/day coal-to-liquids (CTL) plant, either in the Free State or in the vast coal fields of the Waterberg in Limpopo province ( more on this later).These plans, however, will not ease imminent shortages.
Until a new refinery is built, the fuel companies are importing refined product to keep up with demand. Total CE Philip Jordan says SA could have imported as much as 1,2bn litres of fuel this year.
Chevron thinks that fuel growth will reach 6%/year over the next 10 years, while BP believes that demand, which has increased significantly in the past five years, will double by 2010. "Every litre of extra demand locally will be imported," says BP's Maseko.
The problem is that importing is no panacea. The lack of investment in facilities for fuel-offloading, storage and transport has caused a bottleneck so severe it has the potential to cut off supply to the inland areas where the fuel shortage is most acute.
For example, Transnet Freight Rail (TFL, formerly Spoornet) is more than three times slower in moving fuel by rail than the international benchmark. It is also unsure of the practicality of investing in new capacity.
There is also insufficient storage in the massive fuel tanks at tank farms, such as Island View at Durban, which nearly met with disaster on Tuesday night. Even if tankers arrive at ports, they can't easily be offloaded.
Though Engen's Wright concedes that the oil companies may not have invested sufficiently at the ports, he adds that Portnet (now called the Transnet Ports Authority) does not encourage such investment. "The SA port authorities are not clear about the [future of] lease agreements that the oil industry has with them regarding our facilities in their ports. If you are not clear about that, it is difficult to make investment decisions. For instance our lease agreement at Port Elizabeth harbour has been terminated and we have been told to move our tanks to Coega. This is a sensible move but will cost us a bomb," he says.
Government also criticises the ports which, it says, prioritise container ships over fuel tankers, leaving them waiting at sea while the container ships unload. "The problem is that the oil companies do not make enough money for the ports. They make more money from containers, so we are not a high-priority business item," says Wright. The delays frustrate the supply chain.
Government's solution to the infrastructure problems at the ports was to ask the fuel industry to sort it out. One option is to allow the entire "back of port" process (loading, unloading and storage) to be outsourced to a third party.
Though government's energy master plan asks for a response on this proposal by September 2007, companies such as Total and BP say they have not yet seen it, and Engen was unaware that a response was required.
But even if refined fuel can be landed at the harbours, there are serious difficulties getting it inland to where it is needed. The Durban-Gauteng corridor consumes 68% of the country's fuel, but the fuel pipeline that joins the two centres is nearing the end of its life and running at capacity. Current demand already exceeds the line's capacity by 2bn litres a year. According to its application to the National Energy Regulator of SA (Nersa), the iPayipi consortium says inland fuel consumption is expected to grow to 17bn litres by 2010, from the 14bn litres consumed in the inland region last year.
One industry veteran estimates that the growth in inland fuel demand will result in the number of fuel tanker trucks that drive daily between Johannesburg and Durban increasing exponentially. "The next 5% growth in demand will require double the number of tankers and so it will grow." About 200 tankers now ply the Durban-Johannesburg route daily. This will double within a year and then redouble to 800/day if the situation remains unchanged.
The growth in imports will also have a big economic impact. Brait economist Colen Garrow says the country and government have not even begun to factor in what our import frenzy will do to SA.
Importing fuel costs a bit more than refining it locally - you have to pay for the landed costs of the goods. Worsening the situation is the fact that the inputs (volumes of raw materials) for all of SA's infrastructure development projects have been significantly underestimated by every single regulatory authority involved in projecting such demand.
SA will have no choice but to import to fill these gaps - and that will be the case until 2016, when the last of the infrastructure projects is scheduled for completion. "This will put a lot of pressure on our balance of payments. It is a bit worrying," says Garrow.
Something somewhere is likely to give, with dire consequences. A study conducted for the DME estimates that total disruption of the country's liquid fuel supply could cost the economy R925m a day (at 2005 prices).
Apart from the prospects of retail supplies running dry, the country's airports are operating with five days' worth of fuel stocks. Global best practice is for airports to store at least 30 days' worth of stock.
Eskom's diesel-guzzling open-cycle gas turbines (OCGT), run to top up the national grid during times of peak power usage, are another cause for concern, according to government. Eskom's two new diesel-fed peaking plants at the Atlantis site on the West Coast, now under construction, will add to the demand for fuel. They will consume between 296m litres and 1,8bn litres a year, depending on electricity demand.
So what is to be done? After much stalling and controversy, cabinet approved the expansion of the Durban-Johannesburg pipeline. Two companies - Transnet Pipelines (formerly Petronet) and iPayipi - have been competing for the licence to build and operate it.
Last week Nersa granted the licence to Transnet Pipelines to build a 61 cm, R11bn pipeline (see pipeline story on page 40).
