The South African Gas Sector
Mr. Muzi W. Mkhize
Chief Director : Hydrocarbons Policy
E-mail: muzi.mkhize@energy.gov.za
Tel: 012 406 7570/1
1
Scope
The Department of Energy seeks to brief the
Committee on the South African Gas Sector focus on
the following subjects:
o
o
o
o
o
Key challenges
Resource endowment
Policy and regulatory framework
Work in progress
Summary and Way Forward
2
Key challenges
Affordability (Lower
Consumer Prices
& Input Costs)
Security of
Supply
HDSA
Empowerment
A difficult balancing act
Trilemmas: Energy-Water-Food and Energy-WaterEnvironment nexus
3
Resource endowment forms the basis
• South Africa’s current diversified primary energy mix:

Coal ~65.7%, crude oil ~21.6%, biomass ~7.7%, Gas ~2.8%, nuclear ~1.9% and
hydro ~0.2%
• Whilst Southern Africa is richly endowed with oil and gas resources,
South Africa’s has limited oil and gas resources




All crude refinery feedstock is imported from the high seas save for ~4,000
barrels per day of indigenous crude oil from PetroSA’s offshore Oribi/Oryx Oil
Field
There is a need to supplement the dwindling indigenous natural gas feedstock
for the gas-to-liquids (GTL) facility in Mossel Bay – owned by the national oil
company, PetroSA
South Africa is the largest market of natural gas in the region: 45,000 bpdoe
GTL plant; Petrochemicals production through Sasol’s plant in Secunda; Thermal
needs of commercial customers; Reticulation to households; and Gas-to-power
potential
Notwithstanding recent activity on our shores
• Shale gas:


Potential game changer
Shale Gas Report; National Development Plan recommendations; Monitoring
Committee tasked with developing the appropriate regulatory framework
Based on data assessment by the USEIA , SA has ~485 trillion cubic feet (tcf)
of technically recoverable shale gas resources in the Karoo Basin. Although
this figure has since been revised down to ~390 tcf, even a proven 10% of this
resource would be a game changer for SA.
4
Gas value chain
Market
Transmission
Power Station/
Bulk User
Large Industrial
Fields
Transmission
Small Industrial
Distribution
Gathering
Domestic
There is a need for an anchor customer - security of demand
Transformation throughout the value chain
Gas Utilisation Strategy under development by DoE
Key South African gas infrastructure
Source: Gas Strategies
6
Policy setting
•
•
Pre-2001 gas industry was not regulated whereas the downstream
petroleum industry was regulated through the Petroleum Products Acts,
1977 (Act No. 120 of 1977)
South Africa’s energy policy in the current democratic dispensation is
founded on the White Paper on Energy Policy of 1998

•
Energy position responds to global, continental, regional, national,
provincial and local position


•
Integrated planning taking due regard of the situation on the ground, including the
country’s international commitments and its national imperatives.
Environmental scanning

•
Geopolitical influence on oil and gas matters (e.g. Sanctions on Iran; Syrian civil war, Westgate
Mall attack in Nairobi, Kenya; Partial US Government shutdown, piracy)
Perceptions / sentiment vs reality / fundamentals (e.g. speculations; different perceptions
regarding a similar event in an African country vs a Western country)
PESTEL environment

•
Ensuring energy security through diversification – An energy mix with natural gas featuring
strongly
Sober judgement of what one can influence
Continuous improvement

Planning-do-review” tempered with regulatory certainty
The White Paper seeks, amongst others, to: ensure security of energy supply through
diversification (broadening the energy mix); Increase access to affordable energy
services; Stimulate / improve economic development; Improve the management of
energy-related environmental, health and safety issues; and Enhance energy
governance.
7
Regulatory Framework
•
Upstream legislative framework on oil and gas is covered by the Minerals
and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002)
[MPRDA].


Administered by the Department of Mineral Resources (DMR)
The promotion aspects are under the Petroleum Agency SA (PASA)
o
o
o
•
promotes exploration for onshore and offshore oil & gas resources and their optimal
development o.b.o Govt.
‘regulates’ exploration and production activities (through the processing and recommendation
of application rights and permits); and
acts as the custodian of the national petroleum exploration and production database.
Downstream regulatory framework on gas is covered by the Gas Act, 2001
(Act No. 48 of 2001):


Administered by the Department of Energy (DoE)
Regulated by National Energy Regulator of SA (NERSA), through licensing.
Established in 2005 by the Energy Regulator Act of 2004, which provides for the:
o
o
o

Regulation of the petroleum pipelines and gas industry through licensing – HDSA
empowerment being a key aspect thereof; and
Approval tariffs and prices.
Decisions based on published Government Policy
The Port Authority also weighs in on port infrastructure
Downstream oil/petroleum regulatory framework is covered by the Petroleum
Products Act, 1977 (Act No 120 of 1977) as amended by Act No. 58 of 2003 & Act No.
2 of 2005 – the latter covering only technical changes
8
Integrated (Energy) Planning
• Convergence of energy carriers demand integrated planning
• Interlinking: energy plans and other national plans - National
Development Plan; New Growth Path; Industrial Policy Action Plan;
Ports, marine and land transport plans; etc.

