FUEL INDUSTRY INSIGHTS

AND LATEST NEWS

Feb 2021
 An Overview
T he fuel industry has a lot happening over the next few months. With global influences such as the
freeze in Texas and local factors price increases and taxes, the industry is constantly seeing a change
of environment.

Amongst the ever-changing factors there are challenges that have come from the Covid-19 pandemic.
However, there are also a number of innovative ideas being uncovered which shine a positive light
on the future of the fuel industry in South Africa. Great potential is being shown for Africa and the
continents role in the future of fuel.

The purpose of this report is to provide you with the latest news and insights in your industry to allow
you to make the best business decision for your fuel station.

We will be looking at the:

• Latest News
• Current State
• Challenges
• Innovation
• Future of Fuel
 Latest News
Big freeze in Texas is becoming a global oil market crisis
The US power issue is rippling into a shock for the world’s oil
market. More than 4 million barrels a day of output - almost
40% of the nation’s crude production - is now off line,according
to traders and executives. One of the world’s biggest oil refining
centers has seen output drastically cut back.

In the past, the weather-related disruption would largely have

been a U.S. issue. Now it’s unmistakably global. Crude markets
in Europe are rallying as traders replace lost U.S. exports. OPEC
and its allies must decide how much longer they keep millions
of barrels of their supply off the market.

The group is yet to decide on its output plans for April, but
OPEC’s largest producer surprised oil markets earlier in the year
by cutting an extra million barrels a day of supply in February
and March. That leaves spare capacity on the sidelines at a time
when the market is clamoring for extra barrels.

Fuel Prices expected to increase

Mid-month data from the Central Energy Fund points to another hike in fuel prices in March, following sizable
increases in the first two months of 2021. The CEF data shows an under-recovery in prices across the board,
expected to rise around 55 cents per liter for petrol, and 46 cents per liter for diesel.

The mid-month prices provide a strong indication of moving trends. Prices are affected by two main components
– the rand/dollar exchange rate, and the changes to international petroleum product costs, largely driven by oil
prices.

UPCOMING EVENT:
The Africa Gas Forum
The Africa Gas Forum will take place as
a virtual event from March 2 to 3, and
is aligned as an official side event of the
yearly Africa Energy Indaba – has been
created to ensure a balance between
country specific opportunities as well as
common issues that affect Africa.

Call to reduce tax burden on petrol prices

Lobby group Organisation Undoing Tax Abuse, recently called on the government to reduce the tax burden on
petrol prices, which make up almost 26% of the country’s fuel price. Associate Professor at the Wits Business
School Dr Roderick Crompton speaks on the suggestion to the government about the deregulation of policies
on petrol.

Their studies suggest that this could have a positive effect on the economy, job creation and public expenses.
According to Crompton et al., the model suggests that deregulating the petrol prices could lower prices by
about 70-80 cents per liter. This is all based on a hypothetical model and is difficult to accurately predict due to
unreliable records in the public domain.
 Current State
Global and local state
At mid-February, the ZAR/USD exchange rate is contributing to an over-recovery of around 8 cents per liter –
however, rising international product prices are contributing to an under-recovery of around 64 and 54 cents
per liter to the under-recovery for petrol and diesel, respectively, causing the deficit.

As global production returns to pre-pandemic levels, and as the expectation about a new global growth-wave
solidifies which will be good news for our commodity producers in South Africa, greater demand will support
higher oil prices.

The colder weather in the northern hemisphere such as the US, usually increases demand, causing oil prices
to rise. Oil prices should therefore not exceed $70 a barrel, and average at levels around $65. But these two
factors, the international dollar price of crude oil, and the value of our rand, only make up the basic price of fuel
in South Africa. The taxes levied on fuel in South Africa plays a major role in the price of fuel.

In South Africa, 38% of the total petrol price, roughly R5.88, is taxes, mostly the fuel levy and taxes levied for the
road accident fund. An increase in these taxes has become an expected occurrence at budget speeches in South
Africa. However, the pandemic has decreased the average monthly kilometers traveled for most South Africans
which means the public may not feel the impact as much.

As working-from-home becomes a reality for many South African industries, the overall impact of higher petrol
prices, will also have a smaller impact on inflation, than it did in the past.

Partnerships
Partnerships are becoming a common element
between food retailers and petrol stations. Using
a specific loyalty card at a petrol station to earn
more points is a valid reason for a customer to use
the station that has partnered with their preferred
food retailer. Success in this industry really comes
down to what’s on offer and how this can make the
consumer’s life better in that particular moment. At
the moment, forecourts are all about convenience
with the basic grocery essentials at the customer’s
finger tips.

The customer of tomorrow however, may expect a

whole lot more; like a full supermarket, Wifi work
stations, hot desks, coffee shops and more. All of
this will be expected on top of the usual fuel service.
Not only that, but customers will come to expect
additional value-adds with increased healthcare
support. You’ve seen the pharmaceutical vending
machines in the corner of your local petrol station,
right? Well this could just be the tip of the iceberg.
Tomorrow’s fuel station customer may come to
expect a 24 hour pharmaceutical service, and some
retailers may even take it further with seating and
consultation areas with a nurse on call.
 Challenges
Ripple effect of Covid-19
The pandemic could also have “lasting impacts” on oil demand through changes in consumer and
employment behavior. Although business is picking up slowly, business owners in the fuel industry
should be vigilant of the possibility of recurring restrictions and the implications this could have on
business.

