The company that bought 30% of South Africa’s diesel

Eskom is the single largest consumer of diesel in South Africa, accounting for up to 30% of the country’s refined diesel supply during peak load.

While the power utility’s consumption is closer to 10% during stable periods, Eskom’s diesel demand is large enough to pose a significant threat to the nation’s fuel stocks.

Eskom primarily uses diesel to run its Open-Cycle Gas Turbines (OCGTs), located at sites like Akerlig in the Western Cape, to maintain South Africa’s electricity supply and limit the extend of load-shedding.

These sites were designed as peaking stations to handle temporary spikes in demand and are not meant to be run for extended periods, as was the case when Eskom relied heavily on its turbines to mitigate load-shedding, consuming vast amounts of diesel.

Compounding this issue is the fact that many households and businesses resort to diesel generators during load-shedding, placing further strain on the country’s supply.

However, while Eskom does use a significant amount of South Africa’s diesel, it is not solely to blame for the country’s supply issues.

Eskom using a large percentage of the country’s supply highlights the fact that domestic refining capacity has collapsed in recent years.

Since 2020, South Africa has lost half of its refining capacity, meaning that, in the event load-shedding returns, diesel supplies will be even more constrained.

“While South Africa is currently experiencing pricing shocks, logistics disruption and localised shortages, a key outlier variable is what would happen in the face of Eskom’s return to load-shedding?” said Cresco’s Dominic Goncalves.

The external energy shock caused by the war in Iran has already put South Africa’s fuel supply chain under considerable pressure.

Sasol CEO Simon Baloyi stressed that local refinery capacity is vital to ensure a country has the option to shift supply sources and the type of supply. 

A sufficient local supply means a country can import crude oil rather than refined petroleum products, allowing it to import from a wider range of sources.

Right now, the majority of fuel imported to South Africa is refined petroleum products.

This wasn’t always the case, as data from Old Mutual shows that, only a few years ago, crude oil used to be the dominant import, but this has since changed with 70% of fuel now being refined products.

The closing of the Strait of Hormuz means that production from Middle Eastern facilities can no longer reach South Africa.

Additionally, crude supplies from the Persian Gulf are unable to reach refineries in Asia, further constraining global production.

If Eskom were to increase its diesel consumption to meet electricity demand, diesel shortages may become a reality.

“Eskom has remained a huge consumer of diesel, despite significant improvements at its coal-fired power plants,” ESG Analytics economist Sifiso Skenjana told 702. 

“This makes the state, through Eskom, the largest procurer of diesel in the country and thus the largest player in this market.” 

South Africa’s refinery crisis

Most of South Africa’s refineries have closed since 2020 because they were uneconomical to operate.

The margins on refining in South Africa are very slim, discouraging companies from investing in upgrades. This results in them investing simply to keep the facilities operational.

There are only three operational sites left. One is run by Astron Energy in Cape Town, while Sasol has two facilities at Natref and Secunda.

All three refineries have a combined production capacity of roughly 350,000 barrels per day. 

Some refining capacity could be recovered, as the Central Energy Fund is looking to restart operations at Sapref in Durban.

This is South Africa’s largest refinery with a capacity of 180,000 barrels per day. It was shut down in 2022 when BP and Shell ceased operations at the site.

Engen’s refinery in Durban has been inactive since a fire broke out in 2020. This facility used to produce 135,000 barrels per day.

The site is currently used as a fuel storage and import terminal.

Sasol is the only major domestic petroleum producer and refiner left. It has the ability to produce petroleum without relying on crude oil thanks to its coal-to-liquid plant at Secunda.

However, years of increasing government pressure on refineries to reduce carbon emissions, onerous regulations, and investor pressure have led Sasol to avoid expanding its domestic capacity, wrote Daily Investor. 

Sasol used to provide 40% of South Africa’s refined fuel in the 1980s, but this has since dropped to around 20%.