Some pieces of writing are designed to inform and educate. Others by design are there simply to enchant. Some, however, are there to provoke one to think, not necessarily providing facts and perfect answers, but providing the stimulus to think… That’s important, and challenges us out of our everyday ‘same old’ and asks us to consider solutions and different ways forward. These articles can occasionally stir things up in unpredictable ways, and so if you in any way find this article ‘controversial’, let me state upfront that these views are mine and mine alone, in no way reflecting those of Cross Country Insurance Company. The other important thing to note is that this article is based on generalisations in order to get perspective – there are many exceptions to every fact, and alternative arguments to those presented. So, down the rabbit hole we go…
Let’s start at the very beginning… Large volumes of dead organisms (especially zooplankton and algae) were buried under sedimentary rock (hence “fossil” fuel). They were subsequently subjected to prolonged heat and pressure, resulting in “liquid hydrocarbons”. This smelly, dark liquid known as crude oil (often interchangeably referred to as petroleum) is usually found in underground ‘reservoirs’. It is a non-renewable resource – once it’s gone it’s gone. Crude oil is a dark, sticky liquid that cannot be used without changing it. By boiling and separating into different liquids and gases in a distillation column, we eventually get liquids which are used to make petrol, paraffin, diesel, etc.
As a major producer and exporter of both oil and natural gas, Russia plays a significant role in global energy markets. Russia is the world’s third largest oil producer behind the United States and Saudi Arabia, and the world’s largest exporter of oil to global markets and the second largest crude oil exporter behind Saudi Arabia. Russia has the largest natural gas reserves in the world and is the largest exporter, accounting for around 40% of Europe’s imports. The good news is that, according to the BBC, Europe may be looking to Africa to supplement their gas supply.
Our petrol retail price is regulated by government and, as we are all now painfully aware, changed on the first Wednesday of the month. The Central Energy Fund (CEF) on behalf of the Department of Energy (DOE) calculates each new price. Whilst the diesel retail price is not regulated (the retail margin is estimated to be similar to regulated retail margin on petrol), the petrol pump price is composed of two elements – international and domestic. The international factor, or Basic Fuel price (BFP), consists of a calculation of what it would cost a South African importer to buy petrol from an international refinery and to transport the product onto South African shores. Then you have internal and external factors playing a role. The dollar price on world markets multiplied by the US$/R exchange rate is the external factor. These external factors move constantly and account for most of the monthly movements in prices – the world market price of oil and the exchange rate are outside the control of the industry.
Internally, movements in the rand-based elements are subject to government control. These include adjustments in taxes and levies, transport costs, wholesale margins, retail margins and service costs. And despite popular misconception, there is an overriding rationale to the control of prices and margins – to ensure that the various stakeholders in the industry earn fair returns, which are ideally sufficient to encourage the needed investment in the industry, while not constituting ‘over-reward’. That all said, there is a definite air of revelling in the wild at the moment, and the tumultuous world we are currently living in has questioned every premise and placed every system of order under scrutiny. This is obviously an immensely complex subject, and it has widely been suggested that fossil fuel subsidies are too high in South Africa.
Fuel prices have reached an all-time high across the world, but how do the prices in South Africa compare? Well, they’re still around 50% less than you would pay in Hong Kong! Even taking into account the recent astronomical increases, the price of fuel in South Africa is roughly on par with the global average. Transport costs from the harbour to inland areas accounts for the difference in price between coastal and inland prices. What is of interest is that our neighbouring countries (with the exception of Zimbabwe) pay much less for fuel that they import from here. Why is that? Well, in a nutshell, their governments simply tax them less on fuel, which is part of the reason the general public is beyond enraged, leading to activations such as the Automobile Association’s #ReviewTheFuel campaign.
Any which way you slice it, the Russian invasion of Ukraine on 24 February 2022 has created serious implications for international energy security. That stated and accepted, let’s just take a moment to pause here. Stand back and consider the bigger picture. The cost of virtually EVERYTHING we use on a day-to-day basis is dependent on the pricing of a limited commodity. This SHOULD have been an early clue to try harder to find an alternative. Although we are theoretically making progress, it really doesn’t feel that way, does it?