The master plan also recommends that TFL invest in "block trains" comprising 32 rail tanker cars. This should improve TFL's 14-day fuel delivery time to a more "acceptable global best practice of four days".
But a rail solution would not offer immediate relief. According to department of public enterprises DG Portia Molefe, it would take at least four years to put in the infrastructure.
And though government is pushing TFL to make the investment, TFL is aware that when the new pipeline comes on stream it will increase capacity from 3,5bn litres of fuel a year to 7bn or 9bn litres a year. Not only would this make all of Transnet's new rail capacity redundant, it would mean that the oil companies would have needlessly spent money on sidings and rail depots.
In addition, some in the industry believe the current regulatory framework acts as a disincentive to industry.
"Shortages occur in a regulated market," says Mbendi Information Services MD Brian Paxton. "It is tightly controlled by the state, there are few incentives to invest further, yet government is leaving it to the market to sort out."
"We are concerned about the regulatory environment," adds BP's Maseko. "We would be encouraged to invest in a project like the refinery expansion, which normally costs millions of US dollars, only if the regulatory environment were conducive. BP is not looking for incentives but we believe that regulatory certainty and clarity is critical. For long-term investment, any company needs clarity and certainty," he says.
Maseko explains that the Petrol Products Amendment Act proposes changes to the industry. For example, assets such as storage tanks at ports, which the oil companies own and have exclusive rights to, "may now be considered open access' and used by others in the industry".
"Government needs to create an environment in which the necessary investment can take place," says another industry veteran. "One could argue that the way government has and is regulating the industry discourages investment."
Industry players also fear that government's new fuel pricing formula (which will replace the current one ) will be less industry-friendly.
Industry players say government's approach to the issues remains fragmented. Government envisages tackling that by establishing an agency that will co-ordinate and plan investments in the industry with the co-operation of all stakeholders in the sector. It is to be modelled on the US department of energy's Energy Information Administration.
"There are solutions but they can be delivered only if government, the liquid fuels industry, Transnet Port Terminals and Transnet Pipelines work together for the benefit of the industry," says Wright.
Connel Ngcukana, director of the SA Petroleum Industry Association (SAPIA), which represents the interests of SA's petroleum refining and marketing industries, says "I wouldn't like to talk specifically about the regulatory concerns of the industry. We are working with the DME on a number of issues and would prefer to work them out before we raise them in the media."
Sasol appears to offer the only substantial investment plan. Already it is working to boost its output from the Secunda CTL plant by 20%, which is more than Mossgas's contribution in terms of volume. This expansion of production is expected to become available from around 2011. "Much of the planning and conceptual work has been completed," says Sasol's manager for group strategy, Norbert Behrens.
Work also began in earnest last month on a pre feasibility study for a new synthetic fuels plant, dubbed Mafutha, that Sasol is considering building in a 50:50 partnership with government, says Sasol CE Pat Davies.
But it is not a short-term solution to SA's fuel worries. "It could be eight to nine years, once the green light is given [before it comes into production]," Behrens says. However, within five years Sasol will be in a position to decide whether to double the size of Mafutha to 25m litres a day.
Government is anxious to keep its sources of fuel diversified, so has set a target of 30% for the proportion of fuel to be produced through the exploitation of indigenous raw materials such as coal and gas. Behrens says that given current projections of future fuel demand, it is likely that Mafutha would be able to maintain the 30:70 mix targeted by government.
"A synfuels refinery may be an attractive option for SA," says Twine, b ut the options must be weighed up carefully. "It is not something you do on the back of a cigarette box, like P W Botha did to establish Mossgas." Mossgas was an infamous apartheid-era capital guzzler, now owned by PetroSA.
One of the considerations is the price of crude oil. "Oil prices at US$60/bbl or above are needed to justify these types of investment," says Behrens. But long-term oil price projections (five years out) show that oil may trend lower towards the $45/bbl- $55/bbl level.
Government is also sensitive to the environmental costs of synthetic fuel plants. "It is estimated that CTL plants emit anything from double to 10 times as much CO as a conventional refinery," says Gumede. "It's a dirty technology which emits lots of COČ." But Sasol says it is working hard on technologies such as carbon sequestration, which would involve injecting the CO back into the earth. It is also quick to point out that the CO footprint of crude-derived fuels needs to be viewed from "well to wheel".
The only solution, says Maseko, is to take a long-term view of the immediate crunch facing the industry.
"All role players have a responsibility: government, parastatals and the industry. We must understand the issues before we proceed. If co-ordination is not handled from this premise, other significant role players could end up isolated."
Adds Wright: "I don't believe we face a big crunch in terms of supply and demand right now. But if we're not careful, the frog will be boiled in the water."
The heat is on. Government's master plan has not yet been embraced by industry. No major infrastructure projects have been fully committed to. And the supply chain continues to be stretched.
Fuel shortages could become as common as electricity outages 
