Russian invasion spells disaster for diesel-guzzling Eskom

As Russia’s attack on Ukraine intensifies, so does the knock-on effect on the global economy, particularly as oil and gas prices hit record highs.

In the past decade, South Africa’s embattled power utility Eskom has become increasingly reliant on the country’s open cycle gas turbines (OCGT) to supplement the energy mix.

Eskom 2022 diesel spend – R9 billion

The parastatal’s Chief Financial Officer, Calib Cassim, has predicted that Eskom’s diesel use for 2022 could reach somewhere in the region of R9 billion, which includes fuel for two independent power producers (IPPs).

Cassim said that while Eskom is yet to factor in the increases in oil and gas brought about by the invasion of Ukraine, it can only afford a certain amount from a liquidity perspective.

“We are looking at options to hedge out diesel and fuel oil prices going forward. The timing couldn’t be worse but we’ve already started those discussions,” said Cassim.

Cassim said that if the oil prices double, it would impact the diesel-generated electricity supply. 

This could be disastrous for the ailing parastatal because it relies heavily on diesel-generated energy to keep the lights on, especially during unit breakdowns.

Increased reliance on OCGT

Last weekend’s system breakdowns led to Eskom running 17 OCGTs just to keep the dam levels from deteriorating.

But even after the dams filled up by Monday, another breakdown totalling 3,200MW tripped forcing Eskom to keep 16 OCGTs running to support the grid.

“We managed to supply the peak by running all 20 OCGT, all six emergency reserves as well as implementing stage 2 load shedding,” said Eskom COO Jan Oberholzer.

Load shedding is often implemented when Eskom needs to refuel its reserve capacity or is trying to reduce the use of the OCGT.

“We have 17/80 units (8,700 MW) that are running with risk. Of that just under 2,000MW are running at high risk,” explains Oberholzer.

As and when those breakdowns occur, Eskom turns to OCGTs to keep South Africa powered.

Russian sanctions impact

“We are cognisant of the fact that prices are escalating quite rapidly. We had a discussion last night on rand per ton on coal. We are quantifying what the impact will be,” said Oberholzer.

“We are concerned about what the impact of the war up there will have on our operations here,” he added.

Eskom’s Chief Nuclear Officer Riedewaan Bakardien said while there were no direct supply lines from Russia and Ukraine, some of its sub-contractors are from Russia.

“We are still evaluating if there is anything that may be impacted,” said Bakardien.

According to Trading Economics, Crude oil is expected to trade at $128.36 a barrel by the end of this quarter. 

“Looking forward, we estimate it to trade at $140.47 in 12 months’ time,” Trading Economics said.

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