21 DEC 2017 South Africa chases gas dreams - SAOGA
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
21 South Africa chases gas DEC dreams 2017 Africa, Upstream
South Africa chases gas dreams
[1]
South Africa is known for its resources. Platinum, gold, diamonds, copper and even coal have all
featured as South African exports, but the country is yet to successfully exploit its gas and oil
reserves on any significant scale. Now, however, with the successes in neighbouring
Mozambique and Tanzania garnering international attention, South Africa believes it could be
next in line for a fruitful foray into oil and gas.
The road to success will be long however. At present, the country’s biggest state-owned GTL
refinery at Mossel Bay is struggling to keep afloat as the gas supply –from PetroSA’s FA-EM and
South Coast gas fields, as well as the Oribi and Oryx oil fields in Block 9 offshore South Africa -
dries up. What’s more gas demand is steadily increasing as the economy grows, rising by over
45% over the past decade to 5.1 Bcm in 2016.
The country keeps up a steady stream of pipeline imports from neighbouring Mozambique,
around 4 Bcm/y from its neighbour’s Pande and Temane gas fields, imported via the Republic of
Mozambique Pipeline Investments Company’s (ROMPCO) pipeline to Sasol’s petrochemical
facilities and other industrial users. Domestic production, meanwhile, hit 1.1 Bcm in 2016, an
increase in real terms, but still nowhere near enough to keep up with rising demand.
To date, South Africa has seven active natural gas production rights, PetroSA tells Gas Matters.
Five of these are operated by PetroSA, in the F-A offshore fields, the south coast gas project and
the F-O gas field. With significant gas production still not off the ground, the government had
Copyright © 2018 Gas Strategies Group Ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
If you would like to distribute this content please contact the Editorial team at Gas Strategies.
hoped to attract private investors into the sector. However so far, South Africa has awarded just
two production rights to non-state-owned entities. The first, awarded to Sunbird Energy is the
Ibhubesi gas filed in block 2A on the west coast, acquired from Forest Oil in 2014. It is as yet
undeveloped. The second, held by Renergen subsidiary Tetra4, is an onshore play awarded in
2012. Tetra4 has already begun production on a pilot plant, with minimal volumes thus far. The
company plans to commence full field development within two years.
Making the case for gas
Increasing access to modern forms of energy is crucial to unlocking faster economic and social
development in Africa, specifically in sub-Saharan Africa. For South Africa, still reeling from a
succession of credit ratings downgrades, gas production and possibly exports offer an
opportunity to reverse its economic fortunes and reduce its coal dependency and carbon
emissions.
Despite the fact that it is one of Africa’s most developed economies - with shale gas resources of
at least 13 Tcf (368 Bcm) - South Africa is still years behind the rest of the world in term of gas
discovery.
Until recently, offshore exploration off the country's coast was hampered by the water depths,
which rendered the resources inaccessible, and by strong ocean currents. However
improvements in exploration technology has seen increased interest in exploration activity. So
far, the government has issued more than 20 exploration licences, although officials tell Gas
Matters that plans for the next round of licencing are currently on hold while the government
hammers out new hydrocarbons legislation.
Meanwhile, explorers are also encouraged by the rhetoric coming from South Africa’s
government, which has enthusiastically thrown its weight behind gas as a cleaner, more flexible
“game changer” for the country, which still derives 65% of its primary energy from coal.
Speaking during a recent Durban gas conference, then- energy minister Mmamoloko Kubayi told
delegates that South Africa “must be able to shift to gas”, identifying coal as the highest single
contributor to South Africa’s carbon footprint, and testifying to the economic benefits of a gas
economy.
“On a macro-economic level, economic surplus is created by lower fuel prices for power
production,” she added. “The multiplication of production projects and international gas market
liquidity contributes to create an accessible, transparent and reliable market where sourcing the
gas is not an issue.”
She said the switch would not only mitigate the decrease in coal production but “fosters the
creation of new job profiles and skills” to develop, construct and manage new import, transport
and consumption infrastructure.
“South Africa’s power, industrial and transportation sectors show great potential to contribute to
gas market development, adding that analysis indicates the sectors represent four times the gas
demand for power,” Kubayi said.
Kishan Pillay director oil and gas at South Africa’s department of trade and industry says the
economic potential the country’s shale gas resources are “huge”, and the country should take the
lead from the United States, which exploited its shale resources to become a gas export giant.
“As a result [of the US shale boom], a 're-shoring' trend is underway as steel, chemical, fertiliser,
Copyright © 2018 Gas Strategies Group Ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
If you would like to distribute this content please contact the Editorial team at Gas Strategies.plastics, tyre and other companies have moved production back to the US or expanded existing
facilities, whilst many foreign firms, including Sasol, have invested in new plants in the US,” he
tells Gas Matters.
[2]
Reflected glory
South Africa's Petroleum Agency tells Gas Matters that South Africa has proved and probable
offshore gas reserves of up to 1.44 Tcf (40 Bcm). Contingent resources (that is, those which are
potentially commercially recoverable) amount to 4.4 Tcf (124 Bcm), while prospective resources
amount to 82.45 Tcf (2.3 Tcm).
