Aug 14, 2024

Glencore Grad Program - Final Round Technical

Applied for their grad scheme in London and have been prepping and came across this question:

Would you recommend buying an oil refinery in South Africa. List the benefits and negatives of this move

South Africa is strategically placed as important hub for various trade routes and is third in oil products refined in Africa (implying existing refinery infrastructure), so looking into the refinery being near ports, storage centers, and having access to multimodal important transportation is vital (and could be a major pro). The next factor to look into is the grades of crude it is optimized to run (heavier, sour grades from Angola vs lighter, sweeter crude from Nigeria). Considering the crude it is optimized to run and the relative costs to obtain that crude, this can be both a pro or a con. Finally, looking into the regulatory environment surrounding what blends of gasoline / diesel / other refined products is important and holds economic implications that can make or break whether or not this a good purchase.

I wanted to look into what else I could look into to answer this question better. I am assuming this question was asked to the interviewee on the fly and to assess his or her capacity to think about business on her feet but want to see how in-depth my answer should be.

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5 Comments

O

26d

Based on the most helpful WSO content, here are some detailed points to consider when evaluating the purchase of an oil refinery in South Africa:

Benefits:

Strategic Location:
- South Africa is a key hub for various trade routes.
- Proximity to ports and storage centers enhances logistical efficiency.
- Access to multimodal transportation (road, rail, sea) facilitates distribution.
Existing Infrastructure:
- South Africa is the third-largest in oil products refined in Africa, indicating a well-established refinery infrastructure.
- Potential for synergies with existing facilities and supply chains.
Market Demand:
- Growing demand for refined oil products in the region.
- Opportunity to cater to both domestic and regional markets.
Economic Growth:
- South Africa's economic growth can drive increased energy consumption.
- Potential for long-term profitability as the economy expands.

Negatives:

Crude Oil Supply:
- Dependence on the type of crude oil the refinery is optimized to process (e.g., heavier, sour grades from Angola vs. lighter, sweeter crude from Nigeria).
- Fluctuating crude oil prices and supply chain disruptions can impact profitability.
Regulatory Environment:
- Stringent regulations on blends of gasoline, diesel, and other refined products.
- Compliance costs and potential changes in regulations can affect operations.
Operational Costs:
- High operational and maintenance costs associated with running a refinery.
- Potential for unexpected expenses due to aging infrastructure or technological upgrades.
Environmental Concerns:
- Pollution and environmental impact of refinery operations.
- Potential for public opposition and increased regulatory scrutiny.

Additional Considerations:

Financial Analysis:
- Conduct a thorough financial analysis, including cost-benefit analysis, ROI, and break-even analysis.
- Assess the financial health and performance of the existing refinery.
Competitive Landscape:
- Evaluate the competitive landscape and market share of existing refineries in the region.
- Identify potential competitors and their strengths and weaknesses.
Technological Advancements:
- Consider the need for technological upgrades to improve efficiency and reduce environmental impact.
- Assess the availability and cost of implementing new technologies.
Political Stability:
- Analyze the political stability of South Africa and its impact on business operations.
- Consider potential risks related to political changes and their effect on the regulatory environment.

By addressing these points, you can provide a comprehensive and well-rounded answer to the question about buying an oil refinery in South Africa.

Sources: Why Oil & Gas?, Physical Commodities: Shell vs. BP vs. Trading House Grad Programmes, Mining Private Equity Firms, The Allure of Africa: Why I am Passionate about Opportunities on the Continent, Physical Energy Trading And Logistics

I'm an AI bot trained on the most helpful WSO content across 17+ years.

CO

25d

You heard anything back yet?

HF

Intern in HF - Other

25d

Damn did not know Glencore worked on problems like this -- currently interning at the prop trading arm of a utility but these type of assessments sound very interesting. Can't really give you any advice being an intern, but best of luck man.

ST

Junior Trader in S&T - Comm

23d

Most Helpful

Two things I would also consider:

1) Glencore owns a refinery in Cape Town, so your ultimate answer should probably be "yes"

2) The acquisition of a refinery for a trading house is looked at very differently than at an oil major. Number 1 consideration is "does this refinery add value to a trading business". Given it is south africa I would imagine the refinery products stay in country and so from a trading perspective this refinery is mostly a crude short.

Trading a system short like this is all about optionally so I would be thinking:

How flexible is the refinery to process different crude grades? You would not be expected to know this but it is a question you can ask the interviewer so show you are aware it is important.

Where can this refinery import crude from given its geography? South Africa is decently positioned to import from WAF, Latam, US gulf and middle east. So a ton of optionality here, and this is how a trading company will make money from an asset like this. I would focus on this point in my answer.

Disclaimer: I'm not a crude trader

Authored by: Certified Sales & Trading Professional - TraderCertified Sales & Trading Pro

O

23d

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