Ukraine crisis may result to more load shedding with looming fuel shortages

The Ukraine crisis poses an even greater threat to South African peace of mind than soaring fuel prices – it could also trigger fuel shortages and rationing, as well as more load shedding as Eskom struggles to cope with soaring costs to keep its gas turbines running.

Energy analyst Ted Blom yesterday cautioned of “a fuel shortage as from 1 July, due to the closing down of oil refineries in Cape Town and Durban by end-June”.

While Blom didn’t believe rationing was on the cards, other countries in Europe had been preparing for possible fuel shortages, in addition to crippling price hikes for petrol, diesel and gas.

“I don’t think fuel rationing is currently on the cards, because there is enough available at present – it’s just the price increase that is a strong factor,” he said.

In the past decade, Eskom had become increasingly reliant on open-cycle gas turbines (OCGT) to supplement the energy mix. The parastatal’s chief financial officer, Calib Cassim, predicted that Eskom’s diesel use for 2022 could reach somewhere in the region of R9 billion, which would include fuel for two independent power producers.

While Eskom had yet to factor in the increases in oil and gas brought about by the invasion, it could 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.

If the oil prices doubled, it would impact the diesel-generated electricity supply. This could be disastrous because Eskom relied heavily on diesel-generated energy, especially during unit breakdowns.

Last weekend’s system breakdowns led to Eskom running 17 OCGT just to keep dam levels from deteriorating. Blom said coal scarcity was also “not an issue”.

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Amid concerns over South Africa’s best coal quality being exported instead of stockpiled to boost Eskom’s coal-fired power stations, Blom said export coal was not suited to Eskom’s needs.

“The export coal has proven to be too strong, it may burn the plant boilers,” said Blom.

“While Eskom still has access to adequate coal, the problem is the price it pays to suppliers when procuring the commodity – the situation at the Duvha power station being an example of this.”

The loss-making Eskom had for years been paying exorbitant prices to coal suppliers, with the coal cost totalling R58. 5 billion – amounting to 38% of the electricity operating costs.

This has obliterated its bottom line, forcing it to request bailouts from government. University of Johannesburg economics professor Peter Baur said soaring diesel prices could spell trouble for Eskom.

“The cost of buying additional fuel at increasing prices, may put additional debt pressure on Eskom and the economy,” he said.

“There are also structural failures, poor maintenance and other persistent issues.

“It is likely we may experience more load shedding, especially as we struggle to maintain existing energy infrastructure.

“A lot depends on the management of the crisis.”

The rising demand for energy in wealthier economies – especially given the Russia-Ukraine conflict – “may continue to worsen the commodities flow challenge”.

There was a strong possibility of more fuel price hikes “but there is also a chance that as global prices adjust due to possible supply adjustments, prices may settle below that mark”, he said.

“It depends on whether Opec [the Organisation of the Petroleum Exporting Countries] and other suppliers, such as US, are willing to increase supply.”

The impact on South Africa’s poorest sectors, food production, retail tourism and hospitality, would be more adverse.

“Given that we are trying to recover from a huge debt burden, the crisis may weaken the overall expected economic growth,” Baur said.

Wits Business School Energy Leadership Centre director Dr Rod Crompton said higher oil prices and concerns about security of energy supply, were “good reasons for government to switch support for old technology … to new technology of electric vehicles”.

“Electric vehicles beneficiate local resources – wind, sun and coal, battery raw materials – replacing petroleum, which is SA’s largest import,” he said.

– news@citizen.co.za