Fuel supply stable for now, but risks loom for SA

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JEREMY MAGGS: Government today is reassuring South Africans that fuel supply remains stable in the short term, despite the war in the Middle East and oil prices pushing back above $100 a barrel.

But I think beneath that reassurance, there are some uncomfortable realities. We are now heavily reliant on imported fuel. We have lost a significant portion of our refining capacity, and we do remain exposed to volatile shipping routes and obviously a weakening rand.

So the key question today is this: are we looking at a system that is holding or one that is increasingly fragile with very little room for error?

Let’s discuss that in some detail now. I’m joined by Jacob Mbele, who is the Director-General (DG) at the Department of Mineral and Petroleum Resources (DMPR).

DG, a very warm welcome to you. Your statement that you put out last night says supply is stable, and I quote, in the immediate term. What does that mean? How many weeks of real buffer does the country actually have?

JACOB MBELE: Thank you, Jeremy, for the opportunity that you have afforded the department to expand on the statement that we have issued. When we talk weeks, we are comfortable that based on the orders that have been placed and the ships that are already on the way, we should be able to supply fuel until the latter part of April.

JEREMY MAGGS: And after that, I guess, DG, it’s anyone’s game, given the unpredictability of the situation.

JACOB MBELE: Not necessarily. The standard operating process has always been for the oil companies that operate in this country to place orders on finished products. There’s normally a six-week cycle, where product arrives every six weeks. On crude oil, you’re looking at a three-month cycle.

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Obviously, as these orders are coming through, there are other orders that have been placed. Once those are confirmed, then we are able to clearly indicate, and once the scheduling is done, as to then how far will that next batch take us and so on.

JEREMY MAGGS: But the truth is that South Africa, DG, is still dangerously exposed after losing so much refining capacity, surely?

JACOB MBELE: Jeremy, I think this needs to be looked at in context. Even if you had 100% refining, you still have to import crude.

I think the debate that we’ve always been putting out there as a department, and the minister (Gwede Mantashe) has been very vocal about, around exploiting our own resources.

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We all know that, with the findings that are being announced in Namibia, that the Orange Basin stretches into South Africa. We’ve been saying exploiting the potential that lies there assures us of security of supply going into the future.

So we have always been exposed, even when we had a number of refineries here.

I think the only two refineries that were not exposed to a certain extent were actually the two synthetic refineries, the Sasol coal-to-liquids, because coal is here, as well as Mossgas, which is PetroSA, the one that used to run from gas to liquid. Obviously, then the gas ran out and there are efforts to find other sources of gas.

But I think the point that one wants to emphasise is that until we progress in terms of getting into the resources that we have in our country, we will always be exposed.

So it would not make – I don’t want to say it would not make a difference – but whether it was crude, we had all the refineries here, we would still almost be facing the same kind of exposure.

JEREMY MAGGS: I understand that, and I also understand the whole strategy around diversification. But how quickly could South Africa realistically replace any disrupted Middle East supply?

JACOB MBELE: We are fortunate that the companies that operate in South Africa have a strong footprint in other areas. As we speak, my understanding is that most of the orders that are coming now are coming from other areas, such as Europe.

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The oil majors that operate from here, many of them are from Europe. So they do have a footprint in terms of where they can source some of their supply.

So that option is already being exercised. But we also, from a department point of view, are already looking at other options to assist. There are countries on the continent where some, for example in West Africa, have already said they may have product that they can ship.

We are already getting, by the way, our crude oil from West Africa.

So we’re not exposed to that extent, like the finished product that used to come mainly from the Middle East.

JEREMY MAGGS: DG, I wonder if you could confirm reports that I’ve read this morning that already there are diesel shortages in at least five provinces.

JACOB MBELE: We had a meeting this morning at 7:30 with suppliers. From where we sit, we are not aware of a shortage.

Jeremy, I think one thing that we all know is that with social media having made it easy for anyone to make a comment and for that to catch fire, and for the fire to spread quickly, we are noticing that there is some misinformation that is going around.

From where we’re sitting, we are not aware of any shortage, but we also know that generally when there is a looming price increase, we have seen instances where there’s a rush to try and get product.

But then we also know from history, we have seen isolated cases in the past of distributors that might sit with the stock to try and benefit more.

I’m not saying this is what is happening currently, but I’m just explaining that there are dynamics that are generally at play when you find yourself in this kind of situation.

JEREMY MAGGS: Hence, the reason why I’m asking you that question about the shortages. But what I do want to ask you, though, is that there are also reports about the oil companies introducing something called controlled allocation. In other words, holding back on supply or managing supply more carefully. Is that happening?

JACOB MBELE: Yes, that is happening because what we are seeing, and it’s less with individual customers, this is a complaint that’s coming from contracted customers. There are customers who have contracts with suppliers for certain volumes.

What suppliers are trying to manage is a rush, because remember, the orders that are placed are placed on projected demand.

If you artificially surge demand because you are trying to get your hands on the product so that you can store it, you create this artificial shortage because of the delay.

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So what the companies are trying to do is that they are saying to people, we are going to keep you within your contracted volumes. So only if you start asking us for more than what you normally take from us, we may be reluctant to give to you, because anyway, you also have to honour other contracts.

JEREMY MAGGS: Thank you very much indeed. In conversation there with the Director-General of the Department of Mineral and Petroleum Resources, Jacob Mbele. Thank you very much indeed.