Botswana Oil Limited says that the current strategic reserves storage guarantees an 18 days’ cover and that the fall in crude oil prices presents further opportunity for it to further enhance its stocks in the interest of national security of supply.
“Closely monitoring the price trend and capitalizing on the price as it goes down is normal business practice,” says Matida Mmipi who is BOL’s Head of Stakeholder Relations.
In an ahistorical development, demand for oil is down 30 percent as flights have been grounded and factories shut down due to the COVID-19 pandemic. Russia and Saudi Arabia worsened the situation by continuing to pump more oil throughout March amid decreased demand. Resultantly, the price for Brent Crude, which is the global benchmark, has fallen below $20 a barrel for the first time in 18 years. While oil producing nations have now cut production by 10 million barrels, this reduction is not commensurate with the decline in demand. As a result, these nations find themselves having to spend over $30 a barrel to get the oil off their hands.
Historically, oil markets take between a year and a year and a half to stabilise. Sunday Standard sought to find out from Botswana Oil, which manages the government’ strategic reserves, whether it would take advantage of lower prices by buying more petroleum products. While capitalizing on the price as it goes down would be the most natural thing to do, Mmipi says that BOL also takes into cognizance other factors that come into play when it comes to the stockpiling fuel reserves. One she mentioned is “quality of the product if stored for prolonged periods.”
Indeed, while crude oil can last millions of years underground, the refining process alters its composition and makes it susceptible to degradation. Environmental factors such as heat, oxygen and humidity also affect the fuel’s condition. In that regard, while buying more and more fuel might seem a smart buying decision, there is downside that Mmipi describes.
Regarding the lockdown itself, Mmipi says that in discharge of its mandate, Botswana Oil Limited acted proactively and put measures in place to ensure security of supply when indications that the world would go into lockdown in response to the COVID-19 became apparent. In addition to the current stock that can cover 18 days, she says that the government has put measures in place to increase local storage capacity through the construction of storage facilities, amongst them the Tshele Hills Depot.
On its website, BOL says that a study undertaken by Ministry of Minerals, Energy and Water Resources (MMEWR) between 2012 and 2014 revealed that there were three main petroleum product consumption areas in Botswana; Gaborone, Francistown and Gantsi/Maun.
“These areas were found to constitute 57 percent, 35 percent and 8 percent of the overall national consumption of petroleum products respectively. The study recommended the construction of Tshele Hills oil storage with a capacity of 150 million litres; expansion of Francistown by 30 million litres and construction of Gantsi oil storage facility with 15 million litre capacity to augment the existing two government storage installations currently in use,” the website says.
Expert analysis of what lies ahead in a post-COVID-19 world is far from rosy. One is that the bankruptcies of cruise ships, airlines, and oil companies will keep oil consumption depressed and that should demand accelerate, pumping back oil to match the demand will take considerable time – precipitating a spike in prices.