96. THE SOUTH AFRICA ANOMALY

I think we've all heard how South Africa (SA) survived the Apartheid-era oil embargo by producing synthetic fuels from coal.

So why didn't South Africa collapse? They went off a cliff from the "subsidy of cheap oil" as people like to say. They stepped back down from high EROEI oil, and reverted to crappy old low EROEI coal. Granted, the South Africans had access to limited amounts of smuggled oil, but it was expensive. In that sense, South Africa is an almost exact analog of peak oil. Peak oil does not mean a complete closing of the taps. At least in its initial stages, it means higher oil prices, and an embargo-like degradation of supply -- very similar to what happened in SA. SA coped with it to some degree by liquefying coal, and (judging from the Hirsch Report(pdf)) that is part of the U.S. "Plan B":

1. Fuel efficient transportation
2. Heavy oil/Oil sands
3. Coal liquefaction
4. Enhanced oil recovery
5. Gas-to-liquids

SA did have economic problems, but the worst case scenario didn't pan out. This seems even more astounding considering that mining (a very oil intensive process) is the backbone of the South African economy.

I find the details of what happened in SA during the embargo fascinating. They give us clues about how a developed nation responds to liquid fuel stress.

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Apparently, the infrastructure needed to dig coal was so expensive that SA is now switching to GTL (Gas-to-Liquid) to save money:

Under the belief that partially replacing coal with natural gas as the synthetic-fuel feedstock would reduce investment expenditures in coal mining operations, Sasol began importing gas from Mozambique in 2004.Source

The following are some interesting tidbits from a SA court case:

288. Oil was the one major raw material not produced (except synthetically from coal) in South Africa. The Apartheid regime established a high degree of control over the industry in its attempt to ensure a constant supply of oil.

289. Without oil, the police and military could not have functioned and the economy of South Africa would have come to a standstill. The South African regime took a number of steps to ensure an adequate supply of oil.

290. In November 1978, in response to the fall of the Shah and the decision by Iran to join the oil embargo, then-Minister of Economic Affairs Chris Heunis, called a meeting with the managing directors of the oil companies. He met with them in alphabetical order: BP, Caltex, Mobil, Sasol, Shell, then Total and told them each "Our petrol pumps must stay wet."

300. Mobil received from its South African attorneys the following legal advice: "[a]s oil is absolutely vital to enable the army to move, the navy to sail and the air force to fly, it is likely that a South African court would hold that it falls within the definition of munitions of war."

349. In order to reduce its vulnerability to oil sanctions, South Africa began a coal to oil conversion program. The Apartheid regime expected to be able to meet up to 50% of its oil needs from this program. SASOL - the South African Coal, Oil and Gas Corporation, was a state controlled company formed to oversee the oil from coal program. Three plants were to be built. SASOL II and III constituted the largest and most expensive project undertaken by the South African government.

357. The Natref refinery had been regarded a National Key Point of the South African economy even before the adoption of the Act. A South African army journal explained the role of the ‘SASOL Commando,' a unit comprised of SASOL employees: "When the men of the SASOL Commando change their white coats for the uniform of the South African Defense Force they become members of a specialized unit, which in times of war will defend two key points of the South African nation. The SASOL factory ... and the Natref Refinery are two of the most important installations in the country. The importance of the task which the SASOL Commandos have in defending these two key points cannot be overemphasized."Source

From a study of the impact of sanctions:

In late 1970s, early 1980s, South Africa depends on oil for less than 20 percent of its total energy needs, but 80 percent of energy needs of transport sector. Moreover, South Africa has stockpiled at least one to two years' supply and is completing two nuclear power plants, a third Sasol coal-conversion plant. By one estimate, the stockpile would entail "tying up $1-$4 billion or more in capital, depending on acquisition price." In 1990 it is estimated that Sasol plants provide one-third of South Africa's oil consumption. Some estimates of total cost of oil embargo, including price premium on imports, costs of stockpiling, costs of construction and operation of Sasol plants, fall in range of $1 billion to $2 billion. Others question magnitude of these estimates, noting that some South Africans (e.g., dealers and shippers) have gained from embargo, and that South Africa might have pursued coal-conversion technology in any case after 1973-74 oil shock. (Chettle 82; Spandau 153-55; Lewis 60, 103; Lipton 1988, 86-87)

Direct costs [of the oil embargo] have more than doubled South Africa's oil import bill… Direct costs of the oil embargo in the 1980's equaled South Africa's gross foreign debt, which by the end of the decade was estimated at between $15 to 20 billion. Indeed, had the oil embargo not been imposed, the 1985 South African debt crisis would probably not have emerged… In addition to these direct costs, economic activity in South Africa suffered from spillover effects to other markets and opportunity costs, while the country's long-term development was hurt… Economic activity in South Africa has also been hampered by the fact that fewer new technologies became available to the country during the implementation of sanctions."(Van Bergejik 343-344)

Economist Stephen Lewis estimates that oil embargo, other trade sanctions impose cost on South Africa of $2 billion a year, primarily in terms-of-trade effects.

On the oil embargo: "The oil embargo has probably been the costliest international action against South Africa to date.... However, the decisions forced on South Africa by the oil boycott have resulted not only in higher costs. The SASOL projects, for example, have pushed South Africa into international leadership in coal conversion technology.... Policy actions by the government effectively mitigated both the economic costs and the disruption of the oil embargo, and South Africa is in a better position today to meet short-term cutoffs in oil than it was a decade or two ago." (Lewis 103-04)Source