Shale gas to be included in amended gas bill

The proposed amendments to the Gas Bill would open the gas industry and include a platform for the potential development of South Africa’s much-contested shale gas resource.

Department of Energy (DoE) chief director of hydrocarbons policy Muzi Mkhize said on Thursday that the draft Gas Amendment Bill aimed to include regulations governing unconventional gas.

Unconventional gas in South Africa was experiencing rapid development, and with the country’s diminishing conventional gas resources, shale gas could play a valuable role if it could be extracted without harming the environment.

South Africa was said to have the fifth-largest shale gas resource globally with 485-trillion cubic feet (tcf), behind only China, which had 1 275 tcf, the US with 862 tcf, Argentina holding 774 tcf and Mexico with 681 tcf.

Analysts had previously disputed this, with Frost & Sullivan energy and power systems industry analyst Dominic Goncalves telling Engineering News Online in January that, if the resources were broken down and extensive exploration undertaken, it was likely that South Africa would only produce a supply of about 10 tcf to 50 tcf of commercially viable shale gas.

However, Mkhize said that, even if only 10% of the estimated and widely-quoted, technically recoverable reserves of the Karoo basin, in the Northern Cape, were available, it would be a “game changer” for the gas industry.

He pointed out that one-trillion cubic feet of visible shale gas was sufficient to launch Petroleum Agency South Africa’s (Petro SA’s) gas-to-liquids project, in Mossel Bay, which provided 5% of the national demand for liquid fuels and created in excess of 1 500 jobs.

As a feedstock for electricity generation, shale gas could also fill a gap in terms of the Integrated Resource Plan 2010’s aim of having an electricity mix that included 14% gas.

Shale gas could also boost South Africa’s economy, while reducing the nation’s dependence on fossil fuels.

He pointed to a interdepartmental investigation last year into the hotly contested matter, which showed that if a moderately optimistic 30 tcf were produced at $4 per thousand cubic feet of gas and an exchange rate of R8 per US dollar, the gross sales value would be almost R1-trillion.

Current industry estimates of the cost of extracting shale gas in South Africa – a stage of development that would take about seven to ten years to reach – were between $9 and $16 per million British thermal units.

An earlier Econometrix report indicated a potential R80-billion contribution to gross domestic product and the creation of about 293 000 direct, indirect and induced jobs, based on a 20 tcf recoverable resource.

But the correct supporting legislation and policies were required to sustainably develop the industry, while mitigating any negative impacts, including environmental damage.

Mkhize noted that the formation of a monitoring committee was required to create the regulatory environment to explore and exploit shale gas in an environment-friendly manner.

It would also be required to review the existing regulatory framework to identify any shortfalls or omissions and to ensure that it was sufficiently detailed and specific.

The investigative working group, led by Petro SA CEO Nosizwe Nokwe-Macamo, comprised representatives from the departments of Water and Environmental Affairs, Science and Technology, Energy and Mineral Resources, as well as the Petroleum Agency of South Africa, the Council for Geoscience, SKA South Africa, the Water Research Commission and Eskom.

The study evaluated the potential environmental risks posed by the process of hydraulic fracturing, as well as the negative and positive social and economic impacts of shale gas exploitation.

The DoE had reviewed the Gas Act in an attempt to close “gaps” in the framework and deal with compliance issues. It also aimed to widen the role the National Energy Regulator of South Africa would play in monitoring and enforcing compliance.

The DoE planned to submit the Act to Cabinet for approval before the financial year-end.

The window period for the submission of comments remained open until July 1


SABC, PetroSA may find new home under public enterprises

THE GOVERNMENT has big plans to massively expand the scope of the Department of Public Enterprises, enabling it to take charge of more commercially driven state-owned enterprises (SOEs).Sources familiar with the process say the intention to draw state oil company PetroSA and national broadcaster SABC into the public enterprises fold has been agreed to in principle.

While public enterprises ministry spokesman Mayihlome Tshwete would not be drawn on the reports, it is reliably understood that the Presidency will announce the initiative soon. Harold Maloka, the spokesman for Performance Monitoring and Evaluation Minister Collins Chabane, would also not comment on the authenticity of the reports, save to say that the SOE review committee had finished its work and handed its findings and resolutions to the cabinet. Business Report understands that an announcement is imminent.

In 2010 President Jacob Zuma announced the appointment of the committee to review the role of SOEs within the country “Yes, we are planning to have the outcome of the review commission announced in due course and the minister will make the announcements at the appropriate time,” Maloka said, declining to confirm if the SABC and PetroSA would indeed be added to the public enterprises portfolio.

