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Interview

Benoit Araman – Managing Director, Oryx Oil South Africa

09.05.2018 / Energyboardroom

Benoit Araman, managing director of Oryx Oil South Africa, highlights the importance of the Sub-Saharan region for the company and the intricacies of the LPG landscape in South Africa. Moreover, he discusses the need to promote investments into energy infrastructure to meet the nations demand, as well as the steps that must be taken to better incorporate LPG into South Africa’s energy mix.

What makes the Sub-Saharan region so attractive for Oryx, and how does South Africa fit into this approach?

“No company can truly claim to be a genuine Sub-Saharan specialist without having a South African presence”

Historically, our majority shareholder, Mr. Jean Claude Gandur, has always been attracted to business in the African continent, and in particular the Sub-Saharan countries. Before he founded the Oryx Energies Group, he was involved in different trading companies within the region; therefore, it was a natural step for him to set-up Oryx Energies for trade and retail businesses in Sub-Saharan Africa.

Secondly, looking at the foreign direct investment statistics, development of middle class and its appetite for consumption, opportunities in infrastructure development and in general market potential, there is a common understanding from investors that the next 30 years will be the age of Africa, and I truly believe this viewpoint.

No company can truly claim to be a genuine Sub-Saharan specialist without having a South African presence. The country is one of the most advanced on the continent, with a sophisticated infrastructure and great business opportunities. Furthermore, it has a large population of some 56 million people, backed by a huge development of the middle class since the democracy regime took over in 1994.

In addition, South Africa’s location is perfect within the Southern African Development Community (SADC) and the entire eastern and southern section of Africa. Many neighboring nations with a smaller population require cross border exports, also in LPG and they are depending on South African businesses.

How does Oryx Energies remain agile within the LPG space?

The first step when operating in the South African LPG market is to ensure reliable and sustainable product supply. Currently LPG comes from both local refineries and some imports. We have however witnessed a downward trend in local supply over the last few years, creating a gap between supply and demand. 2015 in particular was one of the worst years, with limited LPG availability in South Africa.

The industry has learned its lesson and moved towards import infrastructure improvement in size, access and quality of assets. New terminals have been commissioned on the West Coast alongside the revamping of Richards Bay terminal in Kwazulu Natal.

How have the market conditions for LPG evolved in South Africa?

The market has remained relatively flat over the last 15 years with some signs of growth shown last year, thanks to more imported product landing in the country. 350 thousand tons of product are retailed in South Africa, for a total population of 56 million. This is equivalent to a consumption of 6.25kgs per capita whilst in the sub-Saharan region the average LPG consumption is around 17kgs per capita. Morocco consumes the equivalent of 70kgs per capita. It tells you about the potential of South Africa LPG market, which we expect to be over 10 years in the region of 1.5-million-ton mark.

You mentioned the need for LPG infrastructure investment. What needs to change for this to happen, and is there currently enough being done?

There is currently not enough being done in the LPG market. The year on year downward trend of local LPG production and refineries capacity needs to be addressed. One of the reasons for minimal investments is due to aging domestic refineries. Upgrading these plants will generate huge investments in order to implement the clean fuel agenda and ultimately secure LPG production. My assumption is that it will materialize and assurance will be given to investors on their expected returns.

Furthermore, the LPG market is regulated on the procurement side. This regulation is called “Working Rules”. It does mean that the Industry buys locally produced LPG on a basis of “Maximum Refinery Gate Price”, or MRGP. This is a monthly set price by the regulator as to what the refinery should sell LPG to the market players. However, the profitability of MRGP mechanism for refineries is very questionable. Consequently, refineries shareholders are better off using these molecules to increase main fuels (Gasoil, Gasoline) production.

Lastly, refineries are shutting down on regular schedule for heavy maintenance of assets, which is absolutely necessary as safety comes first. However, because of the age of these installations and irrespective of the relevant scheduled maintenance program, refineries are facing incidents on regular occasions. This causes a significant number of unplanned shutdowns therefore impacting the ability to supply. This is definitely a huge concern due to the fact that import infrastructures are not fully developed yet.

What do you think will happen when the refineries reach a level of obsolescence?

The market will witness a lot more products being displaced towards imports, which is not uncommon. For example, if you look at Morocco, an LPG market of 2.5 million-tons per year, it is based on 100 percent imports. This is also the case in smaller markets such as Tanzania and Mozambique.

I see this import-based LPG system coming to South Africa. It is a logical solution and is what the industry needs. South Africa has a perfect strategic location between the Indian and Atlantic Oceans. It is possible to provide LPG throughout the country by marking import ports along the two coastlines.