National Development Plan adopted by Cabinet in August 2012 for
implementation and refinement
• Strategic Infrastructure Projects (SIPs) for Energy - each SIP
comprises a large number of specific infrastructure components and
programmes - undertaken as part of the Presidential Infrastructure
Coordinating Committee (PICC)
• Integrated Energy Plan (IEP)

IRP 2010, GUMP, etc. will be subsets of the IEP
• Environmental / Climate change matters

SA is a coal-based economy – hence the need for Greenhouse Gas (GHG)
emission reduction
SONA 2014 calls for radical changes
9
Integrated Resource Plan (IRP) 2010
•
South Africa requires ~43,000MW of new electricity generation capacity by 2030.
•
The envisaged new electricity generation capacity is shared roughly as follows:
10
IRP 2010 (contd.)
•
Contribution of Gas


•
~9% Open-cycle gas turbines (OCGTs); and
~6% Imported gas (LNG).
LNG for power plants

Gas imported from the high seas and neighbouring countries
o

IPP OCGTs for Durban (near Shakaskraal) ~670 MW & Port Elizabeth (Coega IDZ) ~335
MW
o


Complemented / supported by gas for PetroSA’s GTL facility in Mossel Bay - development of
an LNG offloading facility
Diesel for first ~7 years and conversion to gas thereafter
~2,400 MW CCGT power plant planned
Current Eskom OCGTs (Gourikwa & Ankerlig) are run on diesel in the absence of gas
•
CNG considerations by companies like Novo Energy
•
Sasol’s ~140 MW gas to power plant in Sasolburg operational
•
Shale gas potential
•
Gas Infrastructure Development Framework
Poverty alleviation, job creation - incl. through upstream
project services
11
Work in Progress
• The development of the Gas Utilisation Master Plan (GUMP)
• The Amendment of the MPRDA
• The Amendment of the Gas Act, 2001 to, amongst others:
 incorporate changes in the gas industry landscape in redefining “gas”
to include unconventional gas (like shale gas) & other modes of
transporting gas in the form of liquefied natural gas (LNG) and
compressed natural gas (CNG);
 enhance the regulation and governance of the gas industry through
appropriate empowering provisions for NERSA to effectively and
efficiently execute its mandate; and
 The Draft Gas Amendment Bill has been discussed at the National
Economic Development and Labour Council (NEDLAC) and has been
revised for onward transmission to the Office of the Senior State Law
Advisor for final pre-certification.
12
Work in Progress (contd.)
• The drafting of of Technical Regulations for Petroleum
Resource Development under the MPRDA
 The Report of the Inter-department Task Team Hydraulic Fracturing
for Shale Gas in Karoo recommended, amongst others, the
establishment of a Monitoring Committee to develop an appropriate
regulatory framework for the development of the shale gas
opportunity in SA
 Draft Regulations were published for public comment on 15-Oct-13
 DoE continues has engaged DMR (on the MPRDA and the Draft
Regulations), taking due regard of inputs from SOCs reporting to it.
 Public hearings on the Draft Regulations scheduled to take place in
the Northern Cape (13th), Eastern Cape (20th) and Western Cape
(27th) in September 2014
• Gas Commission Meetings
 Last Mozambique-SA Gas Commission meeting held on 3 to 4-Jul-14
in Tshwane.
• “Plan-Do-Review” cycle as part of continuous improvement
supported by and in response to evidence-based analysis.
13
GUMP
• The Gas Utilisation Master Plan (GUMP): To provide a long
term roadmap to 2050 for strategic, policy and institutional
decisions based upon which investment can be fostered,
designed and implemented in a fully coordinated manner
for development of natural gas for South Africa’s energy
security and economic development.
• Four broad sectors
 feedstock for PatroSA’s gas-to-liquids (GTL) refinery;
 fuel for existing open cycle gas turbine (OCGT) power plants
earmarked for conversion from diesel;
 fuel for new build closed cycle gas turbine (CCGT) power plants;
and
 new industrial/commercial applications and residential use.
• Two phases of development
Estimated maximum total gas demand of 6.6 million tons
per annum (mtpa) equiv to 9.1 billion cubic meters (Bcm) in
the 10 years of supply.
14
GUMP (contd.)
• Phase 1: to develop a preliminary view of the GUMP,
including the opportunities and challenges and a
directional view of how these might be addressed, for
discussion with key stakeholders;
 Phase 1 Report completed and will be published for public
comment pending Ministerial approval
• Phase 2: to analyse the opportunities and options in
greater depth, to evaluate feasible options and to develop
and propose a framework for decision making, plans for
further engagement with stakeholders and actions to
support development gas demand, supply and associated
infrastructure.
 Technical work on Phase 2 started while finalising Phase 1
• Project work streams: Demand; Supply; Infrastructure;
Fiscal and Regulatory; and Environmental and Socioeconomic.
15
Shale gas
Shale gas could be plenty but is expected to be more
expensive than it is in North America (US and Canada):
• High production costs (e.g. costs of supply water and treatment of
waste water);
• Capital and operating expenditure on new infrastructure. NB: Local,
National, Regional and Continental context–
 Local: Local Spatial / Infrastructure / Economic Development
Frameworks;
National: National Development Plan (NDP);
Presidential Infrastructure Coordinating Committee (PICC);
 Regional: SADC Declaration on Infrastructure Development signed
on 18 August 2014, in Victoria Falls, Zimbabwe;
 Continental: The New Partnership for Africa’s Development
(NEPAD); Programme for Infrastructure Development in Africa
(PIDA) and the Presidential Infrastructure Championing Initiative
(PICI) aimed at expediting projects identified under PIDA.
Shale gas and economic development in USA: Overall contribution of ~ $238
billion and 1.7 million jobs in 2012; and Oil prodn. has risen by ~65% in the
past 5 years boosted by horizontal drilling and fracking of shale formations.
16
Shale gas (contd.)
•
Water consumption and possible contamination of fresh water acquifers