Yesterday PetroSA referred Business Report to the Energy Department, which said it was not at the moment aware of such a decision. Communications Minister Dina Pule was attending the World Economic Forum on Africa and could not be reached immediately for comment, her spokesman, Siya Qoza, said. SABC spokesman Kaizer Kganyago did not respond by the time of going to press.

The inclusion of these entities under one umbrella would mean that the political responsibility for the operations of all commercial SOEs would belong to Public Enterprises Minister Malusi Gigaba. That means that the communications minister would retain only regulatory control over the SABC while Energy Minister Dipuo Peters would keep similar power over PetroSA, whose chairman Benny Mokaba departed last week.

Both the SABC and PetroSA have had corporate governance problems of late. Investigations have been launched into PetroSAs recent deals, including Project Irene, which is meant to roll out a retail chain for the national oil company. The other troubled deal is its R5 billion purchase late last year of Sabre Oil’s interests off the Ghana coast for oil exploration. More heads are expected to roll at the oil company shortly – after Mokaba’s sudden resignation last week.

The SABC has been beset with management difficulties including trouble over the appointment of its chief financial officer. The board also resigned bit by bit earlier this year and a five-person interim board is now in place. While Gigaba, who addressed the Cape Town Press Club yesterday, would not comment on plans for PetroSA and the SABC, he acknowledged that the government intended to move towards taking charge of the nuclear build programme.

The minister confirmed that the state was forging ahead with providing a nuclear power platform. Alongside the Koeberg nuclear power station in Cape Town, any nuclear build programme would fall under the charge of the state-owned power company, Eskom, he emphasised. Regarding the government’s nuclear option, he said the cabinet was “dealing with that decision” and that Deputy President Kgalema Motlanthe had made it clear that “we remain resolute in pursuing the nuclear option”.

“We have to satisfy ourselves when we take the decision that all the safety and technology issues have been taken into consideration but we remain resolute in pursuing the nuclear option at the right time.” The national nuclear energy executive co-ordinating committee would put the nuclear power options to the cabinet. “We hope that will be soon,” said Gigaba, who secured the second most votes for the ANC’s powerful national executive committee at its conference in Mangaung.

“Eskom will be operator of the government’s nuclear programme.” Gigaba said his department had established a capital projects unit to oversee the implementation of the government’s R800 billion infrastructure build programme, which is being carried out principally by Eskom and Transnet. He wanted Eskom chief financial officer Paul O’Flaherty to remain in charge of the build programme, particularly to monitor progress and cost overruns at Eskom’s coal-fired Medupi plant. He believed O’Flaherty, who announced he would resign last year, was “a patriot” and would accept the offer.

“The long and short of it is I want him to stay” he said. Gigaba was absolutely determined that Medupi would be delivering power by December. He added that his department was in discussions with the Department of Energy and Eskom on whether to bring forward the third coal-fired power station project, initially planned for after 2025. “I think we should bring it forward, but we are discussing that with the minister of energy” he said.


No more dealings with lawyer and fund manager: PetroSA

STATE-OWNED oil company PetroSA has terminated the services of Tshepo Mahloele’s Harith Fund Managers and lawyer George Sabelo, as it struggles to contain the fallout from a new scandal over missing taxpayer cash.

Last week, the Mail & Guardian reported that the Hawks crime-fighting unit was probing large-scale corruption, involving more than R1-billion, relating to the PetroSA’s purchase of an asset in Ghana’s Jubilee oil fields, as well as an attempt to buy Engen petrol stations for R14-billion.

PetroSA’s former acting CEO Yekani Tenza is implicated in both matters. He supposedly arranged the acquisition of the oil fields in Ghana and also hired his friend, Mahloele, as the transaction advisor in the Engen deal. There is a nexus between Tenza, Mahloele and Sabelo. While Tenza and Mahloele were both directors at Telkom back in 2004, Sabelo also did work for the PIC, where Mahloele used to be a director.

Tenza was supposedly instrumental in firing the transaction advisors, banking group HSBC, who stood to earn R35-million, and hiring Mahloele in HSBC’s place. Instead, Mahloele’s Harith stood to earn R371-million — renegotiated down to R187-million after Tenza left PetroSA. Sabelo is seen as equally pivotal to both the Ghana and Engen deals, according to sources.

The lawyer was apparently paid an unusual “success fee” of R11.4million — authorised by Tenza — for “advising” on the Ghana deal. But Sabelo was also paid by both PetroSA and its advisor on the Engen deal, Harith, for what appeared to be similar work. “Certain factors suggest a sham arrangement to channel funds to, or through Sabelo,” the Mail & Guardian claimed this week.

