In this blog, we will discuss how the global diesel shortages will affect different chemical prices.
Almost everything we consume depends on diesel since it is the economic fuel of choice. Diesel is essential in many industries, including transport, agriculture, construction, and the energy industry. Additionally, diesel is a vital part of daily life in South Africa, making its usage a common economic indicator. Supply networks would break down and operations would cease to exist without it.
At a time when supply shortages in virtually all the world’s energy markets have increased inflation and hindered the economy, a fuel crisis threatens practically every region on the earth within the next few months.
Diesel and heating oil reserves in the United States are at record lows for this time of year, according to data that goes back four decades. Northwest Europe is also facing a low buffer, with stocks expected to hit a record low this month and fall much further by March as sanctions against Russia begin to shut off the region’s access to seaborne supply. With the tightening of export markets worldwide, less developed nations like Pakistan are being left out since their suppliers are unable to get adequate bookings for the quantity of cargo required to meet the country’s domestic demand.
Impact of Diesel Shortages On Chemical Prices
Crude oil
The cost of crude oil has a direct impact on the price at the pump for both gasoline and diesel. Diesel prices are currently at an all-time high premium in several countries because of supply restrictions.
As the cold season in the Northern Hemisphere approaches, refinery capacity is at a premium and reserves are dwindling. Constraints on the world’s ability to refine are severe. The availability of crude oil is limited at present. However, there is a severe shortage of finished fuel products like diesel and gasoline because of the difficulty in processing this raw commodity. That’s due in part to the epidemic, as demand collapsed because of lockdowns, and refiners were compelled to shut down their least profitable facilities.
However, investments in the field have been hampered by the impending shift away from fossil fuels. More than one million barrels per day of refining capacity has been lost in the United States since 2020. Meanwhile, in Europe, refinery output has fallen because of shipping delays and labor strikes.
With the EU planning to shift away from Russian supply, the situation could quickly escalate. Diesel is used throughout Europe at higher rates than in any other region. According to research conducted by Vortex Ltd., approximately half of the yearly 500 million barrels carried by ships are loaded at Russian ports. In addition, the United States has stopped buying from Russia, which was a significant supplier during the previous winter.
Bloomberg predicted that “within months, practically every corner of the earth could face a danger of a diesel shortage” as a result of recent supply shortages that have exacerbated inflation and slowed global economic growth.
What about South Africa?
Being a net importer of fuel (we import 90% of our crude oil), South Africa is susceptible to variations in the worldwide market and potential interruptions in the supply chain, including those affecting the country’s chemical industry.
In South Africa, diesel is a vital fuel source for the transportation, agricultural, and mining industries. Experts are worried about the country’s fuel supply system because it has become a crucial fuel for Eskom, families, and businesses to generate energy to lessen the economic implications of prolonged load shedding.
To maintain its open-cycle gas turbines (OCGT) operationally, Eskom has spent 37% more on diesel than it did during the same period in the last fiscal year, spending about 722 million liters of diesel in Q3 of 2022 compared to 526.3 million liters of diesel in Q3 of 2021, according to a recent article in City Press.
The several idle refineries in the country haven’t helped matters. Sasol’s Natref crude oil refinery and its Secunda coal-to-liquids plant are the only two of South Africa’s six refineries that are actively running. Poor facilities for storing and transporting diesel have also been a problem in South Africa. Over the last few months, gas stations have experienced shortages due to a combination of factors, including insufficient storage space, distribution network issues (such as broken pipelines), and congestion at ports.
Last month, Glencore CEO Gary Nagle anticipated that the upgraded Astron Energy refinery would be operational by the end of 2022, supplying fuel to the South African market in 2023. The Chevron SA-owned 100,000 barrel-per-day refinery has been closed since a fatal fire in the middle of the year 2020. Having this refinery operational again is great news for the local economy and manufacturing, reducing import challenges of by-products such as LPG, bitumen, jet fuel, etc.
In addition, this goes against the current trend of closing refineries and replacing them with gasoline imports, which has led the South African Petroleum Industry Association (Sapia) to warn that the country’s fuel import infrastructure is about to reach its capacity limits.
Chemi is a well-established bulk chemicals supplier in South Africa. Get in touch with our team today.
