Unleaded Oil Shock

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A shortage of both aviation fuel and petrol has left planes grounded and cars queuing at the pump on the eve of South Africa's Christmas mass migration to the coast. Meanwhile, the government and energy companies have been fighting it out over exactly who is to blame.



The crisis reportedly began at Cape Town's Chevron refinery, the city's only producer of refined fuels. Yet it has now also spread to other countries in the region, with shortages reported in Namibia, Mozambique and Botswana.



The refiners are blaming the shortage at the pumps on teething problems related to South Africa's switch to unleaded fuels.



More than one refinery has reported hitches over the last few months, but it is unclear what caused the fall in the supply of aviation fuel.



The crisis on this score began when a consignment of fuel headed for Cape Town International Airport was found to be wrongly blended and unsafe for use.



Colin Jordaan, the general manager of flight operations of South African Airways, said his company is considering legal action over the lack of aviation fuel. The airline's operations control division has been told to calculate the cost of the delays as an initial step towards possible litigation, he said.



Meanwhile, legislation banning the mass production of leaded fuels comes into effect in January and the industry has been frantically trying to prepare for the deadline. The measure is part of the government's clean fuels policy, which aims to reduce pollution.



Preparation for the production of cleaner fuels has required investments of R10bn ($1.58bn) in new capital equipment. Refineries have been shut for structural adjustments and, in some instances, there have been unexpected delays in re-opening the facilities. Many of the problems are being blamed on a lack of adequately trained operators for the new equipment.



Unleaded petrol was introduced in South Africa in 1996, but still accounts for just 40% of vehicles on the road. From January, the other 60% will have to switch to lead-replacement fuels.



Some experts have called for the government to intervene to alleviate the crisis. However, speaking at a special crisis meeting with senior industrialists in Pretoria on December 12, Minerals and Energy Minister Lindiwe Hendricks said the government would not step in. She said that measures had been put in place to deal with the problem and that the public should not resort to panic buying.



Collin McClelland, the director of the South African Petroleum Industry Association (SAPIA), advised motorists that if they could not find fuel at their local petrol station they should call the oil companies direct to find out where they can fill up. He also said that South African's could expect shortages for up to 10 days as stocks are replenished. Among the members of SAPIA are Engen, Shell, Sasol, Total and BP.



The government has placed blame for the current crisis squarely at the door of the oil companies, accusing them of reneging on their obligation to stockpile adequate reserves. Following the December 12 emergency meeting, Hendricks announced there would be a special regulatory review. In a subsequent press briefing, the minister's chief director for hydrocarbons, Nhlanhla Gumede, accused the industry of breaking a moral contract with the public to stock enough fuel for emergencies. Under the basic fuel price mechanism adopted by the industry in 1993, motorists pay between 0.2 cents and 0.3 cents a litre extra for costs incurred by the oil firms in maintaining 30 days worth of reserves.



However, the opposition Democratic Alliance, Inkatha Freedom Party and Freedom Front Plus parties have accused the government of negligence over the shortages, saying they should have been foreseen and planned for.



The shortfall in reserves also highlights wider issues with energy consumption in South Africa. Domestic oil production accounts for only 8% of the country's total consumption in a rapidly expanding economy. Although further exploration is underway, South Africa's current dependence on imported energy leaves the economy vulnerable to oil shocks. The rising current account deficit, which recently hit a 25-year high, is often blamed on the high price of oil imports.



A contributing factor to the current crisis has been increased demand after the dip in the price of oil following the Indian summer in the northern hemisphere.



When the dust settles from the current crisis there is likely to be plenty of finger pointing and blame shifting. It is likely that the government will demand the oil firms get their act together or face regulatory measures in what, until now, has been a self-regulating industry.

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