This week, PetroSA executive Kaizer Nyatsumba confirmed to Business Times that the parastatal had terminated contracts with both Harith and Sabelo. He said the board of PetroSA had also taken firm decisions around other executives fingered in an internal investigation. The board was awaiting more outcomes from the investigation that was ordered by Energy Minister Dipuo Peters.

“We are deeply worried about these matters and it is very negative for morale. We also have concerns over associations and question marks around PetroSA’s integrity and how this could influence the current deals on the table,” said Nyatsumba.

PetroSA chairman Benny Mokaba has already been asked to leave and it is expected that Everton September, head of oil and gas ventures, might soon follow. Though it was reported that the Hawks was investigating the case, Nyatsumba said to date no PetroSA executives had been contacted on the matter.

Former PetroSA director Rain Zihlangu said in an affidavit to the police: “Having been a board member of PetroSA since 2006, I had never encountered such blatant abuse of public funds and the flagrant flouting of all procurement policies as was done by Mr Tenza while he was the acting chief executive of PetroSA.”

Nyatsumba said he hoped that the investigations would be concluded shortly. “There is no place for corruption in the company or the country,” he said.

Business Times

National Coat of Arms-small

SA and Germany agree to improve energy sector

energy-logoTHE South African and German governments signed a memorandum of understanding (MoU) in February 2013, to enhance bilateral dialogue and practical cooperation in the energy sector through the establishment of an energy partnership.

The main objective of the energy partnership is to improve and develop sustainable energy infrastructure, in particular through the increased use of renewable energy technologies and energy efficiency.

The energy partnership will complement the existing Declarations of Intent for the South African – German Cooperation in the Area of Energy and Climate, as well as the South African Renewables Initiative. The two countries agreed to continue with their existing cooperation programmes and projects on energy.

They aim to focus on renewable energies and their use in the generation of electricity and heat; the promotion of energy efficiency; the promotion of new and up-scaled carbon market instruments for financing investments in the field of renewable energies and energy efficiency; opportunities for cooperation in the field of nuclear safety and security; and criteria for sustainability and environmental integrity of project activities.

The partnership will further see the countries focus on technological cooperation in the field of carbon capture and storage (CCS); capacity building and skills development in the green technology sector; and research and development cooperation.

The countries also plan to strengthen cooperation on capacity building, institutional arrangements, including public awareness-raising, personnel exchange and training. They also aim to encourage private sector companies to cooperate closely and to explore further business opportunities


PetroSA Project Mthombo

The Mthombo refinery will need a system to transport fuel to Gauteng, SA’s largest market, to prevent it from becoming a white elephant.
When construction gets under way for PetroSA’s Mthombo refinery project, possibly by 2014, it will be SA’s third-largest investment, conservatively estimated at R81bn. As single capital expenditure projects go, it will only be smaller than Eskom’s new power stations, which are under construction.

To make the project practical and efficient, the cost may rise by another R40bn, at the minimum, if a pipeline is to be added.
Mthombo will be built at the Coega industrial development zone in Port Elizabeth, at least 1100km from the major market of Gauteng, where more than 40% of SA’s fuel is consumed. That distance is more than twice the length of Transnet’s multiproduct pipeline between Durban and Heidelberg, southeast of Johannesburg.

In the Eastern Cape there is neither sufficient demand nor infrastructure, and if PetroSA is to make a success of the Mthombo investment, it will have to build other infrastructure for easy reach to the market. PetroSA’s competitors have already said the refinery will be a white elephant that SA cannot afford and doesn’t need.

Its options would be to build a new pipeline all the way to Gauteng, or to build a 900km connection to the existing multiproduct pipeline in Durban. Either of those would cost more than Transnet’s existing pipeline, the price of which ballooned from the original R9,5bn to about R24bn after several delays.

To ensure Mthombo’s success, PetroSA has little choice but to invest in costly additional infrastructure if it is to get its products to the inland market.
The Eastern Cape, where the refinery will be based, is one of SA’s poorest regions, which lacks infrastructure and any economic activity of significance.

An official who has worked for the Coega Development Corp says part of the motivation behind the industrial zone is to help the province overcome its infrastructure backlog and to encourage economic development. The province had the highest unemployment rate, at 37,4%, against SA’s 25,5%, in the third quarter of 2012. It also has the country’s highest illiteracy rate with 26,5% of its residents having less than a grade 7 education, said Statistics SA in the 2011 census report.

