Following the drone attacks on two of Saudi Aramco’s oil facilities in Saudi Arabia recently, South African Petroleum Industry Association (Sapia) executive director Avhapfani Tshifularo told Engineering News Online on Friday that there is no immediate risk to supply of crude oil to South Africa’s refineries.
This was reaffirmed by the Department of Mineral Resources and Energy (DMRE).
In response to questions by Engineering News Online, the DMRE assured the country that, although the drone attacks had had a significant impact on global supply, there was unlikely to be an immediate impact on the security of supply for South Africa, but warned that fuel prices would be affected.
“Of certainty is that, just as crude oil price increased by 20% soon after the bombing, global fuel prices are likely to be affected negatively,” it pointed out.
The DMRE would, nevertheless, continue to monitor the situation, it said.
Tshifularo, meanwhile, said South Africa imported about 50% of its required crude oil from Saudi Arabia.
In the event that crude oil supply from Saudi Arabia to South Africa did become compromised, there were various Middle Eastern and African countries that could serve as potential alternate sources for South Africa’s supply, he assured.
He also pointed out that South Africa was supposed to have strategic stocks kept in Saldanha Bay by the government through the Strategic Fuels Fund.
Further, countries across the world had strategic stocks on hold to ensure security of supply should shortages occur.
In a statement issued on Thursday, outlining its latest monthly commodity price forecasts, Oxford Economics indicated that crude commodity markets had experienced a selective surge in the past week, as the attacks in Saudi Arabia led to consumer panic and extremely volatile trading conditions in oil markets.
While initially the situation looked dire – with potentially 6% of world oil supply off line – there was a rapid response from Saudi Arabia to dampen shortage fears.
The company noted that the strikes on Saudi Arabia were potentially devastating as they targeted the heart of the oil industry – the oil stabilisation plant at Abqaiq. It highlighted this as being one of the most carefully guarded facilities in the world owing to its strategic importance.
While output at this plant dropped to 40% of capacity after the attack, the Saudi Arabian government expects it to return to full capacity by the end of this month.
The country would also plug any delivery shortages by running down its emergency crude stockpile, reducing domestic consumption and ramping up some of its spare capacity at oil fields that did not rely on Abqaiq.
There was also the potential for increased oil production in other countries such as Kuwait and the United Arab Emirates if needed, Oxford said.
Major consuming countries, meanwhile, also hold a considerable inventory buffer to protect against shortages, normally amounting to 90 days of consumption.
In light of this, at present, Oxford has made small changes to its oil market balance and price forecasts for 2020. It expects brent crude prices to average $65/bl in the fourth quarter, up from its previous estimate of $59/bl; however, the higher price was anticipated to be short-lived.
Oxford emphasised that this disruption took place at a time when the oil market was relatively well supplied and trying to reduce inventory back to more normal levels.
Previously, it expected a broadly balanced oil market in 2019 and 2020 and the latest changes to its Saudi oil production forecast did not make any material difference to this view, it indicated.
“Overall, the drone attacks leave the oil market more vulnerable to further unexpected problems and the risk of further sharp price spikes has clearly risen, but for now the picture has not changed dramatically from where we were last month,” Oxford said.
Meanwhile, the International Energy Agency (IEA) indicated that it remained in regular contact with authorities in Saudi Arabia and other major producing and consuming countries, as well as industry, following the attacks.
“We welcome the statement made by Saudi Energy Minister Prince Abdulaziz bin Salman on bringing Saudi Arabia’s suspended production back on line,” the organisation said in a statement issued on Wednesday.
The IEA reiterated its commitment to ensuring that global oil markets remained well supplied and its readiness to take rapid action in the event of any sustained shortfalls.
For now, markets remained well supplied with ample stocks available, the agency indicated.
IEA member countries hold about 1.55-billion barrels of emergency stocks in government-controlled agencies, which amount to 15 days of total world oil demand. These can be drawn upon in an emergency collective action and the IEA indicated that they would be enough to offset any significant disruption in supplies for an extended period of time.
Moreover, IEA member countries also hold 2.9-billion barrels of industry stocks as of the end of July, a two-year high that can cover more than a month of world oil demand.
These stocks include about 650-million barrels of obligated emergency stocks, which can be made immediately available to the market when governments lower their holding requirements.
Taken together, these emergency reserves can bring enough additional supply to the global market if needed, the IEA said.
South Africa is an association member country of the IEA.
“Recent events are a reminder that oil security cannot be taken for granted, even at times when markets are well supplied, and that energy security remains an indispensable pillar of the global economy,” said IEA executive director Dr Fatih Birol.
“This is why the IEA remains vigilant about the risk of disruptions to global oil supplies, whether they are caused by extreme weather events such as hurricanes, major technical outages, or geopolitical crises, and stands ready to act when needed.”Creamer Media Senior Deputy Editor Online