September 2022, Vol. 249, No. 9


Slow Economy, Fuel Theft Hampers Transnet Pipeline’s Output

By Shem Oirere, P&GJ Africa Correspondent 

(P&GJ) — South Africa’s slow economic recovery, the national lockdown triggered by the outbreak of COVID-19 and pipeline product theft adversely affected the 2021 performance of the country’s biggest operator of fuel pipeline systems, Transnet Pipelines.

Construction of a Transnet pipeline (Photo: Transnet Pipelines)

The company, regulated by National Energy Regulator of South Africa (Nersa), said the drop in revenues was “due to the decline in petroleum volumes transported for the year.” 

The latest report released by the company evaluated its drop in income for 2021, noting that a depressed economic environment suppressed demand for oil and gas, while increasing the entity’s operating expenses by more than 260%. 

Transnet Pipelines’ revenues decreased by 14.5% for the fiscal year ending March 31, 2021, to $334 million (ZAR 4.9 billion) for the period, down from the $389 million (ZAR 5.7 billion) for the previous year. 

Earnings from all the products moved via the company’s 1,935-mile (3,114-km) pipeline network, except gas, dropped during the period under review. Refined products’ earnings were $191 million (ZAR 2.8 billion), an 8.3% decrease from $211 million (ZAR 3.1 billion) for the same period in 2020. 

Further decline was noted in earnings from crude – $116 million (ZAR 1.7 billion), a 22.9% slide from the $150 million (ZAR 2.2 billion) the previous year. 

On a bright note, income from the transportation of gas remained in positive territory, earning $8.2 million (ZAR 121 million), 5.4% more than the $7.7 million (ZAR 114 million) for the same period in 2020. 

South Africa’s overall economic growth was 0.2% in 2019 but the outbreak of the pandemic and the subsequent containment measures inflicted heavy damage on the economy, which contracted by 8.2% in 2020. 

Because of the shrinking of the South African economy, the petroleum products moved by Transnet Pipelines dipped by 26% to 49.4 billion gallons (13.07 billion liters), far below the targeted 66.75 billion gallons (17.66 billion liters). 

The 2021 transported petroleum volumes were 26.4% lower than the 66.75 billion gallons for the period ending March 2020. 

“This was a result of the country being on COVID-19 lockdown for the first few months in the financial year and the subsequent slow economic recovery following the lockdown,” Transnet Pipelines said in its annual report. 

Petroleum volumes in Transnet Pipelines’ network were further depressed by the “product theft incidents that impacted volume performance with a number of lines being shut down for repairs following ‘hot taps,’” during March 2021. 

Transnet Pipelines, which transports 100% of liquid fuels designated to and from a tank farm at Tarlton, mainly targeting the market in neighboring Botswana, said in 2021 capacity utilization for the multiproduct pipeline was 21 million gallons (81 million liters) a week, far below the projected 415.8 billion gallons (110 million liters) a week due to a combination of factors, such as the “product shortages at the coast as a result of ship delays and shutdown of the Engen Refinery following an explosion and fire.” 

“Gas volumes are 3.5% lower than prior year due to lower demand from customers as a result of the depressed economic environment,” the report said. 

At the company’s tank farm at Tarlton, the volumes were 12.3% lower than the projected levels for 2021 “due to product supply challenges from the coast and theft incidents, which negatively affected loading from Tarlton.” 

Elsewhere, the pipeline company’s capital investment for the year ending March 31, 2021, was $30 million (ZAR 499 million), more than 50% less than the $55 million (ZAR 814 million) that had been budgeted for in new capital expenditures for the year. 

“The capital expenditure for the year has been negatively impacted by the COVID-19 lockdown and its subsequent effect on construction and procurement-related activities,” the company says. 

Transnet Pipelines will in 2022 invest $60 million (ZAR 891 million) in capital projects, more than double the amount it spent in 2020 and 2019 — $28 million (ZAR 412 million) and $ 22 million (ZAR 326 million), respectively. 

Elsewhere, the frequent interruptions of Transnet Pipelines’ network depressed the overall output with the company, reporting 290 hours of stoppage of its operations for the year ending March 31. This, however, was shorter than the 312 hours and 332 hours of pipeline interruption reported in 2020 and 2019, respectively. 

At least 17 Bcf (493 MMcm) of gas was transported via the Transnet Pipelines network in 2021, nearly 3.7% less than the year’s target of 18.18 Bcf (515 MMcm). 

In the current year ending March 31, 2022, Transnet Pipelines has projected to increase throughput to 4.2 billion gallons (16 billion liters) across its pipeline network. The throughput includes a projected 18.36 Bcf (520 MMcm) of gas. 

Currently, Transnet Pipelines company transports 70% of all refined products for the South African inland market, 70% of all jet fuel required at the country’s largest airport of OR Tambo International Airport, 100% of crude requirements by the country’s biggest refinery, National Petroleum Refiners of South Africa and nearly 17.66 Bcf (500 MMcm) of methane-rich gas requirements every year to KwaZulu-Natal from Secunda. 

In 2022 and beyond, Transnet Pipelines’ report says the focus will be “to implement the Pipeline Security Strategy to ensure safe operations and minimize the impact of fuel theft on operational and financial performances.” 

It says the company also “fast-track[s] the environmental remediation backlog to comply with relevant and applicable environmental legislation while maintaining organizational sustainability.” 

Some of the opportunities beckoning Transnet Pipelines in the medium- and long-term include wooing the private sector into a partnership with other State firms to “develop mechanisms for new players to access the pipeline network to improve capacity utilization and overall sector transformation by facilitating collaboration with key oil and petroleum stakeholders.” 

An optimistic Transnet Pipelines’ management said it looks forward to achieving “a seamless integrated rail and pipeline service offering to other domestic airports in the near future to grow the aviation turbine fuel business.   

Shem Oirere is Pipeline & Gas Journal’s Kenya-based correspondent who reports on midstream and related developments throughout the continent of Africa. 

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