15 March 2022 PORTFOLIO COMMITTEE PRESENTATION TO
Description: 15 March 2022 PORTFOLIO COMMITTEE PRESENTATION TO THE PORTFOLIO COMMITTEE ON MINERAL RESOURCES AND ENERGY ON THE IMPACT OF INCREASING PRICES ON THE ECONOMY AND POSSIBLE ALTERNATIVES IN ADDRESSING INCREASES IN THE FUEL PRICES CONTENTS
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slide2. 15 March 2022 PORTFOLIO COMMITTEE PRESENTATION TO THE PORTFOLIO COMMITTEE ON MINERAL RESOURCES AND ENERGY ON THE IMPACT OF INCREASING PRICES ON THE ECONOMY AND POSSIBLE ALTERNATIVES IN ADDRESSING INCREASES IN THE FUEL PRICES<br>
slide3. CONTENTS Background
Causes of High Fuel Prices
Emerging global Diesel shortage
Role of the Russian Federation in Global Energy Supply
Impact on the Economy
Interventions
Conclusion 3<br>
slide4. BACKGROUND Fuel Prices globally and indeed nationally have reached unsustainable levels
South African Liquid Fuel Prices have reached record levels
The conflict in Europe is disrupting supply chains
This is a global issue and no country is going to be spared
Developing Economies will suffer more than developed countries
Economies will struggle to support any form of growth
Increases in excess of than R2 per litre must be expected in this period 4<br>
slide5. CAUSES OF HIGH FUEL PRICES Since the beginning of the year, there has been more than a 50% increase in the price of crude oil, which has moderated to about 30% increase
The price of crude oil is affected by various factors but the greatest is geopolitics.
The conflict is no longer a Russian-Ukraine conflict, but NATO countries have been drawn economically into the conflict
The imposition of sanctions on the third largest producer of oil is having some unintended consequences 5<br>
slide6. CAUSES OF HIGH FUEL PRICES The second is a stance taken by the OPEC+ to manage the increases in production of crude oil in support of higher prices
OPEC+ stance of limiting crude supply is an issue
Saudi Arabia and Russian Federation are the two biggest members of OPEC+
The third issue is the Post Covid supply-demand imbalance
The Oil and Gas Market underestimated the pace of rebound of economies post successful vaccination campaigns in many countries
Global economies are consuming slightly more than what is produced – resulting in an upward pressure on the oil price 6<br>
slide7. EMERGING GLOBAL DIESEL SHORTAGE The stability of global supply has been highly disrupted
There is a growing global shortage of diesel
Jet Fuel Shortages globally will increase as the Northern Hemisphere moves to the driving season
Demand for diesel is increasing as some diesel is diverted to the war effort
Diesel stocks globally were very low coming out of the lockdown period and have battled to recover 7<br>
slide8. RUSSIAN FEDERATION The top three oil Producers in the world are the US, Saudi Arabia and Russia
The global energy system is interconnected
Russia Produces approximately 10.5 Million Barrels of Crude per Day. Of this production, about 3.5 Million is consumed domestically and 7 Million is exported.
Banning trade in Russian Crude Oil removes a significant percentage of crude oil from the international market
When the ban was announced, the market assumed there would be a global shortage and the prices went up
In addition, Russia supplies over 35% of Europe’s Natural Gas needs 8<br>
slide9. IMPACT ON ECONOMY Our current reality is that we are in the middle of what we can characterise as a global economic war because we are an affected party
High Fuel Prices have a knock-on effect
The cost of public and private transport has increased and will continue to increase
Expendable income will be reduced and that will have a negative impact on economic growth
Increase in inflation is unavoidable
Our Central Bank usually frowns upon inflation and if interest rates are hiked, this will further reduce expendable income 9<br>
slide10. INTERVENTIONS We have to be serious as a country about the level of self reliance and investment in the overall energy system – Polarised debates on these issues are taking the country nowhere
Depending on Imported Crude and Products is proving to be unreliable in the shifting geopolitics
We need to encourage exploration on our shores
We must invest in local refining – SAPREF cannot be allowed to close – A buyer must be found
Those who have closed refineries should consider partnering for local production
To level the playing field major marketing companies must invest in existing refineries 10<br>
slide11. INTERVENTIONS CONT. Biofuels must be enabled as a matter of urgency – its job enabling and reduces imports
Quotas on Diesel Exports beyond SACU will have to be considered
Energy saving measures must be implemented voluntarily during the period of this major geopolitical event – Working from home where tools of trade allow should be brought back
Enforcement of Speed Limits must be increased to maximise on the fuel saving
Restrictions on how many litres each motorist is allowed per visit will be considered if the situation deteriorates
Consideration should be given to provide relief to Public Transport and Food Production 11<br>
slide12. CONCLUSION We are part of the Global Energy Supply Chain therefore we cannot escape being affected by this International conflict.
