South African Business 2016 edition

OVERVIEW Oil and gas

OVERVIEW Oil and gas Most of the oil that feeds the country’s four crude-oil refineries is imported, but a good deal of South Africa’s fuel is generated by a natural-gas conversion plant on the coast and a coal-to-fuel facility near the country’s industrial heartland. In addition to South Africa’s crude-oil refineries, natural-gas conversion plant, coal-to-fuel and gas-to-liquid crude-oil refineries, Sasol produces fuel from coal at its Secunda facility and PetroSA has the country’s only gas-to-liquid (GTL) facility at Mossel Bay. The South African government’s decision to allow fracturing (‘fracking’) to go ahead in the country’s interior has caused a great deal of controversy. Environmentalists want the process stopped. Full-scale studies of the extent of the resource have not yet been done, but a US Energy Information Administration document sets it at 485-trillion cubic feet of gas. South Africa’s national oil company is the Petroleum Oil and Gas Corporation of South Africa, PetroSA. The company sells petrochemical products and runs the gas-to-liquid refinery at Mossel Bay, the third-largest in the world. The Petroleum Agency South Africa (PASA) supports exploration for onshore and offshore oil and gas resources and regulates exploration and production activities. Companies wanting to exploit resources have to get permits from PASA. The Sasol Group is a diversified resources and energy company. Sasol Oil, Sasol Gas and Sasol Synfuels provide a good proportion of South Africa’s fuel. The Fischer-Tropsch process of converting coal to usable fuel (coal to liquids) has been refined and perfected by Sasol over several decades. Sasol also converts gas to liquids. The group has two major complexes in South Africa: at Secunda in Mpumalanga, nine reactors create solvents, ethylene, propylene and olefins; at Sasolburg in the Free State, natural gas is converted to syngas which is then made into hydrocarbons and paraffins. Sasol is listed on the JSE in South Africa and on the New York Stock Exchange. The group has operations in 30 countries, employing about 34 000 people. Sasol New Energy is building a new power plant to increase the amount of electricity available to the integrated energy and chemical group. Natural gas will be the feedstock for the 140-megawatt facility and it will allow Sasol to reduce its carbon emissions by about a million tons per year. In addition to decreasing the amount of carbon emmisions, There are a number of advantages to gas that make it an attractive option to close SOUTH AFRICAN BUSINESS 2016 72

South Africa’s looming energy gap, highlights Christine Wu and Fransje van der Marel in a recent press release, Natural Gas: Powering South Africa’s Future. Natural gas plants need just two to four years from conception to construction due to their modular nature. This is much shorter than either coal or nuclear power. It will be an unusual feat to deliver new, fully operational coal and nuclear plants by the mid-2020s. These technologies remain options for longer time frames (nearer 2030). The initial capital expense of building a gas power plant is significantly lower than coal and nuclear plants. New combined-cycle gas turbine plants produce less than half the carbon emissions of new coal plants. And while nuclear energy technically has the lowest carbon emissions of all, it is also associated with radioactive waste and high disposal costs. Gas is better positioned to support an ambitious renewables development programme; because gas can be switched on within an hour, it is the perfect complementary power source. Coal and nuclear power plants cannot ramp generation up and down in the same way. Utilising gas for power could allow South Africa to achieve the scale that would enable gas-based industries to emerge. For this to happen, significant domestic and regional production will have to be unlocked to allow prices to drop within the range where this becomes economical, at under per MMBtu, says the release. Sapref has started a ‘clean-fuels’ project, aiming to reduce sulphur and benzene levels, among other things, in fuel products. The modifications to the refinery will bring it into line with the tougher legislation about fuel production in the pipeline. The Western Cape region is marketing itself as a support and services hub to Nigeria and the newer oilfields of Angola. Significant amounts of oil are transported around the Cape of Good Hope every year: 32.2% of West Africa’s and 23.7% of oil emanating from the Middle East. Saldanha on the West Coast is the site of the country’s largest oil-storage facility. PetroSA maintains six tanks, each of which has a capacity of 1.19-million cubic metres. PetroSA has indicated an intention to build a crude oil refinery in the Coega Industrial Development Zone just outside Port Elizabeth, but this mega-project will probably have to wait for the economic climate to improve. BP has announced it will spend R4.7-billion in the short-term, with about half of that going into refinery upgrades. Gas OVERVIEW Today, both coal and nuclear power are cheaper than gas, but this is changing. Estimates indicate new gas plants would cost R1.10 per kilowatt hour compared to coal at 73 cents and nuclear power at 86 cents, says Wu and Marel. But by 2030, South African domestic coal prices are expected to rise by 87%. The government is also imposing carbon taxes from 2016 that will affect coal prices more than gas. On the other hand, if regional gas options do prove feasible and are developed, the price of gas could drop, making it more competitive.” Sasol is the country’s major supplier of gas. The company’s two major synthetic-fuel plants in Mpumalanga have been modified so that they are no longer entirely dependent on coal. Companies to have shown an interest in looking for shale gas in the Karoo using hydraulic fracturing or ‘fracking’ include Falcon Oil & Gas, Shell and a consortium comprising Sasol, Statoil ASA (Norway) and Chesapeake (the US). The biggest question facing gas power is where to source gas from. The Southern African region has many alternatives, but most of these have not yet been proven to be economically viable. A carefully thought out programme is needed to unlock this potential. Most likely, importing LNG to meet the immediate demand, while simultaneously completing an appraisal programme to prove the viability of the regional alternatives, would source gas, says the press release. “Cooperation with new partners in regional governments and private sector players will be important in unlocking regional gas, as both government and business have a role to play. 73 SOUTH AFRICAN BUSINESS 2016