Amid COP26 in Glasgow, South Africans brace for a record rise in fuel prices. From Moneyweb.
There is some irony in the fact that as world leaders meet at the COP26 climate change conference in Glasgow this week to discuss ways to reduce carbon emissions, South Africans are having to fork out an additional R1.21 a litre for petrol and R1.48 for diesel. The R20-per-litre of fuel level is now within sight.
This comes in the same week that President Cyril Ramaphosa announced a historic agreement between SA and several of the world’s leading economies to secure R131 billion to finance the country’s transition to a low carbon economy.
Read: SA secures R131bn commitment to transition to low carbon economy
While welcomed by climate activists and those supporting wind and solar solutions, others are less convinced there is much good in the R131 billion deal for SA.
“With access to electricity at only 56% of the African continent — and at less than 40% in more than a dozen countries — our top priority remains achieving universal access to energy,” says NJ Ayuk, chairman of the African Energy Chamber.
The charts below tell the energy story.
Surging oil prices are the result of a global supply crunch due to the economic rebound post the Covid collapse in March 2020. At the same time, China’s decarbonisation efforts have been given urgency given the upcoming Olympics in February next year and a campaign by Chinese President Xi Jinping to show the world clear, blue skies.
While world leaders gather in Glasgow and plan for an accelerated phase-out of coal, hard-nosed economic realities suggest events may not play out as planned. China, like SA, has been getting a dose of rolling blackouts, and that’s put a crimp in economic growth expectations. China is gripped by a shortage of coal, yet the country’s central economic planners have proposed a cap on coal prices to reduce costs for power generators. That sent soaring coal futures back to earth, along with the prices of iron ore and coking coal.
WTI crude oil (USD)
Source: Share Magic
The knock-on effect on SA coal, iron and energy shares was immediate.
Kumba Iron Ore is down by nearly half since topping out in August, coal producer Thungela Resources is down by 35% over the last month, and Exxaro Resources is down more than 12% in a month. These price drops are the result of political meddling in the Chinese energy market, and are predicted to eventually fail, resulting in prices returning to the dizzy heights seen in recent weeks.
Meanwhile, Bloomberg reported that China’s central government officials “ordered the country’s top state-owned energy companies to secure supplies for this winter at all costs.”
This caused oil prices to surge, while coal futures tanked on news of China imposing price caps on producers. Those price caps may be politically popular, but are economically unsustainable, meaning the Chinese state will have to subsidise energy production or introduced a differentiated pricing structure for local and foreign suppliers.
Blanket bans on public funding for fossil fuel projects
Against this backdrop, world leaders and climate activists gathered in Glasgow believe that renewables can replace fossil fuels in pursuit of a ‘net zero’ carbon emissions target by 2050. As part of this endeavour, most banks have withdrawn from funding fossil fuel projects – something welcomed by climate activists, but deplored by many oil and gas executives, particularly those involved in natural gas which is seen as a transitional fuel to a decarbonised economy.
They see the West, having benefitted from more than 100 years of industrialisation powered by fossil fuels, now changing the rules to benefit themselves and cripple Africa, just as it realises its economic potential by exploiting its natural resource endowment.
Africa’s population is expected to double over the next three decades, and with rapid urbanisation, energy needs will likely double or even triple by 2040. “With blanket bans on the public funding of fossil fuel projects, the West is pulling the rug out from under African hydrocarbon exploration and production, insisting that Africa meet ever-expanding demand on the continent’s fledgling wind and solar power sources,” says Ayuk.
Gas-to-power projects are a huge and growing opportunity for Africa, and a far more effective way of ensuring a just transition to clean energy, he adds.
Ahead of the COP26 conference, Ugandan President Yoweri Museveni wrote in the Wall Street Journal that Africa cannot sacrifice its future prosperity for Western climate goals. It’s a sentiment that resonates with African leaders facing calls to walk the decarbonisation route mapped out by Western nations, many of them among the world’s worst polluters.
“Windmills and solar panels may be all well and good for places like the US and Europe with their more established electricity grids, although calm winds in Europe this summer means the UK, for one, is thinking of a return to burning coal for heat in the months ahead, but in Africa, they only exacerbate the continent’s electrification woes. By producing what Museveni called ‘unreliable and expensive electricity,’ wind and solar force Africans to compensate with CO2-spewing diesel generators or batteries instead. Ironic, isn’t it?” writes Ayuk in a recent editorial.
Coal futures price plunges (ICE NewCastle Coal Nov ’21)
Source: Barchart.com
Des Muller, spokesperson for the SA Nuclear Build Platform, told Moneyweb that the Western nations may try to convince SA that its coal power plants can be repurposed with renewable energy, but renewables would be lucky to achieve 10% of the power output of a coal-fired power plant.
