How do we exploit oil and gas industry?

Oil and gas exploration in South Africa dates back more than a century.

Despite this, the country’s oil and gas sector is yet to realise its potential, with disappointing levels of oil discoveries and vast quantities of gas reserves remaining untapped.

According to the Council for Geoscience, modern technology has led to offshore discoveries of up to 15 million barrels of crude oil.

As welcome a development as this may be, it is nonetheless globally insignificant.

Large-scale potential undoubtedly remains, and a land grab of offshore licences in the last decade by international majors such as ExxonMobil and Total suggests South Africa might be the next hotspot for offshore exploration, especially given the renewed industry appetite for exploration, with oil prices recovering to $70 (R868) per barrel from a 14-year low of $27 in early 2016.

One area of huge potential is natural gas, as the country has conventional, shale or coal bed methane (CBM) gas in abundance.

The US Energy Information Administration puts South Africa’s recoverable offshore gas at 9 trillion cubic feet (Tcf), while another 9 Tcf of unconventional gas and 1.5 Tcf of CBM gas is located in the Karoo desert.

This makes South Africa home to the world’s eight-largest shale gas resources, with the potential to completely transform the domestic energy sector and indeed the economy.

Exploitation of this vast potential could help South Africa become energy self-sufficient and remove its reliance on imports, which currently make up approximately 60% of domestic fuel requirements. The remaining 40% of demand is met by coal-to-liquids synthetic fuel produced at Sasol’s plant in Secunda (35%) and from gas-to-liquid synthetic fuel (5%) produced by PetroSA from gas extracted from the Bredasdorp Basin.

South Africa demonstrably has a rising demand for gas. Currently, the country consumes some 180 billion cubic feet of gas per year, of which 120 billion cubic feet arrive by pipeline from Mozambique.

With the prospect of rising demand for gas in South Africa, the Republic of Mozambique Pipeline Company, that country’s pipeline operator, plans to increase capacity from 88 million gigajoules per year to 212 million gigajoules.

A growing demand for gas in South Africa will come from power generation, as old coal plants are decommissioned in favour of gas-powered plants, delivering cleaner energy and helping to feed the government’s appetite to reduce the nation’s harmful emissions.

A common misconception is that renewable energies will replace hydrocarbons. However, the reality is that natural gas complements renewable energy, such as hybrid concentrating solar power, which is already being used successfully to reduce South Africa’s carbon footprint.

Whichever way you look at it, gas will play a significant role in the future energy mix of the country, as reflected in the government’s current draft of the integrated energy plan.

With the amount of gas used for power generation and heating, and manufacturing activities set to rise in the coming years, near-term solutions must be found as the development of prospective gas fields is at least a decade away.

Current solutions being investigated include construction of a $6 billion pipeline to increase imports from Mozambique and increased usage of liquified natural gas, which would require construction or modernisation of import terminals.

Whichever route is taken, key to achieving progress in the sector, both in the interim and in the long term, is developing the skills of local content.

As this issue continues to dominate political agendas across Africa, from South Africa’s black economic empowerment programmes, to Tanzania’s mandatory listing requirements, the time for this to be addressed has come.

Companies in the oil and gas sector understand this better than most.

According to PwC’s Africa Oil and Gas Review 2017, skills development of people in the geographies where companies operate was cited as their number one spending priority for the next three years.

This investment in developing local content is long overdue.

The PwC survey found 25% of respondents said local content regulations had delayed or postponed projects, suggesting a shortage of skills locally, and therefore a need for investment.

While there is no silver bullet solution, there are several areas governments must address in order to overcome the skills shortage in a manner that meets political expectation and boosts business, including the implementation of realistic and effective regulatory frameworks and application of regulations to reduce “fronting” – the deliberate circumvention of the broad-based BEE Act.

Our company, Efora Energy, is a JSE-listed full-cycle oil and gas firm playing a central role in helping transform and develop the sector in South Africa and the whole continent.

Efora, which stands for Energy for Africa, has a pan-African footprint, from production in Egypt, trading activities in Nigeria, to exploration in the Democratic Republic of Congo. It recently established its first operational presence in South Africa by entering the wholesale fuel distribution market, distributing the essential products that fuel the key industries in our economy.

South Africa, and the wider continent, have an abundance of undiscovered and undeveloped resources. Our company wants to leverage the enormous potential of the continent’s resources to provide the energy required to help Africa’s communities and economies prosper. We want to provide jobs and prosperity, while helping governments achieve their energy policy objectives. As a proudly South African company we are keen to set an example and demonstrate the untapped potential that remains within the country’s energy industry.

*Kgogo is the CEO of Efora Energy

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