Petroleum Industry business

[SSS100]

Hi All,

Just a thought on something I observed in the petroleum industry and how it works
We have the "oil majors" who are also refineries ..the likes of Total, BP,Shell,Engem,Sasol and PetroSA
Then we have wholesellers or distributors, that is every other business that deals in petroleum products but is not a refinery

Now, both the oil majors and wholesellers looking to sell to either commercial customers (mines and big industries) and other end users
but, then the wholesellers must still try and secure/ get product from the sale refineries that they will compete with to sell to customers
And, historical evidence proves that the oil majors will give the whollesellers prices that will then make it difficult for wholesellers to compete in the industry
Also, during shut downs..either planned or not, the majors simple cut out the wholesellers and that means wholesellers lose business
That in turns means the wholesellers end customers will now try and sorce directly from the majors, cutting out the whollesellers even further

To me, it seems this prcatice is clearly not appropriate
And, I know someone may say...why don't thewholesellers import product into SA?
Answer is simple, they can NOT. There is no storage in SA, where will they put product? And even if there was, the oil majors control the pipe line from durban, so even if you do import and get storage (by whatever miracle), they you can not bring product inland on pipeline still
And remember the storage is not accessable by truck,

What can be done on this matter?

[Dave A]

Are we talking about protecting "wholesalers" for main stream commodity products such as petrol and diesel, or are we talking about speciality petrochemical products?

I don't know the industry well at all, but I would expect targetting petrol and diesel would not be smart as how are you going to find that niche or USP that gives you a competitive edge in such a mainstream commodity item. I expect the niches open to smaller players will lie in speciality products...

Any small operator competing within an industry dominated by big boys has to find a niche that is open for them to compete. If you want to go head to head on the bread and butter commodities - it's a big money game and there's no use crying foul when essentially the real problem is your pockets aren't deep enough to play.

[SSS100]

Yes Dave, we talking petrol & diesel
But Dave..we know very well that the historical effect of the matter is that only the oil majors were allowed to have such facilities
And now, even if any other business can get a wholesale licence, it can not get a refinery licence
This means the oil majors have a double edge sword..refinery and wholesale licence. And, ownership to the infrustructure such as pipeline and storage
Even if anyother person wanted to invest there, there are no options as no "new" structures in gazetted in the country

[SSS100]

Fully agree, authorities need to be engaged..problem is how do you get them to reason on the matter when they have no insight and experience how things work in reality in the i
industry? And some people sitting in the boards of the majors are politically connected

[Dave A]

Have these wholesalers invested in their own storage facilities?

[Blurock]

I think Dave has provided the answer. Your pockets are not deep enough. You can not claim the same benefits as the big dogs who have invested billions in the industry over many decades.

If you had the billions required, would you risk investing in this industry and would you have the patience to wait decades for an equitable return?

As Dave suggested, do not tackle the big boys head on, rather look for a niche market or service where you can operate profitably. The alternative is to rather invest in another industry.

[SSS100]

There is no storage places in SA, even if one has investors. Vessels come into Durban SBM thats the only place to offload imports and as such storage should be there
And there is no space as all the land is already occupied by the oil majors
What then?

[Dave A]

And there is no space as all the land is already occupied by the oil majors
What then?

Then it sounds like there is no opportunity to exploit there - look for another option.

ps. It's not all occupied by the oil majors. One of the private tank farms there is a client...

[SSS100]

Probelm Dave is that the majors own the product as they are the refineries, and they are also selling to the same tank farmer I would also go to
And being the refinery, and I still have to buy from them..they will be able to offer cheaper prices

What I'm getting to is..why let them be on both sides?

[Dave A]

My best suggestion right now is to read Sun Tzu's The Art of War. I'd look for a translation by Gagliardi where he relates the original text to business strategy.

[Blurock]

To me, it seems this prcatice is clearly not appropriate
And, I know someone may say...why don't thewholesellers import product into SA?
Answer is simple, they can NOT. There is no storage in SA, where will they put product? And even if there was, the oil majors control the pipe line from durban, so even if you do import and get storage (by whatever miracle), they you can not bring product inland on pipeline still
And remember the storage is not accessable by truck, What can be done on this matter?

Maybe I do not understand your problem. Do you want to import fuel, but do not have a storage facility?
If you do manage to import, would you not end up buying from the same companies who are supplying the local market at present? Do you have the infrastructure to service the market or do you just want to make a fast buck like most importers do?

If you do manage to import the product and bypass the current suppliers, why would people want to buy from you and not from a reputable dealer?

[CLIVE-TRIANGLE]

I, from an audit angle, was involved in the petro industry for more than a decade. You must realise that fuel is a strategic industry and is dramatically regulated. Just the resale side is regulated by more than 15 Acts.

If there is one single paragraph that really puts matters in perspective, it is paragraph 4 of this delightful Notice:

Government Gazette Notice Number 787 Published in Government Gazette Extraordinary No. 4358, Dated 6th April 1950.
1. Any person engaged in the trade or occupation of selling petrol for resale shall, in conjunction with any petrol that he sells, provide, install and maintain in accordance with the custom of the trade, for the use of the person to whom such petrol is sold, pumps, tanks and other contrivances and accessories ordinarily supplied to resellers for use in distribution or resale of petrol, on the terms on which they are ordinarily so supplied.
2. No person who is engaged in the trade or occupation aforesaid shall, except when it is otherwise directed by me, be bound to supply petrol for resale to any other person, unless :
a) that other person maintains, at the premises where such petrol is to be resold, the facilities laid down in Paragraph (3) for repairs and other services
to motor vehicles, under the supervision of a qualified motor mechanic, in a building of brick or concrete with a concrete floor and a floor space including any floor required for office accommodation, of not less than 1000 square feet; and
b) a suitable approach to and exit from the pumps is provided with due regard to the traffic conditions in the vicinity and the safety and convenience of the
public, or if the pumps are to be installed inside a building, they must be accessible to the public.
3. The facilities specified in Paragraph 2 shall be available at all reasonable times during the day, and shall include the following equipment.
a) Oil and Grease Equipment mechanically or hand operated with hoist, ramp
or pit.
b) Air Compressor Unit or manually operated pump.
c) Adequate water supply.
d) Puncture repair equipment, including garage jack, tyre lever and wheel spanners.
e) Tyre pressure gauge.
f) The usual mechanic’s hand tools, if not supplied by mechanic himself.
g) Equipment for attention to engines, consisting of reface, a set of seat cutters, micrometer and piston ring compressor.
h) Battery and electrical equipment, consisting of battery charger, testing equipment, battery filler and battery lifter.
i) Soldering equipment.
j) Miscellaneous workshop equipment, including work bench, creeper, vice,universal wheel puller, oil seal remover, bench grinder, a set of stocks, and dies, reamer set, trestles or suitable blocks, voltmeter and ammeter.
k) Welding outfit.
l) Fire extinguisher.
It is desirable that the building be in accordance with the locality in which it is situated and that establishments keep an adequate range of spare parts.
4. A person engaged in the trade or occupation of selling petrol for resale shall not be bound to supply any person with further petrol for resale if that person sells petrol so supplied to him at any price other than the cost to him delivered at the place of resale plus the ruling current gross margin allowed by the custom of the trade.

Decades ago Pick n Pay tried to sell petrol at reduced prices, you may recall, and it was these few words (and others) that scuppered the plan.

[Blurock]

There are places in Africa where petrol is sold on the roadside from jerry cans. How much muck or even rust goes into the tank from that can?