Shell’s SA exit: A mix of money, politics, and electric dreams – Andrew Kenny

Andrew Kenny’s analysis of Shell’s departure from South Africa delves into complex issues of investment climate, environmental policies, and the future of the automotive industry. He questions whether Shell’s exit is due to portfolio management or concerns about corruption and profitability in South Africa. Kenny also challenges the notion that electric vehicles (EVs) will entirely replace internal combustion vehicles (ICVs) and highlights the challenges and controversies surrounding environmental regulations, oil refineries, and the allure of high-performance cars. His insights encapsulate the intricate interplay of political, economic, and technological factors shaping the landscape for global companies in South Africa.

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By Andrew Kenny

The news that Shell is going to quit South Africa has led to much interesting speculation and much silliness. Is it leaving for ‘portfolio management’ reasons or because it thinks South Africa is a corrupt disaster where investors are bound to lose money? Is the future of oil doomed anyway because all fossil fuels will be replaced with “green energy”? Are electric vehicles (EVs) going to replace internal combustion (IC) vehicles (petrol and diesel)? Will South Africa shut down all its refineries and rely on imported finished fuels? What is more important: to have a car with no harmful emissions or to have a car that can accelerate from 0 to 100 kph in under 3 seconds? Do you want your car to save the planet or to beat everybody from the traffic lights?

Last month, when BHP made a bid to buy the non-South African assets of Anglo, there were some similar questions. Was this because BHP thought any investment in South Africa would fail, or because it so happened that South African assets were not part of its “strategic vision” (or whatever is the correct jargon)? Strangely enough, in 2015, when BHP itself quit South Africa, it also hived off its local assets, which then formed S32. It seems to me that a lot of Anglo’s mining assets, notably in platinum, are still highly strategic – but that will be discussed with EVs below.

Shell has cited problems with its BEE partner, Thebe Investment Corporation, which owns 28% of its South African branch. (Thebe has close ties with the ANC.) BEE is, of course, just a form of legalised corruption. When you want to do business in most African countries, you have to give a big bribe to the relevant ruling politician. That’s just part of the cost of doing business in Africa. When you want to do business in South Africa, you have to buy a BEE partner. You don’t expect anything of them except to take your money and complain that they want more. Is this high cost worth it for international companies? More and more say “no”. President Ramaphosa says, ‘BEE is here to stay’. In that case, overseas investment is there to stay away. 

Both the Shell departure and the BHP bid for Anglo’s non-South African assets have raised environmental questions concerning EVs. The future for Shell and the other big oil companies is limited, say some silly people, because in future all cars and trucks will be electric. The future of platinum is limited, say other silly people (often the same silly people) because platinum’s biggest market is for catalytic converters in the exhaust pipes of IC vehicles and soon they will all be phased out in favour of EVs. (The catalytic converters complete the incomplete combustion of hydrocarbons and carbon monoxide, turning them into harmless water and CO2, and break down dangerous nitrogen oxides (NOx) into nitrogen and oxygen. They cannot reduce sulphur oxides (SOx), which damage the converters.) In the mass media and from all the politicians we hear that electric cars will save the environment, are outselling all others, and that by some date all IC vehicles will be banned. It’s nonsense. 

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The reality is that electric cars are very expensive, very heavy and very inconvenient; they have a short range and are rather dangerous, with a tendency to burst into flames. In Greater London in the 2017-2022 period, there were a reported 507 battery fires from a number of EV types; there were 219 such fires in 2022-23 alone. The electric motors are fine, but the batteries are not; they are made of extremely toxic materials, don’t last very long and are very expensive to replace. Electric cars seem worse for the environment than IC cars. Governments have tried to seduce or coerce customers into buying EVs with tax-breaks, subsidies and mandates, but customers are losing interest.

Sales of EVs are falling, resale values are dropping, and complaints are rising. Thanks partly to Elon Musk’s manufacturing genius and slick salesmanship, the rich elite were persuaded that EVs represented high fashion and environmental virtue at the same time. So they bought them for second or third vehicles in their Beverley Hills mansions. But that market now seems saturated. Ordinary people are not interested. I see a very limited future market for EVs, especially in South Africa with our long distances. I think IC vehicles and hybrids are here to stay, and so we shall need lots more oil and lots more platinum. The ANC’s dithering about policy to encourage EV production here was a good thing, although more by default than design.

Of course, the backdrop to all this discussion is the anti-science nonsense of dangerous manmade climate change caused by rising CO2. It’s true we have caused CO2 to rise by burning oil, coal and gas. But it’s the best thing we have ever done for the planet, with little or no effect on the climate and a wonderful effect on plants. How long will the nonsense prevail? I don’t know. There is an enormously powerful vested interest, ideological and financial, demanding we must reduce CO2 to save the planet. It is pure baloney but so was witch-burning in the 17th Century and that did awful harm.

