on Eskom has challenges in keeping the lights on uses diesel powered stations, can cause sudden and huge diesel demand in W Cape storage necessary 37

38 Support for Burgan Project SFF supports Burgan application because: Government considering holding strategic stocks of petroleum products SFF is the nominated agency It s partnership (with Burgan) will allow the possibility to implement the policy in the WC without the need to rely on levies and offer the advantage of investing closer to the market. Gulfstream Energy (small new entrant) supports Burgan because: Small scale means it struggles for supplies from majors access to storage will help with supply and to be able to plan better. 38

39 Support for Burgan Project Centre for Competition, Regulation and Economic Development University of Johannesburg supports Burgan because: most infrastructure is owned by the oil majors uncommitted capacity exists in theory more than practice. independent wholesalers have very limited bargaining power due to their lack of alternative sources of supply. Burgan's facilities will allow for alternative sources of supply change the relative bargaining power by giving wholesalers the possibility of becoming effective competitors. 39

40 Status of Licensed Activity Burgan plans to commence with construction in 2015 But project remains in pre-construction phase License conditions require proof of final environmental authorisation and that outcome still pending Burgan recently applied to amend its facility details this is being processed 40