There are also many companies who have decided to make permanent changes to their at home working
policy which could see a longer lasting reduction in fuel usage. The challenge going forward will be
establishing a way to ensure consistent business despite the possible decrease in fuel consumption by
the public.
 Innovation
Hydrocarbons province
The recent gas condensate discovery by petroleum refining company Total South Africa, 175 km off the southern
coast of South Africa, has set the stage for a significant contribution to the country’s economic development as
it will assist in reducing dependency on imports of oil and gas, which have been prevalent notwithstanding the
considerable reserves believed to exist in its territorial soil and waters.

The discovery will support the launch of a new hydrocarbons province in the country, which could bring into play
the equivalent of billions of barrels of oil in South Africa’s oceans. This discovery is believed to be a catalyst and
motivation for policy-makers to foster a business environment for further exploration and drilling endeavors in
South Africa.

It will consequently translate into benefits for South African workers and contractors across the value chain,
creating employment opportunities for people far and wide. Additionally, it increases the South African
government’s engagement with the African and global oil industry alike.

Going Mobile
If filling up your car is one of your least favourite chores, you can avoid it by using
a smartphone app that will bring the petrol pump right to your car. Bringing fuel
direct to you is the idea behind Refuel, a new app which delivers a full tank of petrol
or diesel straight to your car. The price per liter is the same as one would pay at
a petrol station, plus a nominal service fee of R20 each time a vehicle is filled up.

The company is partnering with several fuel stations to refill the delivery truck
as often as necessary and with the same quality fuel as consumers will find at
major filling stations. As such they are a complimentary service to fuel stations
rather than competitors. This is an innovative plan and creates convenience for the
consumer and is something that could benefit both businesses in the fuel industry
and consumers.

Additional Revenue streams and Electric charging stations

Despite coronavirus and the impact on the business. The industry is still pushing forward to find new and
innovative ways to attract customers and increase revenue, whether it be in small changes such as adding a
pharmacy or wifi access or in larger scale improvements such as the strive towards introducing electric vehicle
charging stations in the future. Currently there are 54 electric charging stations that make up a 1.17% of the
4600 petrol stations in the country, the opportunity for investment and innovation in the regard is high and a
proactive step in preparing for the increase of electric vehicles in the country.

Recycling Stations
The fuel industry has a responsibility to think about the planet. One way to do this is by assisting and encouraging
South African motorists to recycle. Already, many fuel stations offer collection sites for various recyclables which
is a strategic move. This is because the local neighbourhood will come to use these recycling stations every
week. And then (while they’re there) they’ll come in and use the other forecourt facilitates at the same time. This
is a win-win-win scenario for the retailer, the customer and the planet.
 Future of Fuel
According to research, Africa’s oil and gas potential will grow significantly over the next two decades, driven by
population growth, urbanisation and the emergence of a wealthier middle class in Africa. Africa is endowed with
plethora of natural resources that are changing the global energy landscape, and there is no doubt that Africa
remains open for exploration by oil and gas companies.

According to the International Energy Agency, demand for natural gas will outpace oil and coal by 1.6% a year
over the following five years. This growth will be accelerated by factors such as abundant supply, low prices,
and its part in decreasing air pollution and other emissions. Gas, the last of the fossil fuels to experience peak
demand, is set to become the world’s key energy source towards 2050 owing to the availability of shale gas and
the increase in the LNG trade.

The breakthrough discovery of gas condensate by Total is expected to attract major oil companies in exploring
the blocks they have already acquired, which will subsequently drive major new upstream oil activity offshore.
The discovery serves as an opportunity for the country’s oil industry to attract the necessary investment as both
local and global investors seek sound leadership and governance in their investment destinations. Africa is set to
become a leading gas market and has the potential to become a significant market for the development of LNG,
with many African countries exploring natural gas potential.

For instance, there have been rapid developments in West Africa’s gas sector as seen from Senegal to Angola.
Although significant gas discoveries in Mozambique, Kenya and Tanzania have caused a concurrent surge of gas
in the regions, foreign and, or private investment is necessary if developments and infrastructure associated
with these discoveries are to be realised. Africa’s shale gas exploration has been triggered by the emergence of
shale gas and the commissioning of the ‘Strategic Environmental Assessment for Shale Gas Development’ by the
South African government. At the end of 2016, Africa was reported to have had proven natural gas reserves of
503.3-trillion cubic feet, indicating an increase of around 1% in total gas reserves on the continent.

Meanwhile, it is predicted that global economies will increasingly become gas-based as they explore cost-effective
solutions to create value from flared gas and evaluate innovative technologies that enable transportation of gas
from remote offshore fields. This rise in gas consumption will lead to greater investment in both the short and
long term across natural gas supply chains.

The future of fuel also focuses on the aim of decarbonisation, being aware of climate change and the way
consumers think about what they are using is something to consider when planning for the future. Customers
are becoming aware of their carbon footprint and will possibly be adjusting their lifestyle accordingly.
 Want to read further?
CLICK ON THE HEADLINE TO READ THE FULL ARTICLE

• Report discusses challenges, options as world continues to drive decarbonisation agenda

• Here’s what the fuel station of the future could look like
• Big freeze in Texas is becoming a global oil market crisis
• Unpacking opportunities in Africa’s gas sector
• Here is the expected petrol price for March
• Time to review the huge tax on petrol
• New app brings petrol to your car

THE FUTURE OF THE FUEL INDUSTRY IN SOUTH AFRICA

CONTINUE