Shell wants to get rid of its “downstream operations” in South Africa, meaning its retail operations, meaning its filling stations, which sell finished products. “Upstream operations” mean extracting the raw materials, which means drilling for oil and gas. Although there are potentially big gas fields in South Africa, onshore and offshore, Shell has been stopped from exploration for bogus environmental reasons. To convert the raw material, crude oil, into a finished product requires oil refineries. South Africa had six, but none seem to be operating now. The refinery takes the crude and separates out its constituents, using distillation and other processes. Each constituent has a different boiling point, and so each boils or condenses at a different temperature. The lowest boiling point is for liquid petroleum gas (LPG), a mixture of propane and butane. This is a wonderful fuel, very convenient to handle since it liquifies at low pressure. Then come petrol, paraffin, diesel, heavy fuel oil (HFO) and finally waxes, asphalt and lubricating oil. Our refineries did this separation in the past but now don’t. This is just another step in our deindustrialisation, as we abandon one industrial process after another that adds value to our raw materials – or in this case imported raw materials.

The reasons for the demise of our refineries are complicated and contradictory. International pressure, especially from Europe, required our refineries to improve the quality of our fuels to very high standards – to unreasonably high standards. Their sulphur content had to be very low. (It so happens that Sasol produces diesel with no sulphur at all, the purest in the world.) The octane rating of our petrol had to be very high. This was absurd. In a petrol engine, the higher the compression ratio, the more efficient the engine. But if the compression is too high, you get pinking in the combustion chamber, which can do very serious damage to valves, pistons and cylinders. Petrol engines use spark ignition, where a spark produces a single flame that spreads through the whole cylinder, greatly raising temperature and pressure to drive the piston down. If the compression ratio is too high, you get pockets of pressure ignition or pre-detonation or pinking or knocking, which can ruin your engine. 

In the past, lead was added to petrol to raise its octane rating, meaning its resistance to pinking. High octane does not raise the energy in the fuel, it just raises the pressure at which pinking occurs. But lead was found to be polluting, so it was removed and replaced with chemicals such as MMT. For old cars, with cast iron cylinder heads, the lead served as a lubricant to protect the valves, and so they cannot have completely lead-free petrol. But all cars after 1995 have aluminium heads with hardened steel valve seats, and don’t need lead. (Diesel engines use pressure ignition, which means a multitude of little fires throughout the cylinder. In a sense, diesel engines pink all the time but for some reason I don’t understand are never damaged by it. They can have very high compression ratios.)

Our refineries were required to be upgraded to make fuels with very low sulphur and very high octane. This was very expensive, and government regulation on it was slow and vague. Moreover, it was silly. The only reason for having very high-octane petrol is to produce short bursts of very high power, such as when you are racing away when the lights turn green. (It was probably the motorcar manufacturers who asked for it.) Otherwise, existing octane levels were just fine. So the refineries were not upgraded. In fact, they were shut down. Shell would have been part of this dismal experience.

On the one hand, the motor industry must cater to environmentalists, on the other to boy racers. The car manufacturer must be mindful of our fragile planet, but it must also be mindful of the need for men to own cars faster than anything else on the road and to be able to attract the prettiest girls. (British motorbike magazines refer the latter ability as pulling power.) Otherwise the car won’t sell to rich young men. In the editorial sections of our newspapers, you read solemn arguments for environmentally conscious transport and low emissions per km, but in the motoring sections you read about staggeringly expensive cars, with massively powerful engines, that are as fast as Superman. 

In Business Day of 9 May 2024, Peter Bruce has a column in the op-ed pages entitled, ‘Any more obfuscation and we’ll never know why Shell left’. In the motor section, there is an article entitled, ‘New Ferrari 12Cilindri has roaring V12 and 340km/h ability’. This car has only two seats but 12 cylinders and an engine capacity of 6,500cc. It produces 610kW and 678Nm. It can go faster than 340km/h and can ‘blitz the 0 – 100km/h in just 2.9 seconds’. It costs R8.65 million. Business Day finds it adorable.

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I must boast about my own car. It is a 1984 Suzuki SJ410: 4 cylinder, 970 cc engine; 35 kW, 0 – 100 kph in about two minutes, if it gets there at all (not if the wind is blowing against it). I paid R27,000 for it in 2000. I challenge the Ferrari to a race whenever it wants, provided only that I can choose the terrain we race over.

Talking about fast cars and BEE partners, I notice that one of the ANC’s favourite benefactors and BEE contractors, Edwin Sodi, owns several Ferraris. He is famous for winning the contract to repair the Rooiwal Wastewater Treatment Plant (17 people died of cholera in the area subsequently). No doubt when President Ramaphosa said that ‘BEE is here to stay’, he would have been proud to point to Thebe Investment Corporation and to Edwin Sodi. You can imagine Ramaphosa’s big, charming smile as he proclaimed, “BEE works: just look at Edwin Sodi’s Ferraris!”

Whenever a big international company declares, “We have every confidence in South Africa”, you can be pretty sure that they are just about to get out. Frankly I think anyone must be mad to invest in South Africa now. Just listen to the announcements by President Ramaphosa or any other senior figure from the ANC, the EFF, the SACP or MK (all ideologically identical). They all hate the West and support any country, such as Iran, Cuba or Russia, that attacks it, they all condemn white monopoly capital, they all hate business, they all believe in compulsory BEE, which deters investors, they all support nationalisation and expropriation without compensation. They all love capitalist products such as BMW, Mercedes and Ferrari but hate capitalism itself. General Motors departed, BHP departed, Shell is departing and I feel all the big oil majors will follow suit. International mining investment in South Africa is shrinking towards nothing. Is the ANC delighted or dismayed they are all leaving? It probably wouldn’t know itself but would be enraged with envious resentment.

Thie article was first published by Daily Friend and was repubublished with permission

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