As an attempted insurrection took hold of parts of SA this month, the security of fuel supply was brought into sharp focus. With the largest refinery in Southern Africa — Sapref in Durban — declaring force majeure and shutting down production, fears of fuel shortages sparked panic-buying around SA.
Security of fuel supply is a top priority for governments. Fuel is, after all, the life blood of any modern economy, critical for basic activities ranging from planting crops to moving goods.
This month’s unrest posed a threat to the supply chain that went beyond what stakeholders may have imagined, when the issue of security of supply boiled down to security itself.
SA Petroleum Industry Association executive director Avhapfani Tshifularo says it presented a unique challenge to not only the petroleum industry but to "the rest of the business in SA, because this is not something that you typically will expect".
What became clear in the chaos was that law enforcement was not able to protect the private sector, and private security was unable to tackle the problem alone, Tshifularo says.
"We should have a plan [in place] that anticipates this magnitude and nature of protests, which we can tweak as the situation presents itself. We don’t have such a plan ... to deal with riots."
It’s surprising, given that refineries and a handful of key fuel depots are the few cases of private-sector infrastructure being designated as national key points in SA. That’s supposed to ensure additional law-enforcement support — but that wasn’t what happened in the unrest.
Though Sapref was unable to operate due to critical supplies not being delivered, it did not come under siege, as shops and warehouses in Durban did. Even Engen’s shuttered Wentworth refinery was left unscathed, despite its proximity to the action.
But what was also of concern was the disruption to Transnet’s port which, due to poor worker turnout amid the riots, was unable to operate. A subsequent cyber-attack also took a toll on operations. (The government is probing the attack and, for now, treating it as unrelated to the civil unrest and failed insurrection.)
"If the ports are not functioning, it is nearly impossible for the petroleum industry to function," says Tshifularo.
That’s because SA imports crude oil by ship. In addition, with three of its refineries closed, the country also imports more than 50% of its refined fuel requirements.
Last year Engen’s Wentworth refinery was closed after a fire, and an explosion at Astron Energy’s Milnerton refinery shut that operation. PetroSA’s Mossel Bay refinery is out of action too: the gas-to-liquids plant has run out of offshore feedstock.
While Astron has commenced with plans to rebuild and reopen the affected part of its refinery, the future of Engen and PetroSA’s facilities remains uncertain.
When the unrest left the ports unable to operate, the oil industry’s ability to collect and disperse fuel around KwaZulu-Natal was affected. The shortage was, however, short-lived; logistics bounced back rapidly in the days that followed.
At the same time, the Transnet multifuel pipeline, which moves raw and refined product from Durban to Gauteng, continued to function (it is highly sophisticated and is controlled largely by a computer system).
The government also deployed soldiers to guard parts of the pipeline, as riots continued.
But when the unrest reached Gauteng, trucks were prevented from accessing the inland terminal to pick up fuel. As the terminal reached capacity, no further product could be received.
"So it shows you need to protect both ends of the infrastructure, the injection point and the offloading point, for ... the system to be fully functional when under pressure," Tshifularo says.
There’s an ongoing debate in SA about whether imports or domestic refining capacity are preferred. But while the government argues for the latter, DA energy spokesperson Kevin Mileham says little has actually been done to mitigate SA’s growing reliance on imports. There has, he says, been no new investment in refining capacity for more than two decades now.
"There’s been a lot of talk," he says, "but very little movement on the new refining capacity of the Saudi Aramco plant, which [energy minister Gwede] Mantashe in October last year said was so critical for SA."
The proposed $10bn plant would produce 300,000 barrels a day, almost double the capacity of Sapref.
As things stand, SA’s growing reliance on imports could leave the country "up the creek without a paddle" in the event of a global supply shortage, Mileham says.
But Wits University adjunct professor Rod Crompton believes the risk to imports is low. If anything, he says, the world is awash with oil and refined product.
"This is due to the slump in demand triggered by lockdowns to contain the spread of Covid. There seems little risk of global shortages, apart from the usual refinery fires and supply disruptions," he says.
Tshifularo, too, sees little chance of a global shortage, given that demand for fossil fuels is expected to gradually drop off as economies transition to cleaner-energy alternatives.
But he believes there are substantial positive economic spinoffs that come with domestic refining capacity, including job creation and skills transfer. There are also byproducts from refining, such as the bitumen used in tar roads, which would be difficult to import in the absence of any local production.
The problem, says Mileham, is that SA has failed to demonstrate the political will and provide the economically stable environment that will attract investors to maintain, build and develop refining capacity.
"So you’re seeing these multinationals saying: ‘You know what, we’d rather go somewhere else, where we can make money and [where it] is conducive to doing business’."
Though a bigger carrot could have been dangled years back to ensure that refineries invested in upgrading their facilities to produce higher-grade, cleaner fuels, Tshifularo says companies will no longer invest now, for environmental reasons.
The strategy of all oil majors is shifting dramatically, he says. "There is less emphasis on hydrocarbons, now they are more interested in renewables [and] biofuels because they are preoccupied with the reduction of emissions ... The future is very different now."
Those investing in refineries now would not be in it for the long term, but rather looking for a stop-gap as they develop technologies such as renewables, electric vehicles and green hydrogen, he adds.
Just because SA’s fuel supply chain has so far managed to roll with the punches, doesn’t mean there are no weak links.
Crompton says oil companies and governments are usually alive to the strategic role played by liquid fuels, and they have special measures in place to protect supply and logistics. In SA’s case, many of these are hangovers from the apartheid era, which have eroded with time.
"Periodic risk assessments have been done, but many assumed a calm society. It seems there was inadequate attention given to the risks imposed by a broken social compact," he says.
So far SA’s fuel supply chain has been able to roll with the punches, but there are weak links
— What it means:
One glaring shortcoming is that there is no legislative requirement for oil companies to hold strategic reserves of refined fuel that can act as a buffer during times of crisis. This was a key recommendation in the 2006 report by Marumo Moerane, which resulted from an inquiry into widespread fuel shortages in late 2005.
The report concluded that a confluence of factors led to the shortage at the time. "It is critical for sovereign states to have strategic stocks policies with emergency response mechanisms that are constantly reviewed and strengthened to ensure that they are adequate and effective to respond to sudden and sharp supply disruptions," the report noted.
Moerane’s recommendations fed into a draft strategic stocks petroleum policy document, which was published in 2012 and never developed further.
A liquid fuels infrastructure roadmap was also in the offing, but was never even presented to the industry.
"We need to go back to the Moerane report and we need to implement those decisions," says Mileham.
The failure to address issues timeously is an ever-present problem, says Tshifularo. "By the time you address them, it’s too late, you’re addressing the wrong problem," he says. "In SA, especially on the government side, we just talk … we take forever to come up with a solution to deal with our problems."
One need look no further than the electricity supply crisis, which has become increasingly dire over the years.
In contrast, SA was able to quickly build the required infrastructure for the 2010 Soccer World Cup, Tshifularo points out.
"It brings me to question why we have not solved the issues of strategic stocks, the biofuels policy; why we have not sorted out the necessary incentives for the refineries to invest," he says. "Is it because we don’t take this issue seriously? That’s the only conclusion that I can come to."
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