Oil crisis global short

In March this year, Fatih Birol, the head of the International Energy Agency (IEA) said the world was about to experience “the greatest global energy security threat in history”.

The global oil and refined fuel crises are likely to continue into 2027. Middle East conflicts and the Russia- Ukraine war, which have restricted global oil and gas output, are likely to persist in the foreseeable future, with the continuing disruption of critical oil shipping lanes and putting pressure on the strategic commercial and strategic oil reserves of firms and countries.

The price of crude oil passed US$100 this month. The price of diesel in the US and Europe passed US$200 a barrel. Diesel accounts for a third of global oil use. The IEA calculated that in August, the exports of diesel from the Middle East collapse to a quarter of the volumes before the US-Israel-Iran war. Gas prices increased 160% since the US-Israel- Iran war.

Global coordination to keep oil prices down initially helped to keep prices down. The International Energy Agency coordinated the release of 400million barrels of emergency oil reserves by its members. China withdrew from buying crude oil.

Rising global fuel prices are leading to fuel shortages, increasing inflation in countries and increase food and critical supplies shortages. Global shipping, food and manufacturing inflation are spiralling.

It forces central banks to increase interest rates. It undermines economic growth. The energy price shock is likely to depressed global economic growth. It has stoked political protests and instability in many poor countries.

Many countries have in anticipation of an oil crisis, increased their reserve oil reserves, have stepped up developing their own oil sources if they have, increased renewal energy alternatives and finding substitutes to oil.

The developing countries that are oil import dependent, who neglect increasing efforts to build renewal energy alternatives and substitutes to oil, such as South Africa, are the most threatened.

Saudi Arabia is the world largest oil exporter. The US is the world’s largest oil producer, larger than other major producers Saudi Arabia and Russia, averaging about 13.6 million barrels per day. When adding natural gas liquids and petroleum products, the US output rises to 21 million barrels a day. This is 22% of the global supply. The US is also the world largest oil consumer. China is the second largest.

As a region, the Middle East was the largest producer, with 31.5% of global crude oil plus condensate production according to the IEA. The Middle East region produces 27million barrels a day. North America as a region is the second largest producer with 20.6 million barrels per day, or 24.0% of the total global output.

Qatar is the world’s second largest pro-ducer of liquified natural gas.

There is a global short-age of refining crude oil into fuels. The International Energy Agency (IEA) reported that global diesel supplies will remain restricted far into 2027 as countries battle to replenish their falling stockpiles.

The US is the world largest refiner of oil, followed by China and Russia. Russia’s refinery capacity has been reduced by 30% caused by drone attacks from Ukraine.

Oil’s share of global energy needs is now only 30% and below. Many countries have large strategic oil reserves unlike the 1970s oil crisis. The world also has large supplies of liquefied natural gas. Many countries have increased their renewable energy sources.

Forward-planning countries such as South Korea, Singapore, Japan and China have vast stockpiles of strategic oil reserves. In fact, Singapore, has turned itself into a fuel-storage hub over the years, to strategically benefit from persistent global oil risks. China has built the largest emergency strategic oil reserves to buffer itself against an oil price crisis.

The US is drawing down strategic reserves for short-term relief. The US, the largest oil supplier, has seen a decrease in its domestic inventories to historical lows, as pressures to increase supply to the world. In June, China banned the export of refined oil. China has restarted the exports of refined oil again, however, the country will restrict exports again, if the situation worsens. In June Iran and the US signed a deal to extent their war truce deal, including to reopen the Strait of Hormuz, to reopen the strait, which carries the world’s most oil, ferrying oil from the Gulf to the world markets. However, the deal soon collapsed.

US President Donald Trump has announced a temporary ‘‘energy ceasefire” between Russia and Ukraine and eased sanctions on Russian fuel to help lower rising oil prices.

Many countries have also in the past few years been preparing for a global oil crisis, learning from previous global oil price spikes, as part of industrial policy, stockpiling strategic oil reserves, expand their refinery capacity, and increase their renewables and other alternatives to oil.

Countries that have been hit hard by the oil crisis are those with little local production of oil, do not have refining capacity, have not diversify to non-oil energy sources and have limited strategic reserves.

South Africa is a fuelimport-reliant country, yet the ANC government has had virtually no long-term planning to make the economy fuel resilient.

Davies Tsikayi, a mining expert from the University of the Witwatersrand has warned that South Africa is also facing what is called a “Gas Cliff”, a critical natural gas and industrial gas supply short-age caused by plunging declining production at Mozambique’s Pande and Temane gas fields, which pro-vide 90% of South Africa’s gas.

Tsikayi, outlined that although natural gas accounts for only about 2.5% of South Africa’s total energy supply, it carries strategic weight. About 40% of the gas from Pande-Temane is used in Sasol’s Secunda operations, where the South African chemicals and energy company converts coal and natural gas into synthetic fuels and chemical feedstocks.

Another 40% of natural gas goes to Sasol’s chemicals complex at Sasolburg, which use natural gas in production processes for chemicals. “This means the gas cliff should be understood not only as an issue of energy supply, but also as a risk in industrial policy, food security and manufacturing competitiveness”, according to Tsikayi.

The African National Congress government has done little to ensure natural gas security.

The ANC’s government’s decision not to expand South Africa’s fuel storage reserves and allow reserves to be sold through corruption and captured black economic empowerment (BEE), over the past decade, and not speed up renewables, is one of the many self-inflicted ANC government policy failures, which ordinary citizens now bear the brunt of, as the Iran war increase the price of oil.

South Africa under the ANC has not invest in refinery capacity, although it is critical to any economy, in fact, downscaling the country’s refinery capacity.

South Africa has closed most of its oil refineries or converted into import terminals, cutting domestic processing capacity from more than 700,000 barrels per day to just over 100,000 barrels.

This has left the country heavily dependent on imported refined fuel and exposed to fluctuations in global markets. South Africa was once adequately self-sufficient to refine most of fuel.

Corruption has further diminished South Africa’s strategic oil reserves. Between 2015 and 2016, the Strategic Fuel Fund, managed by the Central Energy Fund of the Department of Energy sold off R5 billion worth of South Africa’s strategic oil reserves, without getting permission from the Treasury, a contravention of the Public Finance Management Act (PMFA). The unlawful and corruption-ridden deals to 8 companies sold 10.3 million barrels of the country’s strategic oil reserves. There has been strong opposition from within the ANC to rapidly scaling renewables. The coal industry, coal mining, the trucking industry linked to coal and the associated finance industry linked to coal and anti-West ANC politicians who argue that Western countries are trying to close developing countries’ economic growth through coal energy, while they, developed countries themselves, have developed through, have all slowed down efforts to increase renewables at a fast pace.

The ANC government has also not as part of industrial policy invest in biofuels, renewable liquid or gaseous fuels derived from organic biomass— such as plants, agricultural waste, and animal fats.

South Africa may experience a macroeconomic shock because of the oil and gas crises – which would again be a self-inflicted shock. William Gumede is an associate professor at the School of Governance at the University of the Witwatersrand and author of South Africa in BRICS (Tafelberg).