There is some irony in the fact that as world leaders meet at the COP26 climate change conference in Glasgow last week to discuss ways to reduce carbon emissions, South Africans were 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.
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 to achieve universal access to energy,” says NJ Ayuk, chair of the African Energy Chamber.
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. 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 the 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 introduce 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 benefited 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.
Author: Ciaran Ryan