Now is the time to create a viable future for gas in SA’s energy mix

drawingBy Niall Kramer
CEO, South African Oil & Gas Alliance (SAOGA)

Africa contributes about half of the world’s population growth and consumes less than 10% of the world’s energy. This is a clear mismatch and an opportunity. Emerging economies need energy, and fossil fuels and renewables will undoubtedly play major roles in providing this energy. Gas – both imported and produced on the continent – will be a large part of that. The real advantages of gas are that it is plentiful and affordable, as well as having a lower (roughly half) carbon impact.

All things considered, it seems renewables have surprised on many fronts in South Africa (following the launch of the Department of Energy’s Renewable Energy Independent Power Producer’s Procurement Programme) and President Jacob Zuma just stated his support for renewables in his 2017 SONA. As a significant sector, renewables are creating jobs and opportunities and they have driven prices p/kWh down. One problem remains however: What do we do when the sun is not shining and the wind’s not blowing?

On the other hand, the world has a glut of gas. It’s Happy Hour for gas globally – globally gas prices per MMBTU are really low and projected to remain soft. Gas can be switched on quickly and is an ideal complement to renewables. But not in SA – yet. This is the opportunity.

We don’t know yet what South Africa’s commercially viable gas reserves in the Karoo or offshore might be. Whenever we see the South African maps of oil and gas acreage under license (or application) in and around the country, and see the scale of recent finds of our neighbours in East and West Africa, it seems we may be sitting on catalytic opportunities to find and produce oil and gas and drive our national energy system and economic growth. But we won’t really know until we actually drill for relevant data. That will require certainty and stability in the Mineral and Petroleum Resources Development Act (MPRDA), which we are told is imminent. But what can we do in the shorter term?

These are the kinds of questions that we will address next week at the Africa Gas Forum on Monday 20th February at the Sandton Convention Centre. Leading energy and gas experts, including Karen Breytenbach from the Department of Energy’s IPP Office, Dr Garth Strachan from the Department of Trade & Industry and Head of the Gas Industrialisation Unit and John Smelcer, Oil & Gas Partner at Webber Wentzel, will be addressing delegates at the one-day forum as investors interact with policymakers to determine what the future holds for the region’s gas industry and what economic growth prospects this sector can provide to business.

The oil price as a leading indicator has dropped dramatically over the past 2 years and while it has risen back into the $50’s the major explorers are still absent for a number of reasons. But they will need replacement barrels at some point and while the signals are strengthening; the active global exploration rig count is ticking up, the oil price moved up over 50% year-on-year to January 2017, exploration budgets are said to be up, technological developments in shale have been huge and US plays at $50-$60 seem viable as OPEC’s cuts take hold. There is little doubt explorers are coming to South Africa and this will be a big exploration opportunity for the region when it happens.

There is also an opportunity for oil and gas in South African to partner with renewables to develop a viable complementary energy supply system. From a gas point of view, we must do the planning now so when gas supply comes we can ensure “SA Inc.” and SA companies and interests are well positioned to capitalise on an upswing. We need to be sure we are using this “lull” to map capacity of South African enterprises and to train our artisans and technicians and capacitate them. We want to be able to participate fully when importation and exploration picks up – as it will. But we need to plan for that opportunity so we can learn and transfer from experienced international players to SA.

As SAOGA, we have begun embedding this LNG import opportunity into our daily interactions with companies, members, government agencies and other stakeholders. Our focus is to build on the strong foundation that the renewables IPP provided in terms of transparency, credibility and price. We must focus on the shorter term opportunities in Liquid Natural Gas (LNG) to Power and to industry alongside the (possibly longer term) exploration opportunities. We have developed a first draft of SA’s skills capacity and what may be needed for LNG. We really need to move swiftly to upskill South African artisans and technicians to meet the high standards (especially around safety and discipline) that the global national oil companies will insist on.

The preliminary information for the LNG to Power IPP is now known, the direction of travel is clear, and while there may be delays and bumps along the way, we need to build confidence and momentum. These are huge projects with large development multiplier effects.

One emerging thread now is the need and opportunity for gas and renewables to cooperate better to ensure viable delivery of power at low cost. The binary “either or” view is being replaced with “and, and”.

At the South African Oil and Gas Alliance (SAOGA) we see oil and gas as here to stay for a long time yet with this part of the world driving both supply, services and demand. We see the development of oil and gas hubs, as seen in Transnet National Ports Authority’s plans, as key to providing impetus and facilities to enable imports of gas and also to service explorers around South Africa as well as west and east Africa.

SA needs gas as one of the energy spines of our industrial strategy. Natural gas (initially imported as LNG and possibly from indigenous supply later) can power industrial growth and enable the responsible viability of renewables.

Bringing LNG into SA is a first, but large, step for building a gas economy and a “renewables-gas” energy system. Then, once the exploration legal framework is finalized, assuming attractive commerciality in the MPRDA and market conditions, exploration work could start up again and support economic and employment opportunities. Reliable and sustained energy is a prerequisite for growth.