Shell divests from South Africa as fuel autonomy evaporates

Shell will no longer be processing oil into fuel products in Durban, making SA increasingly dependent on imports. Shell will continue gas drilling exploration off the west coast





May 7, 2024

Shell divests from South Africa as fuel autonomy evaporates

Shell is set to divest its majority shareholding in a South African downstream unit following a comprehensive review of its global operations, the company announced on Monday.

The decision to reshape its downstream portfolio includes the intention to divest from Shell Downstream SA (SDSA), a local entity formed a decade ago through a merger between Shell South Africa and the black empowerment company Thebe Investment Corporation. This move marks a significant shift for Shell, which has had a presence in South Africa for over a century.

The decision to divest was not taken lightly, according to a Shell statement. However, the company did not specify when the decision would take effect.

SDSA's main asset, Sapref, South Africa's largest refinery located in Durban, has been inactive since 2022. Shell and its refinery joint venture partner, BP, decided to freeze spending and halt operations at the refinery following severe damage caused by flooding that year. Sapref, which previously accounted for around 35% of South Africa's refining capacity, has since been a focal point for potential buyers.

Despite the decision to divest, Shell stated its commitment to maintaining SDSA's operational capabilities and brand presence during the transition. Thebe Investment Corporation, which holds a 28% equity stake in SDSA, was not immediately available for comment.

South Africa, a net importer of refined petroleum products, has faced challenges in its energy security, particularly since the closure of Sapref and the country's second-largest refinery, Enref, also located in Durban.

With profitability and infrastructure function declining over the past couple of decades, South Africa has seen native refineries closed or sold off overseas, but with even the biggest foreign companies divesting from South Africa, fuel will increasingly have to be imported rather than converting from raw materials.

Environmental campaigners have previously opposed Shell's offshore exploration efforts in South Africa. However, the company's decision to exit the downstream sector does not appear to affect its exploration activities in the country.

The Central Energy Fund (CEF), which expressed interest in acquiring Sapref in 2022, has reportedly signed a non-disclosure agreement with the involved parties. This suggests ongoing discussions regarding the future of the refinery.

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