Electrical vehicles, the most punted of solutions, have many drawbacks – and each of these could (and may well become) be a column on their own! Their batteries require rare metals, specifically lithium. The manufacture of electric cars actually creates more emissions than the creation of a petrol/diesel car! Electric cars are only as ‘green’ as their power sources – have you ever considered what creates the electricity to power these cars? If it’s not green, then it’s actually contributing to the world’s woes. Electric cars are expensive and, as a rule, don’t go particularly fast – or particular far on one charge. There are limited charging points, even in Europe, and let’s not even begin the discussion about electrical supply in South Africa at the moment. There are currently many alternatives being explored, including solar, steam (yes – full circle), nitrogen, biodiesel and hydrogen. Hydrogen is of particular interest to South Africa – it is rumoured that we could produce green hydrogen for $1.60 per kg by 2030, one of the lowest costs worldwide. Green hydrogen is defined as hydrogen produced by splitting water into hydrogen and oxygen using renewable electricity. Round and round we go… But we digress, and I will explore the alternatives and the hydrogen story in upcoming newsletters.
Let’s take a very quick peek into the world of Hydrogen Fusion. In a nutshell, you take two hydrogen protons, and smash them together to form helium, a process which gives off untold amounts of energy, with only two by products – Helium and Water. H + H → He + ENERGY. The most common place this occurs? The core of the sun! If humans could achieve this, the world would ultimately have free energy. Guess what – they’re already working on it. “ITER (initially the International Thermonuclear Experimental Reactor, ITER meaning “the way” or “the path” in Latin) is an international nuclear fusion research and engineering megaproject aimed at replicating the fusion processes of the Sun to create energy on the Earth”. (Ref: Wikipedia). “In southern France, 35 nations* are collaborating to build the world’s largest tokamak, a magnetic fusion device that has been designed to prove the feasibility of fusion as a large-scale and carbon-free source of energy based on the same principle that powers our Sun and stars.” (Ref: iter.org)
A friend wondered whether I was brave enough to place a stake in the sand regarding where this fuel crisis is going. And I’m going to – although perhaps not in the way he anticipated. My answer is: “my faith in human beings”. Huh? My version of the truth is this. The higher the prices continue to rise, the more mayhem, chaos and drama. Which will eventually lead to a solution, because we as a species are smart and able to evolve at breakneck speed. I believe that should Russia revert to its own lane again, it will only be a temporary solution. It is my hope that in that pause before continuing with ‘business as usual’, we take a moment to regroup and determinedly focus on future solutions. There is an inevitable end to using fossil fuels – whether that point is reached now or in the future. So, we may as well use the pain of the current situation to at least start finding real, practical and financially feasible solutions. And bear in mind, in the interim before we become independent of fossil fuels, the practical battle for a green world could be said to reside in MANAGING THE EMISSIONS. It’s a process that creates a viable solution until we are able to access fully green solutions, so let’s continue to congruently focus on that challenge.
Malcolm Gladwell (author) defines a tipping point as “the moment of critical mass, the threshold, the boiling point.” I get a sense that never before has the world been in such turmoil, facing such shared challenges and so desperate to find feasible solutions on a global scale. First Covid, and now a localised war which is impacting the entire world. Perhaps this situation of being pushed to the brink will be enough to start a different way of thinking, a way of finding solutions that work for the world and for the human population.
“Look at the world around you. It may seem like an immovable, implacable place. It is not. With the slightest push—in just the right place—it can be tipped.” Malcolm Gladwell, The Tipping Point.
If Covid has taught us anything, it’s to expect the unexpected. To be able to roll with the punches and find ways of existing that were perhaps foreign to us before. Here’s the thing – there is ultimately no choice. Either you evolve and survive, or you don’t. Perhaps the intelligent choice is distinguishing between surviving and thriving – and time would be well spent on finding a better way to achieve the latter.
Jacqui Ikin & The Cross Country Team