[NGW Magazine] South Africa Sees Upstream Change
Africa’s petroleum lobby group predicts that the country’s upstream gas sector is poised to take off – following African successes like Mozambique, Egypt and Ghana – with the replacement of Jacob Zuma with the new president, Cyril Ramaphosa.
The CEO of the South African Oil and Gas Alliance (SAOGA) Niall Kramer says the ouster of Jacob Zuma as president will benefit the upstream industry. There are already signs that blockages in the legislative pipeline are being cleared, under the new presidency of Cyril Ramaphosa. The Mineral Resources and Petroleum Development Act (MRPDA), part of minerals resources minister Gwede Matashe’s portfolio, is being amended and consultations have taken place with industry.
“It is primarily a mining bill, but there is also an oil and gas element. The real interests are around state participation in projects: the levels and nature of the state’s percentage share. It had been put at 20%, free, without any cost associated with that,” said Kramer. He said that the 20% figure is too high, and that for projects involving shale gas in the Karoo region “we would propose up to 10%, with an option for sharing costs.”
There should be provision to share costs during exploration “because of the cost and continuous drilling nature of shale. We are looking for a recognition of the high cost shale incurs and the high commercial risk.” SAOGA hopes to approach the minister to argue for cost-sharing during exploration. Kramer said his overall goal is to see the establishment of a viable gas economy, by first establishing the importation of liquefied natural gas (LNG), requiring tens of billions of dollars in infrastructure in the ports that will receive the gas.
In October 2016, the SA government announced it was planning two major LNG import terminals and at least two gas-fired power projects at Richards Bay (2 GW) and Coega (1 GW). A further phase could also include Saldanha Bay. “These would be very catalytic investments for South Africa and the local economies,” said Kramer. Bids must come from consortia made up of the energy supplier, as well as those involved in engineering, in power, and in the pipelines, he said.
Energy mix review due mid-August
This process is being handled by the Independent Power Producer Procurement Programme, a division of the government’s energy department, but has stalled owing to legal problems. Kramer said he hopes for a “re-communication of a request for proposals, as that is the most important policy step for bringing in gas” and says the current energy minister Jeff Radebe has been focused and has spoken firmly in favour of gas development. Radebe’s department is responsible for the publication of an updated strategy document on the country’s future energy mix, the Integrated Resource Plan (IRP) which is due to be discussed by the cabinet in mid-August.
Radebe is action-focused and has indicated publicly that gas will be fast-tracked, says Kramer: “Signals all seem to be going in the right direction. We need clarity and commercial attractiveness to get the A Team to come and invest. This is gas initially for the power system, which will support renewables. The effect these investments could have on economic activity, on jobs, on small businesses is absolutely catalytic. We are sitting on the cusp of something really big for the country.”
The upward move in the oil price is a big driver of confidence in an upstream industry, according to Kramer, who hopes that South Africa can quickly start exploring, exploiting and consuming gas. Asked by NGW about interest among potential investors in South Africa’s gas sector, he said all the major players have shown interest – whether in LNG, power, floating regasification, or in pipelines- but that with the delays of the last two years, there has been a slippage. “I believe they will be back and will still be interested. These are big projects by global standards. We are trying to re-establish relationship with government and get the trust back,” he said.
“Mozambique is a great example of this: we have to get these channels of communication open. Ghana is also a good example. Egypt is another great example. The focus is on establishing clear relationships and trust between private companies and government. I like to think of Norway as the great example of what you can do with large quantities of gas – if we had it. ”SAOGA will soon be taking a delegation of businessmen to Mozambique to swap notes." Kramer says he is positively encouraged by the scale of interest, which is far higher than he had expected.