“Prospective resources assume that all prospects contain oil or gas, which is only an indication of
the size of prospects yet to be tested and drilled,” says the agency’s conventional resources
evaluation manager, Dave van der Spuy. “Most of these may be dry with no indication of any
hydrocarbon if drilled.”
"It is expected that as more data becomes available and more areas are explored, there will be a
steady increase in reserves and contingent resources and a radical decrease in prospective
resources," he adds.
Copyright © 2018 Gas Strategies Group Ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
If you would like to distribute this content please contact the Editorial team at Gas Strategies.Historically, most of the exploration work in South Africa’s oil and gas prospects has focused on
waters off the country’s south coast, and especially in the Bredasdorp Basin, which has seen a
small amount of oil and gas production already. Indeed, most of the drilling activity, which yielded
over 300 exploration wells in South African waters, took place during the 1980s in that basin.
This wave of exploration drilling also yielded two as-yet undeveloped gas fields and six further
gas discoveries in the Pletmos Basin. Several additional gas discoveries were also made in the
South African portion of the Orange Basin.
But interest in South Africa’s offshore resources, particularly off the east coast, has been piqued
in recent years by the huge finds in Mozambique and Tanzania.
Mozambique sprung into the spotlight in 2012 when 2.4 Tcm of natural gas was found in the
Rovuma basin off the former Portuguese colony’s coast, with more resources over the Tanzanian
border.
Oil and gas exploration in the Rovuma River Basin started almost 50 years ago but early wells
were either dry or gas prone which resulted in the region being largely ignored for several
decades.
But, according to Calgary based energy company Wentworth Resources, the region could hold
up to 4.9 Tcm of gas, and now many believe that the geology off South Africa's east coast is
contiguous with that of its east African neighbours.
In September 2017, Norway’s Statoil and Russia’s Rosgeo signed exploration licences, joining
the likes of Total, Chevron, ExxonMobil and Shell, who have been investing in the country for a
couple of years.
Statoil increased its exploration portfolio with two deals signed in September. The company
acquired a 35% interest in the 12/3/252 Transkei-Algoa Exploration Right from ExxonMobil a
90% operatorship from OK Energy in the 12/3/257 East Algoa Exploration Right.
Meanwhile Russia's state-owned exploration company Rosgeo signed a USD 400 million deal
with PetroSA to develop exploration areas of Block 9 and 11a off South Africa’s south coast.
PetroSA believes the project will yield up to 4 MMcm/d of gas, to be delivered to the Mossel Bay
processing plant.
But Statoil's vice president of UK government and regulatory Affairs, Lars Sorensen, was
circumspect about the likelihood of hitting a big gas play similar to those in South Africa’s
northern neighbours.
"We had a lot of success in Tanzania and Mozambique and data from our geologists is pointing
us further south,” he tells Gas Matters. “We could be sitting on big potential in South Africa, but
drilling is a probabilities game. We either get positive results or we don't. South Africa is an
exploration play and it looks interesting."
Karoo Shale
But while South Africa treads familiar ground with offshore exploration, work is also afoot to
pioneer unconventional resource production in the country. The Petroleum Agency has identified
substantial shale gas resources in three formations in the Karoo Basin, which it believes holds
technically recoverable gas volumes of between 30 to 500 Tcf (849 Bcm – 14 Tcm) – figures that
have been disputed by other experts. The US Energy Information Administration estimates South
Copyright © 2018 Gas Strategies Group Ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
If you would like to distribute this content please contact the Editorial team at Gas Strategies.Africa holds unproved resources of 390 Tcf (11 Tcm), which places the country fourth on a list of
the world’s largest shale gas resources.
Some early exploratory drilling has taken place, but progress was delayed by a moratorium on
exploration that was lifted in 2012.
However, government optimism as to the extent of the resources was challenged by a study from
the University of Johannesburg, published by the South African Journal of Science in September
2017, which suggested the shale gas potential of the Karoo is more likely at the bottom end of its
estimates - in the region of around 13 Tcf.
Dispiritingly for shale prospectors, the research appears to be soundly empirical, based on direct
measurements of gas contents of southern Karoo basin shales. The findings reveal carbon
content of shales to be dominated by overmature organic matter.
The report states that there is little to no desorbed and residual gas, despite high total organic
carbon values, and “little hydrocarbon generation potential remains”.
These findings concluded that the lowest of the existing resource estimates may be the most
realistic. However South Africa's Oil and Gas Alliance (Saoga) CEO Niall Kramer warns that the
estimates should be taken with caution, noting that more “empirical context” is needed.
“These two holes were drilled [to collect samples for the study] intentionally outside the targeted
license areas and intentionally at the edges of the basin where the [formation] is close to surface,
and as indicated before the drilling took place, would likely suggest low readings,” he says.
Furthermore, he says, the new estimates still represent a major resource for South Africa. To put
13 Tcf into perspective, the PetroSA offshore gas fields have yielded some 1 Tcf and fuelled the
Mossel Bay refinery for over two decades.
