Liquid fuels soon to be fossils?

In a study involving hypothetical scenarios in which electric vehicles are widely adopted in South Africa, the country’s liquid-fuel industry faces an alarming decline. MARISKA MORRIS takes a look at the research

Numerous economic and environmental factors will make electric vehicles (EVs) part of the future of transport in South Africa. That’s the message from Louise Naude, programme manager for low-carbon frameworks at the World Wide Fund (WWF).

Speaking in Johannesburg at a recent Transport Forum event, Naude said government had committed to reaching net zero emissions by 2050. “We know that our economy needs to transition to one that is low carbon and climate resilient,” she said. “There is a big appetite for South Africa to be carbon neutral by 2050.”

Naude said the transport and automotive industry could contribute significantly to securing the country’s carbon-neutral future, since it employed a big portion of the population and contributed substantially to the economy. However, she pointed out that the sector also consumed about 97 percent of liquid fuels and was responsible for 13 percent of South Africa’s greenhouse-gas emissions.

She said that although it was inevitable that the automotive manufacturing sector would push the transport industry to adopt cleaner energy alternatives − as more countries that imported locally manufactured vehicles banned internal-combustion engines − the switch to EVs would have its own repercussions.

Outlining hypothetical scenarios in a study undertaken by the WWF, Naude said the Department of Trade and Industry had recently compiled research to determine the macro-economic impact on the country if there was a mass uptake of EVs. As part of the study, the WWF had looked at the impact the move would have on the liquid-fuel industry – the current driving force for transport in South Africa.

“It’s a study of the hypothetical impact caused by a 50-percent drop in demand for liquid fuel by 2042, based on the assumption that EVs will reach some kind of critical mass by that point,” she explained, adding that the research focused mainly on a decline in petrol demand from passenger vehicles.

According to Naude, the fuel industry contributed about R324 billion to South Africa’s gross domestic product (GDP), making up about eight percent of the total. Further, it provided R90 billion annually to government in revenue and employed around 789 417 people. Therefore, any significant changes in the industry’s structure would have a significant impact on the country’s economy.

She said the WWF study considered two scenarios and the consequences they would have for the fuel industry. The first focused on a decline in demand for petrol, with requirements for other fuels such as diesel and aviation fuel remaining constant in line with historical growth rates. The second considered the impact if there was a decline in demand for all liquid fuels.

In each scenario, four of South Africa’s six oil refineries would close. The first study showed that a decline in demand for petrol could result in fuel prices becoming more affordable – but at significant cost to the country’s economy. First, there would be an estimated 45 000 jobs lost – a big concern since South Africa’s unemployment rate currently borders on 30 percent.

Second, government revenue would decline by about R40 billion annually and the GDP would shrink by about R16 billion. Secunda and Natref would be the only refineries in operation. In addition, significant investment would be needed to set up distribution systems to meet revised demand.

“For instance, the existing Transnet pipeline distribution system will need to be geared to allow it to transport fuel out of Secunda and Natref to the rest of the country rather than inwardly as it is currently doing,” Naude said. “At the moment it is not geared to run in the opposite direction.”

The second scenario portrayed a similar grim situation with government revenue declining by R125 billion, with substantial demand for infrastructural investment and high job losses also on the cards.

Naude said that while the hypothetical scenarios might not directly impact the transport industry, the economic consequences would put a severe strain on the sector. She added that although the liquid-fuels industry was unlikely to avoid the switch to electric for much longer, there were ways in which it could remain profitable even in the face of an increase in the popularity of EVs.

“For a start, refineries can produce cleaner fuel that can be used in Euro-6 engines. This will benefit local transport operators who can then invest in vehicles that produce less harmful emissions. Simultaneously, it will allow refineries to export more fuel,” she said.

Naude explained that locally refined fuels had a high sulphur content. “We can’t run some of the low-emission engines, like the Euro 6, because the local fuel supply is not up to standard. To do so, South Africa would need to import cleaner fuel.

“Also, by producing fuel that is high in sulphur, we are constraining our export market. Many developed countries won’t buy our product, and those that do won’t pay top dollar for it,” she said.

Naude pointed out that it was possible for South African refineries to be modified to produce higher-grade fuels. “There is no need to build new refineries,” she said. “However, massive investment will be required to convert the existing infrastructure – an estimated R40 to R60 billion.”