That means if the Mthombo refinery is to stand a chance of avoiding the “white elephant” tag, it must access the market in Gauteng. But without existing plans for a pipeline, questions remain about how the fuel will be transported.
“That’s a tricky question,” says Marc Seris, a senior director at consultancy PFC Energy.

That’s because the next busiest economic centre, the Western Cape, is well supplied by Chevron’s refinery in Cape Town, while KwaZulu Natal has more than one refinery and infrastructure for imports. PetroSA must, therefore, build a pipeline to Gauteng, as trucking the fuel in would be more expensive, and would put pressure on the road system and be unsustainable in the long term.

Another option would be to ship the fuel up the coast to be injected into the Durban pipeline. That would create SA’s own domestic-focused shipping industry and, during a global slowdown in the industry, may prove a lot cheaper than road haulage. But shipping is cyclical and rates naturally respond to the level of global economic activity, whose costs may rise significantly as the global economy picks up.

PetroSA has itself highlighted limited port infrastructure as another reason to build a refinery at Coega.

The question then is what is the cheapest and most feasible option for Mthombo’s fuel? The Transnet pipeline was commissioned in January 2012 and had delivered 2,2bn litres of fuel to Gauteng by the end of October, replacing 200 trucks a day on SA’s busiest highway, said Transnet CEO Brian Molefe in November. The pipeline’s R24bn price tag promises 70 years of reliable service.

Seris says it would be better to build a Port Elizabeth-Johannesburg pipeline as having two separate sources of supply lowers the risk of fuel contamination.
“From a security of supply point of view, it would be desirable to have the two pipelines,” he says .

In November the inland market ran short of fuel after contamination at Sasol’s Natref refinery affected 7Ml of jet fuel supplied to OR Tambo International Airport. At some point stocks ran at just 1,4 days’ supply, threatening to ground airlines before supplies were sourced at the last minute from Durban. The airport normally retains a seven-day supply of fuel in storage tanks. Some service stations in Gauteng had to do without certain types of fuel until after the first two weeks of December.

The National Energy Regulator of SA (Nersa), which regulates the transportation of liquid fuels and pipelines, says it has not received an application for the construction of a new pipeline. Transnet has not been approached by the energy department or PetroSA to consider investing in a new pipeline. “Normally the application goes to Nersa, which will then launch a competitive process to get bidders for the project,” says Transnet spokesman Mboniso Sigonyela.

The Coega Development Corp, the state-owned company tasked with developing and operating the industrial development zone, referred questions on a pipeline to PetroSA.

Though PetroSA did not answer specific questions as to whether it would build a pipeline, it says Project Mthombo cannot be the only solution to the country’s liquid fuels supply challenges.

“Upgrading of existing refineries and logistics are complementary projects to enhance security of supply,” says Jörn Falbe, a PetroSA vice-president.

Victor Sibiya, deputy director-general at the energy department says a pipeline would be the “best option” as it is a long-term investment and pipelines are best for bulk transportation of fuel.

PetroSA could also ship fuel to Durban or Cape Town, which would also be economical, he says. Financial Mail


Call for clarity on setup of State mining company as conflict of interest concerns persist

Despite assurances from the Department of Mineral Resources (DMR) and State-owned mining company African Exploration, Mining and Finance Corporation (AEMFC) that AEMFC is operating without exemption or preference and under fair market rules, concerns by industry stakeholders surrounding the permanence of that separation of interests continue.

AEMFC is currently housed within State-owned entity the Central Energy Fund (CEF), from which it secures primary loan and equity financing; however, the recent approval by government of the removal of AEMFC from the CEF structure would see it falling under the direct authority of the DMR the very body responsible for the granting and monitoring of prospecting and mining rights.

Leading South African mining lawyer Peter Leon tells Mining Weekly that this would force the DMR into a position where it would have to occupy two distinct roles – that of mining regulator as well as indirect market participant.
“This will inevitably lead to future difficulties, particularly in relation to the perceived impartiality of the DMR,” Leon asserts.

While AEMFC CEO Sizwe Madondo would not be drawn on the nature of this future restructuring, he is emphatic that the company operates on a level playing field with other private mining companies, and explains that the corporation is operating as any other commercial enterprise, with the exception that it has a strong national objective. This objective, he explains, is to ensure security of coal supply to parastatal energy company Eskom in the face of increasing local coal exports to foreign markets, particularly in the East.

“One must remember that while we have a strategic nationalistic imperative, this has to be underscored by healthy economics and, as such, we behave as any other commercial company. We do everything by the book,” he maintains.
DMR director of communications Zingaphi Jajuka corroborates this position, maintaining that the exemptions initially afforded to AEMFC have since been withdrawn, and that it is required to comply with all laws governing the South African mining industry.

