Impact of Increasing Fuel Prices on Economy and Alternatives
Global and national fuel prices have soared, impacting economies significantly. The conflict in Europe disrupts supply chains, with developing economies facing the brunt. Factors like geopolitical tensions, OPEC+ decisions, and post-COVID demand-supply imbalances contribute to the price surge. The presentation delves into the causes, effects on the economy, and possible interventions to address the challenges posed by escalating fuel prices.
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Presentation Transcript
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 15 March 2022
CONTENTS 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
BACKGROUND 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
CAUSES OF HIGH FUEL PRICES 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
CAUSES OF HIGH FUEL PRICES 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
EMERGING GLOBAL DIESEL SHORTAGE 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
RUSSIAN FEDERATION 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
IMPACT ON ECONOMY 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
INTERVENTIONS 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
INTERVENTIONS CONT. 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
CONCLUSION 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
THANK YOU THANK YOU 13
