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Russian invasion spells disaster for diesel-guzzling Eskom

As Russia’s attack on Ukraine intensifies, so does its knock-on effect on the global economy, especially as oil and gas prices hit record highs.

Over the past decade, South Africa’s controversial electric utility Eskom has increasingly relied on the country’s open-cycle gas turbines (OCGT) to supplement its energy mix.

Eskom 2022 Diesel Expenditure – R9 Billion

The parastatal’s chief financial officer, Calib Cassim, has forecast that Eskom’s diesel consumption could reach somewhere in the region of R9 billion by 2022, including fuel for two independent power producers (IPPs).

Cassim said that while Eskom has yet to factor in the increase in oil and gas resulting from the invasion of Ukraine, it can only afford a certain amount from a liquidity perspective.

“We are looking at options to hedge diesel and heating oil prices in the future. The timing couldn’t have been worse, but we’ve already started those discussions,” Cassim said.

Cassim said that if oil prices doubled, it would affect the diesel-generated electricity supply.

This can be disastrous for the ailing parastatal, as they rely heavily on diesel generated power to keep the lights on, especially during unit outages.

Increased dependence on OCGT

Last weekend’s system outages have resulted in Eskom running 17 OCGTs to prevent dam levels from deteriorating.

But even after the dams flooded Monday, another outage totaling 3,200 MW occurred, forcing Eskom to keep 16 OCGTs running to support the power grid.

“We managed to deliver the peak by running all 20 OCGT, all six emergency reserves and by implementing phase 2 load shedding,” said Eskom COO Jan Oberholzer.

Load shedding is often used when Eskom needs to refuel its reserve capacity or is trying to reduce the use of the OCGT.

“We have 17/80 units (8,700 MW) at risk. Of this, slightly less than 2,000 MW is at high risk,” explains Oberholzer.

If and when those outages occur, Eskom turns to OCGTs to power South Africa.

Russian sanctions effect

“We are aware of the fact that prices are rising quite quickly. We had a discussion last night about rand per ton of coal. We are quantifying what the impact will be,” says Oberholzer.

“We are concerned about the impact of the war there on our operations here,” he added.

Eskom’s Chief Nuclear Officer Riedewan Bakardien said that while there were no direct supply lines from Russia and Ukraine, some of its subcontractors are from Russia.

“We are still evaluating if there is anything that might be affected,” Bakardien said.

Crude oil is expected to trade at $128.36 a barrel by the end of this quarter, according to Trading Economics.

“Looking ahead, we estimate it will trade at $140.47 12 months from now,” Acting economicallys said.

READ NOW: Phase 2 load shedding continues until 5 a.m. Saturday

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