She adds that in government‟s establishment of a State-owned mining company independent of the CEF, its final position would be informed by concerns regarding the need to separate industry regulation from market participation, but she does not agree with those who propose the formation of a fully independent mining regulatory body.

“In my view, this will create unnecessary costs for the country, with insignificant or no benefits at all,” she says.
Leon disagrees, stressing the importance of a regulator in ensuring that the DMR does not give the AEMFC certain advantages that are not enjoyed by its private sector counterparts.

“The introduction of an independent minerals regulator would go some way towards addressing investor concerns over the DMR‟s soon-to-be bifurcated role as regulator and indirect market participant, while also following international best practice,” he argues.

The formation of such a body could be seen to have a positive effect on the level of attractiveness as well as the retention of investment in the local mining sector.

Moreover, Leon refers to proposals contained in ruling party the African National Congress‟s report, „Maximising the developmental impact of the people‟s mineral assets: State intervention in the minerals sector‟, which he says raises additional concerns over the State‟s dual role as miner and regulator.

The report recommends that the State mining company become a freestanding body under the DMR, and be afforded exclusive rights to develop „strategic minerals‟ on behalf of the Republic. It further proposes that all geological areas classified as „partly known‟ be reserved for development by the State mining company and government research body the Council of Geosciences for, among other things, public tender or mining by government.

“This proposal, in particular, causes some anxiety as, from a regulatory perspective, it would effectively afford the State, through the State mining company, a right of first refusal to develop potentially vast areas of mineral-rich land,” Leon advances.
He adds that the proposal that the company‟s board comprise Cabinet nominees is also of concern as it could create future conflicts of interest and potentially facilitate the exertion of political influence.

Game Plan
Meanwhile, AEMFC is in the process of acquiring various coal prospecting rights in Limpopo, Mpumalanga and KwaZulu-Natal, with particular emphasis on acquisitions that would manoeuvre it towards an increased market share position.
It is also looking to grow its portfolio of assets by investigating economy-of-scale projects on the continent with the potential for intergovernmental partnerships.

“We realise that we have entered the market late in the game and, hence, significant assets are sitting with big companies. For us to operate at that level, we have to be on the lookout for acquisitions,” Madondo asserts.
One such venture is the T-Project, near Kinross, in Mpumalanga, from which AEMFC is looking to extract coal as well as the phosphate mineral torbenite, which, once heated to 600˚ or above, releases crude oil. AEMFC is hoping that the project, which is currently subject to the finalisation of both funding and the granting of the mining right, will see production in 2014 or 2015.

Meanwhile, AEMFC‟s flagship operation, the Vlakfontein coal mine, near Ogies, in Mpumalanga, is currently servicing the company‟s offtake agreement with Eskom to supply the nearby Kendall power station in Mpumalanga, and is the company‟s first and only producing operation to date. An on-site crushing and screening plant was commissioned in January this year, and the operation is set to supply coal to the Kusile power station once it comes on line in 2018.

Vlakfontein produced around 840 000 t of Eskom-grade coal after commissioning in March last year, and is expected to ramp up to 1.6-million tons of coal a year by the end of 2012. Currently, in Phase 1 of development, expansion activities on site are expected to increase the life-of-mine to over 20 years, driving the company‟s goals of long-term security of coal supply, as well as positioning it as a top-five coal-mining company by 2020.

Such objectives by a State mining company should be welcomed, says Brian Menell Kemet Group head Brian Menell, who believes that security of supply is an important consideration from a national point of view. He adds, however, that the danger is that the potential lack of transparency on its part may create negative investor sentiment, and prompt the perception that it is as „another mysterious and unscrupulous consortium of vested interests‟.

“It is vital that the company is seen as adding value to the nation and contributing positively to national interest objectives in its capacity as a legitimate commercial enterprise to prevent the development of negative opinions of South Africa,” he says.
Addressing delegates at the Mines and Money conference in London, in December last year, Menell emphasised the importance of private-sector companies accepting the inevitable increase in the level of State intervention, particularly in developing economies, and added that the national mining company model, if correctly conceived, represented the best way forward in the creation of value for developing States.

The engagement of the private sector with these State organs would, he believed, be the only way in which historically successful mining majors would remain relevant.
Critical to the efficacy of Menell‟s model is for the State mining company to demonstrate transparency to allow the electorate, the media and the international community to observe the value created.