How have the investments into LPG terminals, such as Richard’s Bay, trickled down to impact the industry?

Over the last three years, we have seen the commissioning of a completely revamped LPG terminal in Richards Bay, with plans to increase this volume even further. This has created a little breathing space in the market. In addition we have also seen the commission of the Saldanha Bay terminals.

Nevertheless, the capacity is still not satisfactory, as Saldanha Bay terminals are only addressing the LPG demand for the Western Cape, Northern Cape and a section of the Eastern Cape. More needs to be done to supply the regions of Kwazulu Natal, Gauteng, Limpopo, Mpumalanga, North and Central areas. These are the areas of highest demand for energy. We need more storage available at terminal locations and inland.

What makes LPG a game changer for South African energy in the future?

South Africa is mainly a coal-based energy country, and within this energy mix, gases only represent a small market niche. LPG in terms of the utilization, even within well-developed LPG markets, generally only makes up three to five percent of the total energy mix.

It should be noted that LPG is helping the gasification strategy of the country. Making a positive impact for future energy mixes towards cleaner and more efficient energies. For any gasification model, LPG stands as the foundation of the gas pyramid, as it is versatile, mobile and can be delivered without any heavy infrastructure. The second level of the pyramid comes with Liquefied Natural Gas (LNG), and the top level is Natural Gas, that is piped gas.

 

In terms of the LPG footprint, it is distributed to areas where piped gas is not available, such as rural and remote areas. There are many benefits and we recognize that LPG is the second least carbonized energy, behind natural gas; meaning it allows countries to meet their environmental objectives. Secondly, it helps fighting deforestation in rural environments. Thirdly, it helps to displace paraffin use at no costs for cooking. Such paraffin used by communities kills thousand each year via secondary effects, such as cancer due to paraffin particles content, or fires cause by the substance. LPG gives people an improved level of health and safety.

As Africa’s energy needs to increase, what opportunities do you envision for Oryx Energies?

We already have positioning in 23 countries, and we are not looking at expanding our reach yet. First and foremost, we must push forward vertical development within the markets we already operate through a solid asset base.

A clear example of this is right here in South Africa. Due to the market supply challenges explained above, it took nearly four years to build up a business relevant in terms of a business model, set up and secured supply map. We have now reached a point where we are firmly anchored into the South African business scenery, supplying our customers’ base in a reliable way.

What will make the difference between the success and failure in establishing this vertical development in South Africa?

There are a couple of features that will guarantee success.

Firstly, there must be a close relationship set up between the government and private sector, which in the past, has only been an intention far away from any relevant action. However, this is getting better now.

Secondly, South African LPG market is threatened by the increasing existence of illegal players who are operating without any respects to standards, stealing assets from other legitimate players and doing their business without any consideration for safety. We expect the government to play its role about strict legislation enforcement and criminalization of illegal activities if those players are not willing to become legitimate. In doing that, government will play a major role into raising the level of the playing field, which will attract more local and foreign investors into this Industry. Both legitimate existing and future players will then play an even more active role in the nations transformation agenda by stimulating jobs, generating tax income and supporting enterprise development. I am hopeful that the government currently in place is now focusing on South Africa being able to re-attract local and foreign investors.

Thirdly, the industry needs to build an efficient, reliable and affordable product supply mechanism in order for the consumers to be guaranteed supply whatever the circumstances may be. Linked to this point, the set pricing policy, should it be current working rules reviewed or a full deregulation, must make sense for the three-main stakeholders involved: consumer, private players and public sector.

Where will we find the company in the near future?

Oryx Energies will be an even more prominent player in the retail space for oil and gas products in Sub-Saharan Africa by enhancing our commitment to the continent and people.

As mentioned by the major shareholder, Mr. Jean Claude Gandur, during our 30 year celebrations, Sub-Saharan Africa is the company’s past, present and future and we will continue to build our assets and market reach in the region.

One of the goals of Oryx Energies is to be the most respected player in oil and gas in Sub-Saharan Africa. How do you plan to achieve this?

To achieve this, we firstly must guarantee, as we do, the integrity of our businesses, our assets, our workplaces and subsequently create the safe, transparent, professional environment, which is needed by our customers and our employees. Secondly, we lead by example. We implement and consistently monitor compliance policies, which support our commitment to safety, transparency and respect. Furthermore, we thrive to offer the highest level of quality for our products and services.

Oryx Energies takes pride in behaving as a good corporate citizen. In South Africa, are taking a leading position in promoting woman in the workplace and in the industry. This is done by helping them to develop the necessary skills, promoting them based on merit and hard work. We are and will continue to lead by example in this strive for employment equity within the oil and gas landscape.

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