While South Africa has been preoccupied with rolling electricity blackouts, security of liquid fuels supply has been missed though – by my calculations – by worth of gross sales it’s 60% bigger than electrical energy gross sales.
The one liquid fuels associated story that attracted consideration in the local media was the short-term closure of an inland oil refinery as a consequence of delays in crude oil provides. The refinery is owned by Natref, a three way partnership between the chemical and vitality firm Sasol – the majority shareholder – and Total Energies.
No particulars have been given about the closure. But it’s a uncommon incidence and in all probability a consequence of disruptions to international logistics and oil provides brought on by Russia’s invasion of Ukraine.
Natref is the final surviving oil refinery in South Africa. Three others have been closed in the previous two years.
These refinery closures and the potential everlasting closure of the Natref refinery are photographs fired in the lengthy operating contestation between the oil refiners and the authorities, which has been attempting to introduce cleaner fuels specifications. And, in parallel, insurance policies requiring oil firms to maintain some shares to behave as a buffer in opposition to occasional supply interruptions.
Both insurance policies are in line with worldwide tendencies.
The try to maneuver to cleaner gas specs started in 2006 and is aimed toward helping the home auto manufacturing business, which produces primarily for European markets, the place engines have to match Europe’s cleaner fuels.
The oil business’s response to the authorities’s cleaner fuels initiatives has been strong. Initially, it sought to blackmail the authorities by threatening closure except the authorities gave it the capital to improve its refineries, with none consequent possession rights. The business euphemistically termed this a “cost recovery mechanism”. The authorities finally backed down from its deadlines. But it didn’t succumb to the calls for for money items.
In the newest spherical, the two Durban refineries made good on their threats. Engen (Petronas) in 2020, following an explosion and fire, and Sapref (Shell and BP) after its short-term closure during the insurrection in July 2021. Natref seems to be enjoying a ready sport on the authorities’s newest deadline, which has been shifted from 2023 to 2027.
If the authorities holds the line Natref may shut, with potential knock-on results for Sasol’s coal-to-liquids plant in Secunda, whose manufacturing is partially built-in with Natref’s.
The closures of South Africa’s small, previous and inefficient refineries are economically painful in the brief time period. But additionally they supply the prospect of higher outcomes – financial, environmental and security of supply – if authorities acts sensibly, significantly in relation to electrical autos.
Auto manufacturing
The authorities has pursued an import substitution industrialisation strategy to the liquid fuels business since the Nineteen Thirties and has used various regulatory instruments to guard the oil refiners.
But the want to maneuver to cleaner fuels to help native auto manufacture has proved to be a tipping level. The problem for the auto producers is that it doesn’t make business sense to fabricate two engines for every car – one for South Africa’s soiled fuels and one other for Europe’s cleaner fuels. The home auto business has, like refining, lengthy been protected by the authorities. It occupies a key place at the coronary heart of South Africa’s manufacturing business and its pursuits seem to have been chosen over these of the oil refining business.
The refinery closures maintain implications for the future of auto manufacturing and transport in the nation.
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In the brief time period, gas imports are assembly demand. But the auto producers face a brand new menace to their European markets – electrical autos. Some native auto producers have appealed to the authorities to incorporate electrical autos inside its help and subsidy programmes. At current the import of electrical autos is actively discriminated in opposition to. But the Department of Trade, Industry and Competition is dragging its heels.
There is an efficient prima facie case for South Africa to modify to electrical autos. Imported US greenback denominated petroleum could possibly be substituted by primarily rand denominated photo voltaic and wind-based energy era. The productiveness good points from extra environment friendly electrical autos and the impetus to South Africa’s rising battery manufacturing business are half of the case. This is also seen as the final model of the authorities’s long-running import substitution industrialisation.
The closure of the oil refineries has really made it simpler for the authorities to modify its consideration to electrical autos, which might additionally help in assembly its worldwide emissions targets. It additionally implies that the changes envisaged in the just energy transition have, in impact, already occurred in the refining business.
Security of supply?
Returning to the query of security of supply for inside combustion engines, there are additionally benefits for the authorities in as far as strategic shares are involved. Since there are fewer oil refineries, much less crude oil shares are required. This could also be an excellent factor given the troubles related to them.
Firstly, there may be the financial argument that strategic shares sterilise giant portions of money. In flip, this has a excessive alternative value in South Africa with its many different urgent social wants.
The Minister of Mineral Resources and Energy instructed Parliament in 2022 that the strategic oil shares have been valued at R1 750 764 252.
Secondly, there are governance points. In 2015 the Strategic Fuel Fund illegally offered 10.3 million barrels (the whole inventory) at discount basement costs to grease merchants. In 2020 the High Court returned the stocks to the fuel fund.
The closure of oil refineries has inadvertently supplied a windfall for gas customers – it has allowed authorities to sell off some of the stocks and use the proceeds to subsidise gas costs throughout an oil value spike.
These subsidies are to be partially funded by the sale of strategic oil shares to the worth of R6 billion. By my estimates this represents roughly half of the strategic shares, which leaves a bit greater than the surviving refineries want.
A significantly better resolution can be to carry strategic shares of refined merchandise in the inland market, which is approximately 60% of the South African market. Although mentioned in authorities not less than 20 years in the past, this feature has not been pursued.
Does the closure of the refineries have an effect on South Africa’s security of supply? Not a lot. The nation has merely swapped reliance on crude oil imports for refined product imports. Rather than worldwide supply dangers, the greater dangers seem to be domestic.
So what’s the authorities’s coverage on the security of supply?
The 1998 White Paper on Energy Policy mentioned that the authorities would keep three months of oil provides. But there has by no means been a price range allocation to permit the nation to succeed in this stage.
In 2012 authorities gazetted a draft plan proposing that its holdings be lowered to 60 days, supplemented by the business holding 14 days of refined merchandise. The draft has by no means progressed to a last coverage, in all probability as a consequence of monetary constraints and the business’s unwillingness to foot an element of the invoice.
There has been no scarcity of concepts and coverage proposals on strategic shares in democratic South Africa. The scarcity is of money to fund the concepts. Given South Africa’s more and more constrained funds, there appears to be little prospect of security of supply being resolved quickly. Security of supply might solely be improved when South Africa switches to electrical autos.
Rod Crompton, Adjunct professor African Energy Leadership Centre Wits Business School, University of the Witwatersrand
This article is republished from The Conversation below a Creative Commons license. Read the original article.