Domestically, AEMFC has shouldered criticism for its apparent lack of trans-parency, with the company releasing limited information concerning its activities or intent since establishment. AEMFC funding and portfolio executive manager Sicelo Sikakane is adamant the company has no intention of presenting itself as secretive, but says that, as a commercial enterprise, it must also protect its pecuniary interests.

“We have competitors, and we operate in a competitive environment. We‟re more than willing to give out as much information as we think is required, but we‟re not going to spill our guts in the market for every kilogram of coal produced and every contract signed,” he stresses.
Sikakane says that, as a State-owned mining company, AEMFC aims for all practical purposes to set an example of effective transparency.

“But, remember, our purpose is to remain in business, which we may not be able to do if we divulge trade secrets,” he notes.

Madondo adds that, as a new company, it is primarily focused on prospecting and mining rights applications at various stages, and that once the outcomes of these applications have been finalised, and viable projects have been identified, the company will inform the market.
“Once we have something to talk about, we will tell the public,” he says.

University of the Witwatersrand School of Mining Engineering head Professor Frederick Cawood proposes that the company‟s perceived lack of open communication is a result of its position within governmental structures, in which dialogue with the media and the populace is approached with caution.

“It is ultimately a company within a company within a State, which means that it will retain a State mindset of adherence to governmental reporting policies,” he says.

AEMFC has also received criticism from organised labour for what it argues is a lack of engagement between the company and its potential workforce. Mineworker organisation the National Union of Mineworkers (NUM) was conspicuously absent from the official launch of the company in March last year.

NUM spokesperson Lesiba Seshoka told Mining Weekly early last month that there has since been no dialogue between AEMFC and the NUM, with “poor or no briefings on their plans with labour”.

Interestingly, AEMFC‟s Sikakane says that discussion with unions up to now have centred on potential investments into projects, and not labour, but is open to furthering dialogue.

“We come from that background ourselves; we can talk,” he remarks.

Financial Mail


Study reveals gas; liquid fuels offer South Africa great opportunities

A study, comprising industry interviews and data-based research by global strategy consultancy AT Kearney, has revealed that gas has the potential to transform the South African energy and manufacturing landscapes, as it offers significant growth opportunities, says AT Kearney principal Martin Sprott.

He notes that the aim of the study, which was completed in December last year, is to assess specific areas of hydrocarbon economics, particularly in energy generation, liquid fuels and chemical products, and to identify the opportunities that arise out of significant new discoveries.
The study entailed several months of research and interviews and AT Kearney says it has identified three significant opportunities for South Africa. The first opportunity centres on power generation and Sprott says, as energy from State-owned power utility Eskom becomes more expensive, gas will become relatively more attractive particularly compared with Eskom’s most expensive diesel generation sources. Gas is also a readily available energy source for electricity generation and can counter the intermittency that is often found when renewable-energy sources, such as wind and solar energy, are used.

Sprott states that fuels from liquid-togas conversion present another opportunity for South Africa, as the country is short of liquid fuels. The country has a liquid fuels refining capacity of 700 000 bbl/d, of which 200 000 bbl/d is synfuels from local petrochemicals group Sasol. Crude oil comprises the remaining 500 000 bbl/d.

“There are oil discoveries off the west coast of Namibia, which is a great opportunity, allowing Southern African countries to reduce reliance on imported oil from the Middle East; therefore, security of supply is improved,” he says.
National Oil Company PetroSA, which is operating its gas-to-liquids (GTL) plant at 60% capacity, can tap into Southern African gas resources and increase to full capacity. Another option would be for PetroSA to open another GTL plant, depending on securing additional gas reserves. Sprott suggests that PetroSA build another GTL plant, as opposed to building the conventional Mthombo oil refinery, as he believes that the GTL plant will be more economically viable.

He says oil refining capacity is increasing worldwide and it will not be economically favourable for South Africa to open another crude oil refinery in the face of overcapacity.

Sprott believes South Africa has the skills to manage a GTL plant, which he says will lead to the development of more technical skills, compared with those skills that would be created through the operation of another conventional oil refinery.
“The world is experiencing a gas boom and this should increase South Africa’s capability to become an international player in the global gas industry,” he states. Chemicals offer South Africa a third opportunity, should the country decide to exploit shale gas and create its own cheap source of gas feedstock.

Sprott recounts that the US is no longer as dependant on imported fuels and chemicals feedstock from the Middle East and Venezuela because it creates its own feedstock from shale gas. This has not only enabled $200-billion worth of investment in generation, gas processing and chemicals manufacturing but has also made the US competitive with European and Asian chemical manufacturers.

