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.
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:
Existing Infrastructure:
Market Demand:
Economic Growth:
Negatives:
Crude Oil Supply:
Regulatory Environment:
Operational Costs:
Environmental Concerns:
Additional Considerations:
Financial Analysis:
Competitive Landscape:
Technological Advancements:
Political Stability:
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
You heard anything back yet?
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.
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
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