Page 7 - EurOil Week 20 2022

EurOil COMMENTARY EurOil

higher in the week ending May 13 than a year choice but to continue depending on imports to
earlier, while diesel was trading at more than cover the vast majority of its fuel demand. This
double the price. is a logistically challenging practice, as most of
Western sanctions against Russia have led to these imports enter the country by sea, via the
supply disruptions, as exporters have had diffi- port of Durban. From Durban, jet fuel must be
culty completing transactions. Meanwhile, some piped to Natref for inspection before it can be
buyers have been shunning Russian petroleum used by airlines, a process that takes weeks.
products to avoid reputational damage. As It is also expensive. Industry observers esti-
Europe takes far more Russian diesel, jet fuel and mate that the refinery closures could see South
other refined products than any other market, it Africa’s petroleum product import bill soar by
is here that the impact has been most acute. as much as 300%, presenting a clear challenge to
Higher crude prices, also partly tied to Rus- the extension of the fuel tax break. In the mean-
sian supply fears, have also fed into higher fuel time, there is further price pain for consumers
prices. Other factors include robust seasonal ahead, as the ZAR1.5 ($0.09) per litre tax holiday
demand, low stocks and a lack of local supply. is due to expire this month. Drivers are now set
While diesel prices have climbed higher, jet to see gasoline and diesel prices rise by 16% and
fuel is now the most lucrative petroleum prod- 14% respectively within inland areas and 17%
uct to produce in Europe, with the physical crack and 15% respectively along the coast.
spread soaring to a record $69.4 per barrel on Elsewhere in Africa, Nigeria’s national oil
April 29. Cracks have seen more than a 10-fold company (NOC) is still implementing a major
increase compared with averages in 2020 and overhaul programme covering four state-owned
2021, when demand for the product nose-dived oil refineries, all of which have been idle for some
as a result of the pandemic. This tightness in the time. However, the privately owned Dangote
jet fuel market may be great news for refiners, but Refinery, which will have a capacity of 650,000
it could result in a supply crisis if the post-pan- bpd, is due to begin operations later this year,
demic recovery in demand continues gaining giving Abuja hope for the future.
pace. Inexplicably, though, rather than leveraging
If implemented, the EU’s embargo of Russian the little modular refining capacity the country
oil and petroleum products will place unprece- does have, Nigerian National Petroleum Co. Ltd
dented pressure on the European fuel market. (NNPC Ltd) has been exporting its full crude
In the event of a blanket ban, the markets worst slate. This has forced private refiners to make a
affected will be those heavily dependent on Rus- choice between sourcing crude from elsewhere
sian crude such as Hungary, which would have or shutting up shop.
to upgrade its refineries extensively and estab- Meanwhile, Abuja has lately been forced to
lish new infrastructure to receive alternatives introduce three months of subsidies for jet fuel
to Russian feedstock. But those same countries amid threats by airlines to ground domestic
are likely to be permitted more time to phase out flights, and such measures are likely to continue
Russian imports. at least until the refining work is complete. This
is by no means a sustainable solution, and esti-
Africa mates peg Nigeria’s subsidy bill at $1-3mn for the
Meanwhile, African states, many of which rely three-month period – on top of gasoline subsi-
on imports to cover to their full demand for dies, which are expected to total $12bn in 2022,
refined products even in cases of upstream abun- up from $3.85bn in 2021.
dance, are also being affected. These problems are not confined to Africa’s
The disconnect between hydrocarbon pro- larger economies, though. Senegalese flights
duction and downstream capabilities is particu- to Paris have routinely been forced to make
larly pronounced south of the Sahara Desert. The fuel stops in the Canary Islands of late, and the
two largest economies in sub-Saharan Africa, country’s largest airport has been requesting that
Nigeria and South Africa, are wrestling with incoming flights take measures to ensure they
issues around supply and prices of jet fuel, die- carry enough fuel for the return flight.
sel and gasoline, with the refining slates of both
countries largely out of commission. Middle East
For South Africa, the shortage is most acute While Dakar has blamed “unfavourable inter-
for jet fuel. There doesn’t seem to be an easy solu- national conditions,” the oil industry’s de facto
tion, and with two of the country’s six refineries kingpin, Saudi Arabia’s Energy Minister Prince
(Engen and Sapref) having already shut down, Abdulaziz bin Salman Al Saud, has come to the
likely permanently, the outlook is bleak. In the defence of producers.
meantime, a decision on the fate of another As he has done repeatedly with reference to
plant (Natref) is due to be taken this year, while a upstream investment, the minister said on May
fourth refinery (Astron) is recovering from a fire 9 that underinvestment in global refining capac-
and another (Mossel Bay GTL) is struggling to ity was to blame for fuel supply shortages and
obtain adequate feedstock. Only Sasol’s 160,000 high prices. “All mobility fuels have skyrocketed
bpd Secunda Coal-to-Liquids (CTL) plant is ... and the gap between crude prices and these
fully functional and is even undertaking an products in some cases is actually 60%,” he said.
improvement programme. “The facilities that can convert oil into usea-
Without these refineries, South Africa has no ble products have shrunk and ... are shrinking.

Week 20 19•May•2022 www. NEWSBASE .com P7