“Subject to the chemical composition of South African shale gas, if something similar were to occur in South Africa and shale gas drove gas prices down in Southern Africa, there would be a good source of cheap feedstock for developing local chemicals
There are oil discoveries off the west coast of Namibia, which is a great opportunity, allowing Southern African countries to reduce reliance upon imported oil from the Middle East industry and associated manufacturing,” Sprott highlights.

There are major new natural gas developments off the coast of Mozambique, oil discoveries off the coast of Namibia, coal bed methane discoveries in Botswana and shale gas discoveries in South Africa’s Karoo region that offer South Africa various gas based prospects.
Sprott says the Karoo has immense potential as a source of gas, but market players need to understand the value of exploring it. He believes investors should continue to investigate the area and understand its potential in terms of option value so that they can take advantage of it as the real economic value becomes clearer.

Sprott admits that there are concerns pertaining to the environmental impact when extracting the gas and to the chemical composition of the gas.
However, he says the gas composition could be beneficial, as dry gas is pure methane and wet gas contains ethane and propane, which can be used in the chemicals industry. He states that he will be pleased if people use AT Kearney’s study to understand the gas opportunities across the energy generation, liquid fuels and chemicals industry more clearly.

“It’s a great opportunity, but no one understands what it means for current projects like the Mthombo refinery.”It would be great if people started to engage in that and think of ways to resolve bottlenecks, such as infrastructure,” Sprott asserts.

The most effective method to move gas is through a pipeline to Gauteng. If that does not work, he suggests moving liquefied natural gas (LNG) tankers down the coast. He adds that South Africa’s refineries are old and are at a competitive disadvantage should a new refinery be built, as the new refinery will be able to deliver higher-quality, higher-specification and higher-efficiency fuels.

Meanwhile, he notes that the main challenges of adopting and accessing gas are the logistics of transporting the gas sources, the existing generation landscape and high wheeling costs. An infrastructure project is needed to build a combination of pipelines and LNG infrastructure.
Sprott does, however, encourage the adoption of gas as a low-cost energy source, as it will result in a healthier energy generation mix, less dependence on coal and less carbon dioxide intensive energy generation. If implemented properly and on a sufficient scale, gas can counter the high costs and skills required to operate nuclear power stations, he adds.

“South Africa has the skills to run nuclear plants but not to build new ones. The country has skills to build a gas landscape in generation. If South Africa implements gas generators, it could create its own generator manufacturing industry,” Sprott says.
He emphasises that gas is available and it needs to be taken advantage of, adding that investments made currently in gas will result in payback in the near future. Local gas exploitation will take pressure off the South African power pool, increase the availability of electricity in the region and improve relationships with countries such as Mozambique and Namibia.

01 Feb 2013

National Coat of Arms-small

Lesedi Solar Power Plant Launch

Address by the Minister of Energy, Ms Dipuo Peters, MP
Sod-Turning for the Lesedi Power Company Postmasburg Project
12th February 2013

Programme Director,
Mayor of Tsantsabane Municipality,
Councillors of both Local and District Municipalities,
Chairperson, CEO and Board Members of Lesedi Power Company,
Distinguished Guests, Ladies and Gentlemen

Thank you very much for the kind invitation to participate in this momentous occasion. Indeed we have reason to be in a celebratory mood, and let me congratulate Lesedi Power Company on this achievement.
To the Management of Tsantsabane Municipality, I want to say that you have a renewable IPP power producing company in your back yard. Your stakeholder base has increased. I hope you will work well together with the management of Lesedi over the next 20 years.
To the Community of Tsantsane Municipality, are you ready to play your role in this IPP space. You are one of the fortunate communities in South Africa to witness the construction of a renewable plant in South Africa, but on your doorstep.

It is public knowledge that South Africa is among the fourteen high emitters of “carbon dioxide equivalent” in the world. Based on this, government has long acknowledged that there is an urgent need to move towards a low carbon economy to reduce the greenhouse gas emissions (GHG) hence our commitment at Copenhagen in 2009 through the President of the Republic of South Africa, His Excellency Mr Jacob Zuma that “South Africa will reduce its emissions by 34% and 42% by 2020 and 2025 respectively under business as usual and subject to the availability of both technical and financial resources.

Currently almost 95% of South Africa’s electricity is generated from coal-fired power plants, although South Africa receives more than 2,500 hours of sunlight which is twice more than most parts of Europe.
Programme Director,
When Government announced its intention to start the process of moving away from our carbon intense modes of energy production, there was a lot of scepticism from various quarters, but the events today bears testimony to the fact that we have moved considerably as a country towards this goal.

