OREANDA-NEWS. March 23, 2017. China's state-controlled Sinopec made its first major foray into international asset acquisitions since 2013 with the announcement today of its expected purchase of Chevron's South Africa business and its operations in Botswana.

The deal includes a 75pc stake in the 100,000 b/d Milnerton refinery in Cape Town, a lubricants plant in Durban, over 220 retail stations and 220 convenience stores across South Africa and Botswana, as well as storage and logistics facilities.

Sinopec said it is paying $900mn for the assets. Chevron confirmed the deal and said Sinopec was selected as the preferred bidder because it plans to maintain the businesses as going concerns. And the Chinese firm said "intends to enable technological improvements and upgrades for all of the acquired assets to help meet increasing local demand for quality products." This comment may allay fears that a new owner would convert the refinery into a storage terminal.

The deal may also prove to be welcome news for Iran which is in talks this month with South Africa over the resumption of crude exports. In 2011 — the year before US and EU sanctions were imposed on Iranian oil exports — South Africa imported just under 100,000 b/d of Iranian crude, down from a 2004 peak of over 160,000 b/d. In 2012, South Africa still took 30,000 b/d.

The Milnerton refinery was built to be compatible with Iranian crude but was unlikely to resume running it while under the majority ownership of Chevron, which is a US company. Sinopec is the principal refiner of Iranian crude in China.

Sinopec began work with South African state-owned PetroSA in 2012 on studies for a new refinery in South Africa with a potential capacity of 400,000 b/d. But that project, based on building a world-class refinery at Port Elizabeth's Coega Industrial Development Zone, did not progress, mainly because of cost estimates.

Chinese state-controlled oil firms have added more around 1.8mn b/d of domestic refining capacity since 2012, and Sinopec has become a major exporter of refined products from its own refineries — alongside other state-controlled firms PetroChina, CNOOC and Sinochem. Sinopec is likely to want to use the Chevron assets as a springboard for its expansion into the downstream African market. South Africa's refined products demand is increasing by around 5pc/yr. The age and limited refining capacity of the country's refineries mean South Africa will be increasingly reliant on refined products import. Annual domestic consumption of gasoline is around 200,000 b/d, diesel 240,000 b/d, jet 40,000 b/d, according to industry trade group Sapia.

For Chevron, the deal is part of a $5bn-10bn divestment programme for 2016-17. The company generated $2.8bn from asset sales last year and expects to reach "the upper end" of the range this year. The programme has so far been dominated by downstream asset sales. Last year's divestments included Chevron's 54,000 b/d refinery in Hawaii and the company's marketing and lubricants operations in New Zealand.

Chevron is also looking to sell the 57,000 b/d Burnaby refinery in Canada. The firm's refinery throughputs fell to 1.69mn b/d last year just over 1.7mn b/d in 2015. The firm's refined products sales dropped to 2.68mn b/d from 2.74mn b/d.

The Sinopec investment announced today is the largest downstream purchase in South Africa's downstream since the country's first democratic elections in 1994. It also represents the first change in ownership of the Cape Town refinery since its construction in 1966.