Fuel shortage warning for South Africa

 ·24 Oct 2022

The Democratic Alliance says it is urgently seeking answers from the national government over the status of South Africa’s fuel reserves following a crippling strike at Transnet last week.

While the strike has ended, the party said that ports and transport networks experienced major disruption and fuel industry players have warned that the country is perilously close to a major fuel supply crisis due to the unavailability of refined fuel stocks.

Transnet workers were back on the job on Friday (21 October), but the group warned that it would take several weeks to address immediate backlogs, with analysts projecting that operations would only return to normal in early 2023.

South Africa was experiencing a fuel crisis even before the strike started, with airports warning of jet fuel rationing and power utility Eskom sounding the alarm over its ability to get enough diesel for its generators.

The bulk of the country’s fuel imports enter through the Durban port, which according to Kevin Baart, head of strategic projects and regulation at the South African Petroleum Industry Association (Sapia), is at near capacity, following the closure of several refineries in the country, and increasing reliance on imports.

He told News24 that fuel pipeline networks will struggle to cope with increased imports, “jeopardising fuel supply to the inland economic hubs of South Africa”.

From six operating refineries in 2019, South Africa has two, with a third, the Astron Energy refinery, set to be online by the end of the year.

The DA noted that South Africa has been sitting with fuel supply issues for the better part of two decades, with the last major crisis hitting in 2005.

“Since the release of the Moerane Commission of Inquiry Report into the fuel crisis that occurred in South Africa in November/December 2005, the ANC government has failed to implement the strategic refined fuel reserves recommendation, placing the country at severe risk of fuel shortages should there be a major disruption in the fuel supply chain,” it said.

The party said that a 2006 committee established that the country does not hold strategic refined product inventories and recommended that the government should review its policy on strategic fuel stocks.

“Through public/private partnerships, the commission advised that oil companies and synthetic fuel plants should be obliged to hold prudent commercial levels of refined product stock. 16 years later, this has not been implemented,” it said.

Disruptions to the supply of refined liquid fuel – arising from inadequate port infrastructure, ongoing labour action, and a shortage of refining capacity- will have far-reaching consequences to the economy and social order, it said.

“The immediate impact will be the upending of supply chains, which will severely constrain productivity in the economy. Consumers could potentially face a food supply crisis as food wholesalers and distributors struggle to transport food stocks where they are needed.”

Diesel worries

The freight industry in South Africa has previously warned of tighter operations due to growing demand for diesel in the country and internationally – particularly as European countries have had to turn to other fuel sources in preparation for winter.

Diesel prices are soaring in Europe and the US, spurring a fresh bout of inflationary pressure ahead of a winter that is expected to see major supply disruption, Bloomberg reported.

It has been the biggest price spike in several months, foreshadowing a winter in which Europe, in particular, is expected to face supply turmoil as it tries to wean itself off Russian-made fuels. Industrial consumers substituting oil for natural gas – the price of which has soared since the war in Ukraine began – is also bullish for demand.

“Higher diesel prices have the potential to create even stronger inflationary pressures, especially if the current price spike is sustained, adding significant downside risk to demand and increasing the chances of a global recession,” it said.

Locally, diesel prices are expected to climb by as much as R1.61 in November.

The Road Freight Association said that the situation has become dire for many transporters, who can no longer absorb additional costs.

“Diesel is the fuel source used by most transport companies in South Africa; it is the energy source that drives our logistics chain,” said the association’s Gavin Kelly.

“Every time it increases, it increases the cost of moving the goods through South Africa. We are very aware that the diesel price is determined by external factors; however, the reality is every time the price increases, transporters have to pass that cost on. They cannot absorb it.”

Read: Big jump in petrol prices coming next week

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