Fracturing fluids: > 99% water and sand (propants) handled in self-contained
systems. 5-15 Million litres for drilling and fracturing fluid into typical single
horizontal fracking well (equiv. to about 50-150 domestic swimming pools, Vaal
Dam ~25 Trillion litres)

Although waterless fracking remains a dream, less water and with a high salinity
of 60-80 g/l (NB: seawater salinity ~35g/l) due to technological improvements.

Washington-based World Resources Institute (WRI): A new analysis shows 38%
of the world’s shale resources in places such as China, Mexico and SA face high
to extremely high water stress or arid conditions.

SA ranks as the 30th most arid country;

Freshwater aquifers are protected by multiple layers of protective steel casing
surrounded by cement. Injected into well under high pressure (480-850 bar) to
initiate new fractures or open existing ones.

Out of 6500 wells, the incident rate of casing and well problems in
unconventional gas well in Pennsylvania bet 2008 & 2013 is 1-4%, mostly due to
poor cement.
17
Shale Gas (contd.)
•
•
•
Trucking and its impacts:

1000s of trucks, with dusts, noise, potential of accidents

Social service needs for truckers

Will not be in perpetuity – will only last as long as fracking in that area
continues

Multi-well drilling pad site, with multiple (up to six or more) horizontal laterals,
helps to minimise surface disturbance but concentrates industrial activity
Gas (methane) emissions

More potent than carbon dioxide (CO2) as greenhouse gas (GHG)

Together with backwater treatment, this still remains a manageable challenge.
Concern that micro-seismicity could lead to earthquakes, disturb deep
groundwater reservoirs and flush out rock and fracking chemicals

Sometimes it’s a matter of which report one has read

Disclosure of fracking chemicals is an imperative
18
Some Observed Differences
•
Differences in geology, hydrology, demographics, economics, politics and
history – e.g. dolorite intrusion in SA
•
US, Canada and Australia – countries that are well ahead in the shale gas
game – have a Federal System as opposed to SA and most European
countries’ non-federalism
•

Commonwealth has shared environmental responsibility with states & territories

Individual states & territories responsible for day-to-day regulation of industry

Advantageous for SA from regulatory framework standpoint
USA land and mineral rights ownership by private citizens vs. land
ownership by private citizens with mineral rights ownership by the state on
behalf of its citizens in SA and most of Europe.