We need to understand that this is a global issue driven by policy choices of developed countries.
This issue is beyond the Fuel Pricing Formula – It’s geopolitics in the main.
Why not repeat what was done in 2018? The Slate account was Positive then as there had been a downward trend in prices globally.
Not increasing the Fuel Levy and RAF without a tax increase is a sacrifice, but the revenue must still be raised elsewhere. 12<br>
slide13. THANK YOU 13<br>
slide3. CONTENTS Background
Causes of High Fuel Prices
Emerging global Diesel shortage
Role of the Russian Federation in Global Energy Supply
Impact on the Economy
Interventions
Conclusion 3<br>
slide4. BACKGROUND Fuel Prices globally and indeed nationally have reached unsustainable levels
South African Liquid Fuel Prices have reached record levels
The conflict in Europe is disrupting supply chains
This is a global issue and no country is going to be spared
Developing Economies will suffer more than developed countries
Economies will struggle to support any form of growth
Increases in excess of than R2 per litre must be expected in this period 4<br>
slide5. CAUSES OF HIGH FUEL PRICES Since the beginning of the year, there has been more than a 50% increase in the price of crude oil, which has moderated to about 30% increase
The price of crude oil is affected by various factors but the greatest is geopolitics.
The conflict is no longer a Russian-Ukraine conflict, but NATO countries have been drawn economically into the conflict
The imposition of sanctions on the third largest producer of oil is having some unintended consequences 5<br>
slide6. CAUSES OF HIGH FUEL PRICES The second is a stance taken by the OPEC+ to manage the increases in production of crude oil in support of higher prices
OPEC+ stance of limiting crude supply is an issue
Saudi Arabia and Russian Federation are the two biggest members of OPEC+
The third issue is the Post Covid supply-demand imbalance
The Oil and Gas Market underestimated the pace of rebound of economies post successful vaccination campaigns in many countries
Global economies are consuming slightly more than what is produced – resulting in an upward pressure on the oil price 6<br>
slide7. EMERGING GLOBAL DIESEL SHORTAGE The stability of global supply has been highly disrupted
There is a growing global shortage of diesel
Jet Fuel Shortages globally will increase as the Northern Hemisphere moves to the driving season
Demand for diesel is increasing as some diesel is diverted to the war effort
Diesel stocks globally were very low coming out of the lockdown period and have battled to recover 7<br>
slide8. RUSSIAN FEDERATION The top three oil Producers in the world are the US, Saudi Arabia and Russia
The global energy system is interconnected
Russia Produces approximately 10.5 Million Barrels of Crude per Day. Of this production, about 3.5 Million is consumed domestically and 7 Million is exported.
Banning trade in Russian Crude Oil removes a significant percentage of crude oil from the international market
When the ban was announced, the market assumed there would be a global shortage and the prices went up
In addition, Russia supplies over 35% of Europe’s Natural Gas needs 8<br>
slide9. IMPACT ON ECONOMY Our current reality is that we are in the middle of what we can characterise as a global economic war because we are an affected party
High Fuel Prices have a knock-on effect
The cost of public and private transport has increased and will continue to increase
Expendable income will be reduced and that will have a negative impact on economic growth
Increase in inflation is unavoidable
Our Central Bank usually frowns upon inflation and if interest rates are hiked, this will further reduce expendable income 9<br>
slide10. INTERVENTIONS We have to be serious as a country about the level of self reliance and investment in the overall energy system – Polarised debates on these issues are taking the country nowhere
Depending on Imported Crude and Products is proving to be unreliable in the shifting geopolitics
We need to encourage exploration on our shores
We must invest in local refining – SAPREF cannot be allowed to close – A buyer must be found
Those who have closed refineries should consider partnering for local production
To level the playing field major marketing companies must invest in existing refineries 10<br>
slide11. INTERVENTIONS CONT. Biofuels must be enabled as a matter of urgency – its job enabling and reduces imports
Quotas on Diesel Exports beyond SACU will have to be considered
Energy saving measures must be implemented voluntarily during the period of this major geopolitical event – Working from home where tools of trade allow should be brought back
Enforcement of Speed Limits must be increased to maximise on the fuel saving
Restrictions on how many litres each motorist is allowed per visit will be considered if the situation deteriorates
Consideration should be given to provide relief to Public Transport and Food Production 11<br>
slide12. CONCLUSION We are part of the Global Energy Supply Chain therefore we cannot escape being affected by this International conflict.
We need to understand that this is a global issue driven by policy choices of developed countries.
This issue is beyond the Fuel Pricing Formula – It’s geopolitics in the main.
Why not repeat what was done in 2018? The Slate account was Positive then as there had been a downward trend in prices globally.
Not increasing the Fuel Levy and RAF without a tax increase is a sacrifice, but the revenue must still be raised elsewhere. 12<br>
slide13. THANK YOU 13<br>