Role of oil, gas in determining the future of SA fuel prices

IN the South African context, exploration and drilling of oil and gas can create insurmountable economic benefits, says the author.

IN the South African context, exploration and drilling of oil and gas can create insurmountable economic benefits, says the author.

Published Apr 4, 2022


By Lwazi Ntombela

WITH South Africa having an unemployment rate of 46 percent and exorbitant fuel prices, you would believe that it is in everyone’s best interest to support efforts that seek to create employment and reduce fuel prices.

South Africa is blessed with an abundance of natural resources, and our government should exploit these resources for the betterment of all South Africans. Over the past couple of years, oil and gas discoveries have been made in South Africa and Africa at large.

These discoveries will provide new economic opportunities for South Africans, but there is a well-orchestrated pushback that seeks to phase in foreign-manufactured renewable technologies at the expense of energy security and job creation.

Having spent decades extracting cheap oil and gas from African countries, the developed world now wants Africa to conform to its clean energy agenda, which is heavily skewed towards renewables.

NJ Ayuk, the executive chairperson at African Energy Chamber, said: “Africa contributes just 4 percent to global greenhouse gases, yet we are expected to follow the developed world’s agenda and embrace renewables at a time when 700 million Africans have no access to electricity and 900 million people have no access to clean cooking.”

However, even with these obstacles, oil and gas remain an important part of the just energy transition. The International Energy Agency’s Sustainable Development Scenario (SDS) and the Shell Sky Scenario —both aggressive decarbonisation forecasts — show an ongoing, long-term role for oil and gas. Africa is no exception, and not until recently Southern Africa.

While many South Africans will rejoice over the recent announcement by the Treasury and the Department of Mineral Resources to reduce the fuel levy by R1.50 a litre and the termination of the Demand Side Management Levy of 10c a litre on 95 unleaded petrol sold inland. These cuts, over time, will be deemed negligible as oil prices continue to surge. We need a permanent long-term solution to this, and it seems we have found it.

Southern Africa had little to offer the world in terms of oil and gas until a decade ago, when a potential 500 trillion cubic feet of gas was identified across Mozambique and South Africa, along with 11 billion barrels of oil in Namibia. Together, these countries' oil and gas reserves equal those of Canada or Venezuela.

These discoveries could potentially revolutionise Southern Africa and give it a seat at Opec (Organisation of the Petroleum Exporting Countries). And with the support of other African countries, we can now have a meaningful voice in the cartel, which dictates oil production. This will allow Africa to dictate the price of fuel, which is exorbitantly high.

In the South African context, exploration and drilling of oil and gas can create insurmountable economic benefits. Oil and natural gas developments are expected to lead to significant employment gains, both along the east coast, south coast and nationally.

The resulting impact of these developments on the economy will be widespread among industries, which are directly involved in natural gas activities, such as the mining sector (which includes gas development), manufacturing, professional, scientific, and technical services (engineering), and construction (installation), are expected to see the largest employment effects.

Maria Moreaus Hanssen, the new chief executive of DEA Deutsche Erdoel, said: “It is not immoral to explore, develop and produce oil and gas. It is difficult and challenging, and for many, many years, oil and gas will still be a prerequisite for keeping society going. Oil and gas companies’ biggest challenge is still not declining demand, but how to find more oil and gas to compensate for the natural decline from existing fields.”

The burning of fossil fuels, namely coal, gas and oil, have been the biggest contributor to carbon emissions over the past century. This goes without saying, and as a result, all countries should make strides and efforts to continue to contribute to lowering emissions. Transitioning to high carbon-emitting technologies to low carbon-emitting technologies should be encouraged but needs to happen at a pace that won’t compromise our energy security and economy.

Despite massive strides in technology, storing energy from renewables is still costly and inefficient. The EU recognises this and has opted to continue using oil and gas as they transition into a ‘green economy’.

Battery storage seems to be unreliable and too expensive. When many battery storage systems are supplied to the grid, yields drop sharply. The combination of batteries and renewable energy power plants is a weak alternative compared to large, flexible coal, oil and natural gas combined cycle power plants that are always available, continuously operating and capable of varying power output.

Integrating renewable energies into the grid is not as binary or simple as many climate activists have made it to be. It is complicated because these sources are intermittent and do not produce a constant flow of electricity like fossil fuels. This is because renewable energy depends on the weather. For example, solar power is effective when the sun is shining, as is wind power.

Wind power uses wind power to power blades and turbines. Also, keep in mind that too much solar radiation can damage the solar panels, and high wind speeds can damage the rotor blades of the wind tower. Renewable energy variability also disrupts traditional methods of planning the day-to-day operations of power grids because the power generated from them fluctuates. It is difficult to consider them for base-load power.

South Africa's future might seem bleak, but there is hope. Oil and Gas exploration should be encouraged across Africa, not only to influence oil prices but also for energy security. We need to protect and safeguard the interests of South Africa and Africa at large today.

Lwazi Ntombela is the vice-president and head of Business, South African Youth Economic Council


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