Page 2 of 3The potential of gas
Gas is a low-cost, flexible power source. It can provide generation primarily above the base load in peak-demand periods. Replacing expensive diesel generation during these hours reduces the cost of generation for Eskom and mitigates consumer price rises.
Coal is expected to maintain a high position in the southern African energy mix. The South African Department of Energy's Integrated Resource Plan expects a coal share of 46 per cent in 2030, with OCGTs expected to contribute about eight per cent of the mix. If gas were increased to 25 per cent and based on combined cycle turbines, the coal share could be reduced to a third of total generation capacity.
Gas generation also plays a role in enabling the build-up of renewable energy sources. Wind and solar units experience down periods when they cannot generate due to intermittent loss of wind or when clouds block the sun. Since these periods are unpredictable, there is a need for short-term generation sources to cover loss of output; gas turbines with start-up times of between 10 and 30 minutes are ideal to meet this need. The more southern African countries develop renewable energies, the greater will be their need.
Finally, since gas generates only about half the CO₂ emissions of coal and two-thirds those of oil-fired power facilities, increasing the gas share would significantly lower South Africa's overall CO₂ emissions.
Liquid fuels
Namibian oil is the simplest source of newly discovered liquid fuels. When in production it will provide a local, relatively secure additional source of crude oil for the region. Reduced reliance upon the Middle East and Angola would substantially improve the security of crude
oil supply to South African refineries. The proximity will also reduce freight costs and provide more flexibility in scheduling supplies and managing stocks.
Gas is a more complex source, requiring conversion from gas to liquid. With PetroSA's Mossel Bay gas-to-liquids (GTL) plant operating at 60 per cent of capacity, according to the company's annual report, there is immediate potential to increase the utilisation of existing assets. PetroSA's plan to extend its operations to the F-O gas field should bring capacity back up to 100 per cent.
The large gas sources of southern Africa offer the possibility of increasing GTL refining capacities to further address South Africa's short position. An additional GTL plant would enable South Africa to close the shortage of liquid fuels.
PetrochemicalsThe chemicals industry is a critical part of South Africa's economy. The industry's US$23bn in annual revenues contribute more than 5 per cent to the gross domestic product (GDP), accounting for approximately 25 per cent of all manufacturing activity. Despite its local importance, the industry's poor access to local feedstock and remoteness from major developed markets are fundamental weaknesses.
South Africa's current feedstock sources are Sasol's coal-to-liquids Secunda plant and imports from the Middle East and Asia. Chemicals margins are declining and Sasol in particular is suffering as a result of cheaper imports. Its competitive position was weakened further with the removal of import duties on polymers in January 2012. This has deepened a strategic shift in the South African chemicals industry to one that focuses more on higher-value chemicals products, greater customer service, and innovation.
The new hydrocarbon sources have the potential to transform this landscape. Local sources would secure low-cost supplies of feedstock for southern African chemicals companies, reducing their reliance on imports and improving profitability. This would open up new possibilities for manufacturing further down the value chain.
This leads to a fundamental question: where should the chemicals feedstock come from? Today the major production operations are around the Secunda plant in Sasolburg
and the six other refineries.
The new feedstock sources are off the western and eastern coasts and in the Karoo.
There are a number of possible answers. While using Namibian oil could allow expansion of the existing refineries, potentially building new capacity, Namibian oil is a relatively small source and offers few cost advantages over existing crude oil sources. Further, due to overcapacity in Europe and the United States, refining margins are falling worldwide. Adding southern African conventional refining capacity would expose the market even more to the dynamics that are making refining unattractive in most regions.
The opportunity, then, is first to take advantage of offshore gas and, ultimately, shale gas. With gas trading at about half the price of oil on a recoverable-energy basis, achievable margins are significantly greater.
This means that southern Africa's energy infrastructure would have to be developed to use gas rather than oil. The way to do this is to add GTL refining capacity in South Africa. One option would be for PetroSA, the country's national oil company, to convert its planned Mthombo refinery project from a conventional refinery to a GTL plant. Rather than adding more conventional capacity in an unattractive refining market, this would give PetroSA a leading position in a market where margins are potentially more attractive.
However, this would leave PetroSA exposed to changes in the energy landscape and "unhedged" should the oil-gas gap narrow. It would also constrain competition.
Another option could be for a local player or group of players already active in southern Africa to construct a plant. This would result in downstream integration, foster competition, and provide balance across a number of suppliers and sources.
Southern Africa's great oil and gas opportunities