•
The SA farmer: “What is in it for me?” as opposed to the one in the US
Low population densities in shale gas development areas in US, Canada and
Australia vs. high population density in EU countries

“Not in my backyard” syndrome.
Frontrunners have well-established upstream exploration and productions
operations and regulatory regimes
SA’s history of exploitation by industry players (ongxiwankulu) and other
socio-economical challenges need a different approach.
19
Key to the realisation of shale gas opportunity
• Appropriate regulatory framework
• Natural Karoo baseline – i.e. establish a pre-fracking reference
through geo-chemical forensics – equipment and capacitated people ,
incl. availability of independent assessors, required
• Monitoring and correcting/enhancing/consolidating – before, during
and after fracking
• Challenge:

Availability of equipment for effective scientific baseline and continuous
monitoring thereafter

Insufficient expertise or skills, including independent assessors

Transformation of the industry – mainly barrier: capital intensive gas industry and
inadequate access to infrastructure (third party access).
20
Some Best Practices and Guidelines
 Participation in forums like the International Energy Agency (IEA)
Unconventional Gas Forum (UGForum) and others would help in
preparing South Africa w.r.t. shale gas development.
 Some of the guidelines for regulation and operational best
practice:
•
The Seven IEA Golden Rules for a Golden Age of Gas
–
•
US Secretary of Energy’s Advisory Board Recommendations
–
•
http//www.worldenergyoutlook.org/goldenrules/
http://www.shalegas.energy.gov
Recommended Practice on Shale Gas Development – developed by Det
Norske Veritas Maritime, Oil and Gas (DNV); an independent Norwegian
foundation
–
http://www.dnv.com/industry/oil_gas/segments/lng_natural_gas/shale_gas/ind
ex.asp
A social licence to frack is vital.
21
Way Forward
•
Conclude the Amendment of the MPRDA, NERA and Gas Act (and
Regulations to be made thereunder)
•
Complete GUMP
•
Revise IRP
•
Align of institutions for synergy
•

Structural issues; and

Concurrent jurisdiction – streamlined framework
Well coordinated function of various regulatory institutions over same / different segments
o
Convergence of energy carriers / resources (e.g. diesel / gas -vehicle propulsion & power gen)
Transformation

•
o
Entry barriers to the capital intensive gas industry
o
Development, upgrade, maintenance and access to infrastructure
o
Risk profile (high risk offshore E&P)
o
Role of the State
Source gas – domestic opportunities & imports (international relations)
Regulatory certainty is key for investments. Agility and adjustment
of policy framework to changing landscape is an imperative.
22
Ngiyabonga kakhulu
Thank you
Ke a leboha
Spasibo
Asante sana
Shukran gazilan
Inkomu
Merci beacoup
Muito obrigado
Ngiyathokoza
Vielen dank!
Ke a leboga
Mucho gracias
Ndiyabulela
Tusen takk
23
ADDITIONAL SLIDES
24
Natural Gas Price Comparison
The shale gas revolution in the US / North America has reduced
in the Northern American gas market (Henry Hub)
25
Oil and Gas Exploration Activities in South Africa
Heightened Oil and Gas activity in the history of SA
26
The Seven IEA Golden Rules for a Golden Age
of Gas
 Measure, disclose and engage – capturing & sharing pertinent data
widely to ensure stakeholder engagement and transparency.
 Watch where you drill – detailed surveys and careful choice of sites
i.t.o. geological formation to minimise risks;
 Isolate well and prevent leaks – proper operations & reservoir
management;
 Treat water responsibly –a major task for operators;
 Eliminate venting, minimise flaring and other emissions –target
should be zero methane venting and minimum flaring of gas and
other emissions.
 Be ready to think big – planning ahead for expansions or further
drilling; Ensure a consistently high level of environmental
performance –good balance bet. prescriptive regulation and
performance i.t.o. compliance and gas production.
 Improve air quality throughout the production process
The Golden Rules are principles that can enable governments, industry
& other stakeholders to address possible negative environmental &
social
impacts
of
unconventional
gas
development
(www.worldenergyoutlook.org/goldenrules)
27
The Seven IEA Golden Rules for a Golden Age
of Gas
 Measure, disclose and engage – capturing & sharing pertinent data
widely to ensure stakeholder engagement and transparency.
 Watch where you drill – detailed surveys and careful choice of sites
i.t.o. geological formation to minimise risks;
 Isolate well and prevent leaks – proper operations & reservoir
management;
 Treat water responsibly –a major task for operators;
 Eliminate venting, minimise flaring and other emissions –target
should be zero methane venting and minimum flaring of gas and
other emissions.
 Be ready to think big – planning ahead for expansions or further
drilling; Ensure a consistently high level of environmental
performance –good balance bet. prescriptive regulation and
performance i.t.o. compliance and gas production.
 Improve air quality throughout the production process
The Golden Rules are principles that can enable governments, industry
& other stakeholders to address possible negative environmental &
social
impacts
of
unconventional
gas
development
(www.worldenergyoutlook.org/goldenrules)
28