Challenges ahead
Saoga believes the country is a frontier market and has "catalytic development opportunities" but
concedes that the country needs policy certainty and cohesion as well as commercially attractive
terms.
Responsible and capable explorers have global options and South
Africa is not making itself attractive
Indeed, there is still some way to go. Enabling regulatory framework, which aims to govern
upstream exploration, has faced several challenges from competing interests, which has
intensified regulatory risk. Coupled with the nascent exploration framework, this has meant larger
investors have deferred committing to South Africa until they have certainty. Meanwhile, smaller
outfits are simply incapable of raising the capital from risk averse investors to explore.
Copyright © 2018 Gas Strategies Group Ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
If you would like to distribute this content please contact the Editorial team at Gas Strategies.Meanwhile, South Africa's policy and legislation on natural gas remains bottlenecked. The
department of mineral resources plans to table amendments to the Gas Act of 2004 this year,
with the aim of reforming the licensing framework for gas infrastructure, and empowering the
minister of energy to make infrastructure related decisions.
The government is currently considering amendments to the Mineral and Petroleum Resources
Development Amendment Act (MPRDAa), which houses legislation on oil and gas exploration.
The amendments that the industry is arguing for include special recognition for shale, the
inclusion of attractive and stable commercial terms, and the eventual formation of an entirely new
oil and gas act at a later date.
"We need to develop good and harmonised policies that will attract international investors,” says
Kramer. “Explorers are interested but we need clarity on the status of the act and its
amendments. Responsible and capable explorers have global options and South Africa is not
making itself attractive.”
Linde Mekwe, acting CEO of PetroSA, agrees, noting that the government has given no
indication as to when it will pass the amendments.
"The one significant factor that we think is perhaps halting investment in robust exploration
activities is the delay in finalising the Mineral and Petroleum Resources Bill,” she tells Gas
Matters. “Industry and the department have made a number of proposals which are being
processed by parliament, and it is hoped that if parliament agrees to the key salient proposals
emerging from both parties, that will trigger a phase of significant exploration.”
LNG the immediate solution
But commentators note that even with the advent of domestic gas production, South Africa has
almost no infrastructure to support a gas economy. Residents in the country’s vast rural areas
still make use of solid fuels and paraffin as a source for heating and cooking. Even with gas from
Mozambique readily available, it would still take years to construct the pipeline infrastructure
needed to feed South Africa’s 56 million-strong population.
Additionally, exploration drilling and possible production could take decades to kick off but LNG is
available now. Industry experts argue South Africa should take advantage of the abundant LNG
available globally, and build LNG infrastructure alongside other gas infrastructure.
“Right now the world is awash with LNG from USA, Qatar etc, so let’s take advantage of current
happy hour prices,” says Kramer. “Lock in deals and focus on projects to build receiving
infrastructure like regasification and portside power and storage. The important enabler here is
that LNG-to-power will be the foundation and then incremental capacity can be used to build
industrial capability. We can’t import uneconomic boutique quantities.”
Kramer believes South Africa would benefit from initially using floating LNG vessels (FRSUs)
which can take as little as 18 months to charter, as well as cryogenic tanker trucks which would
make it easier to transport LNG on land. “We don’t need a large pipeline network from day one,”
he says.
Copyright © 2018 Gas Strategies Group Ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
If you would like to distribute this content please contact the Editorial team at Gas Strategies.The energy department agrees. “We are planning for investment in LNG import terminals,
storage and regasification facilities, primary high-pressure gas transmission pipelines and
secondary distribution pipeline networks,” energy minister David Mahlobo said during his opening
remarks at the Africa Oil and Gas Week Conference held in Cape Town in October.
A probabilities game
The big unknown is the cost of production. As Pillay points out, until there is significant
exploratory drilling offshore or fracking in the Karoo, the extent commercially recoverable
remains inconclusive. Flow rates, the cost of production and the price will ultimately determine
the type and the amount of demand there will be.
“The challenges become clearer as we start progressing projects,” says Pillay. “It is important
that we verify whatever resources are or are not there so that as a country we can plan
accordingly. We will only know once someone drills and this is the nature of the oil and gas
business, the chances of finding anything that is commercial during exploration is around 30%.”
Kramer agrees. “We need data to make sound decisions,” he says. “If there is nothing, then data
can tell us quickly and cheaply and we can skip the all the earnest hand wringing. Oil and gas is
potentially the country’s biggest single opportunity to add significantly to GDP. That needs
focused, disciplined policy and leadership.”
As Statoil has already noted, it is a probabilities game for South Africa.
This article was originally published in Gas Matters on 21 December 2017.
Gas Matters is part of Gas Strategies’ Information Services.
Contact the editor:
editor@gasstrategies.com
+ 44 (0) 20 7332 9975
If you would like more information about how Gas Strategies can help your business with Consulting
services across the gas value chain or provide industry insight with regular news, features and analysis
through Information Services or help with people development through Training services, please contact us
directly.
Copyright © 2018 Gas Strategies Group Ltd. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
If you would like to distribute this content please contact the Editorial team at Gas Strategies.You can also read
