South Africa might face “fuel shedding in the future, if it did not implement the Moerane Report recommendation of 2006 to keep 90 days’ strategic stock”, the Liquified Fuels Wholesalers Association (LWFA) warned last week.
Peter Morgan, CEO of the LWFA, said in an interview with Business Report last week that it was time that the country addressed this matter once and for all.
“Sixteen years later we still don’t have agreement between the regulator and the oil majors on how much strategic stock we need to keep and how the cost of this strategic stock (will) be covered,” Morgan said.
This was all about ensuring the availability of liquid fuels at all times, in sufficient quantities and at reasonable or affordable prices.
South Africa had zero strategic stocks in the country during the recent Transnet wage strike, which lasted more than a week, the LFWA said. However, South Africa avoided a crisis due to import terminals and the imports had arrived “just in time”.
But the LFWA said any disruption at a port meant that someone was being rationed.
“We do know the oil majors use any stocks they have for their needs first – so it is the independent wholesalers who are always being rationed. The oil majors operate in the urban areas, while independent wholesalers operate in the non-urban areas, therefore this means the security of supply to non-urban areas is of concern,” Morgan said.
He said the Department of Mineral Resources and Energy (DMRE) and the liquid fuels industry needed to get together and agree on who would pay for the strategic stock and how much, and where it would be held.
Morgan said that he believes the recommendation had not been implemented because there was no political will to do so.
The DMRE failed to respond to repeated request for comment from BR.
Rod Crompton, a visiting adjunct professor at the Wits Business School’s African Energy Leadership Centre, said the Moerane Report pointed out that about 60% of South Africa’s refined product demand was in the inland market, not at the coast.
“Consequently, it would make more sense to hold strategic stocks of refined products, rather than crude oil, and to hold them somewhere in the inland market rather than at the coast. This recommendation has never been implemented,” Crompton said.
The weakness in holding strategic stocks of crude oil was complicated firstly by the issue of transporting it and secondly, the issue of refineries closing.
Recently, the two Durban oil refineries – Sapref and Genref – closed. The only remaining crude oil refinery operating is the Natref refinery in Sasolburg.
“So the problem of holding crude oil stocks in Saldanha Bay for a refinery in Sasolburg remains,“ he said.
“Because South Africa now imports about 60% of its refined product needs, there is not much point in holding large quantities of crude oil.”
He said that strategic stocks were a form of insurance against an interruption in supply.
At the end of apartheid the democratic government inherited approximately one month’s strategic stocks of crude oil, held at the SFF Saldanha Bay storage facility. In 2015 these stocks were unlawfully sold to various oil traders and in November 2020, the Western Cape High Court reversed this purported sale.
Crompton said it was unclear where the physical stock of crude oil currently was, whether it had been returned to the Saldanha Bay storage facility and whether the SFF was in possession of that crude oil.
In April, Minerals and Energy Minister Gwede Mantashe had said South Africa had 10 million barrels of strategic crude oil stocks.
Crompton said after the Russian invasion of the Ukraine led to a spike in oil and petroleum product prices this year the government had sold off some of the strategic crude oil stocks worth R6 billion and used the proceeds to subsidise petrol and diesel prices.
“This has reduced the quantity of crude oil stocks. Government has not disclosed by how much,” he said.
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