Spiralling fuel prices a threat to TNPA’s liquid bulk volume targets

Liquid bulk volumes handled by the country’s ports decreased by roughly 21% in the first four months of the year, says Transnet National Ports Authority.
The Island View liquid bulk precinct in the Port of Durban. Image: Supplied

South Africa, as an oil net importer, is exposed to variable external market factors such as crude oil prices and currency exchange rates.

Its fuel price is broken down into 13 different charges, adding to the country’s vulnerability and price volatility. These charges are often grouped into four main categories – basic fuel price (48%), taxes and levies (33%), retail and wholesale margins (14%), and storage and distribution (6%).

The price of crude oil is the primary determinant of fuel prices, which in turn affects the cost of doing business.

Read:
Shocker fuel price hike despite extension of fuel levy relief
Petrol price horror

Crude oil prices have risen from $83.92 per barrel in January to $103.41 per barrel in April. This has driven South African fuel prices, particularly petrol, up from R19.61 per litre (ULP 95) in January to R24.17 per litre in June (for inland provinces).

These rises in fuel prices have a direct impact on the cost of living, with adverse effects for economic growth and development. For example, it would cost around R1 087.65 to refill a passenger vehicle with a fuel tank capacity of about 45 litres.

Despite the fact that the South African government extended short-term relief to reduce the severe impact of fuel prices by prolonging the reduction in the general tax by R1.50 per litre until 6 July 2022, fuel remains expensive for consumers in this country.

Between July and August, this support measure will be adjusted down to R0.75 per litre. And it is expected to come to an end as of 3 August.

Read: Temporary fuel levy relief will be withdrawn from August

Although the government has provided consumers and businesses with short-term relief, South Africa requires long-term strategic interventions to address exorbitant fuel costs, which have a direct impact on the cost of doing business and the cost of living.

The strong correlation between South African fuel prices and crude oil prices is depicted the graph below.

Fuel prices and exchange rate performance

Source: World Bank, Department of Energy and South African Reserve Bank

Fuel price increases have a direct influence on the volume of liquid bulk handled in Transnet National Ports Authority (TNPA) commercial seaports and the economy. Liquid bulk is inclusive of commodities such as petroleum, diesel, jet fuel and illuminated paraffin, while liquid petroleum gas is also one of the commodities handled at most of the commercial ports that are managed by the ports authority.

Liquid bulk volumes decreased by 13.7% in FY2021/22, in comparison to TNPA’s previous financial year.

This drop was primarily due to weak fuel demand in the country in the wake of Covid-19 and the financial fallout. Fuel prices have recovered since the lows during the peak of the pandemic and are projected to rise more, adding to the uncertainty of liquid bulk volumes recovering in the short term.

This puts any deliberate actions aimed at lowering both the cost of doing business and the cost of living in South Africa in jeopardy.

Russia-Ukraine conflict

Crude oil prices are expected to average $100 per barrel in 2022, up by 42% from around $70.40 per barrel the previous year. This rise in crude oil prices is linked to significant disruptions in the supply of energy exports as a result of the ongoing conflict between Russia and Ukraine.

South Africa is not immune to the global decline in crude oil consumption forecast for 2022. This decline in crude consumption will have a severe impact on the liquid bulk volumes handled in our ports.

Liquid bulk volumes have already decreased by roughly 21% since the beginning of this year (January to April) compared to the same period in the previous year. Liquid bulk volumes handled by our ports are expected to decline further in the first half of TNPA’s 2022/23 financial year due to expected unfavourable international market conditions and weak domestic demand.

Vukani Nkasa is an economist at Transnet National Ports Authority.

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