Since the release of the Request for Proposals for this programme on 03rd August 2012, we have announced the preferred bidders for Windows One and Two of the programme, representing in excess of 2400MW of power, worth an investment of R 74 billion in the energy sector.
It is also important to note that the CO2 offset that will be created by the implementation of this Renewable energy IPP plan in the first two windows alone will result in about 4 million tons of CO2 per year. If the full Renewable Energy component of about 18 000 MW is been implemented by 2030, as been envisaged by IRP2010, about 40 million CO2 emissions will have be offset.

Ladies and Gentlemen,
With this site inauguration today you are contributing a critical building block towards the ruling party policy objective of a diversified and sustainable energy mix for the country.
As you all know, the lion’s share of solar projects is located in the Northern Cape, given its very favourable irradiation levels, which some estimate to be the best in the world. Government in its planning in the Renewable Energy IPP programme envisaged to develop a solar corridor in the Northern Cape starching from Port Nolloth in the North Western part of the Province through Upington, Postmasburg and Priska to De Aar. Different solar technologies IPP will be developed along

this corridor. The first to be launched was the Upington Concentrated Solar Power, this was followed by the De Aar and Douglas PV hub and recently we also launched the Priska solar hub. Today we are here in Tsantsabane Municipality, in Postmasburg to share with the community the sod turning of the solar PV plant.

It was therefore not surprising that most of the renewable energy developers, as demonstrated in the number of preferred bidders through the first two rounds of the bidding process, have targeted this province to develop especially solar projects.
More than that, the investments we make in the renewable energy sector, at both the primary generation and secondary manufacturing levels, will undoubtedly contribute to economic development and growth, as well as much needed job creation.

The percentage of local content in the two bidding windows has increase form about 25% to about 45%, which will result in an increasing of job creation. In order to achieve our objectives to alleviate poverty and create decent and sustainable jobs, South Africa needs to stop being consumers of imported products and start innovating and locally manufacturing homemade products especially in areas where it is possible and cost effective to do so.

Based on the business models and information received from successful developers in windows one and two, we project around 14 500 jobs to be created during construction of the facilities in the Northern Cape, and about 600 direct permanent jobs during the operation period of the plant, and about 25 direct permanent jobs during the operation. This is excluding the jobs been created indirectly in the local community due to additional economic activities in and around the town. In addition due to the localization programme linked to the Renewable energy IPP programme, more jobs are also created.

Programme Director,
Our believe is that technologies related to wind, solar and other renewable power generation hold the key to creating the green economy jobs that we so badly need, and in those areas where we can leapfrog rural development in a manner that makes it easier for us to improve the socio-economic circumstances of our population.
Our renewable energy programme is therefore deliberately designed in a way that is biased towards local economic development. Basically, we seek to achieve skills transfer, community upliftment and local procurement from and support for small local enterprises in our infrastructure development programme.

We hope that the municipalities in these project areas will work with developers to ensure that they create an environment for these activities to take place.

As a municipality, you are located in an area with a potential for additional projects in the subsequent rounds. As the projects flows to your area, it will be critical to facilitate the social contribution by the different projects. The Department will work closely with the municipality, the community and the IPP in ensuring that the social contributions from the various IPPs are coordinated. We should remember that the community has various needs and they must be addresses in an integrated approach to avoid duplication. As we coordinate these activities, we should remember that the community needs more than just a playing ground; they need among other things, clinics, schools, bursaries and community halls. In certain instances, IPPs may have to work together in developing a community project which may require a larger capital but critical to the community.
Having said that, I would like to believe that Lesedi Power has a view in terms of the needs of this community and they have already developed a social development plan for this community. I would like to believe that the plan will be implemented whilst taking into account the coordination that I have referred to.

Through supporting large scale deployment of renewable energy sources, we are sure that we will be making significant progress towards meeting our key government objectives and priorities at national level, primarily the reduction of poverty and underdevelopment.

Ladies and Gentlemen,
I am advised that Lesedi Power Plant is already becoming part of the Tsantsabane Community. This area is known for a jobless community without hope or future vision. We trust that this partnership will assist to contribute to alleviating the wide spread poverty and hopelessness in this area, and will contribute to rejuvenate not only Postmasburg, but also the areas around it.

Government is not only making policies that are directed to a single cause or activity, but policies need to be holistic in nature. This is what we are experiencing in this case, a renewable energy policy drive is changing the lives of people in the Northern Cape, which was not foreseen when the plan was initiated.

Your construction and social obligation will be monitored very carefully to ensure that the MWs that have been promised will be delivered in time, while at the same your social-economic plans are executed in line with what was promised. My department will in the weeks to come engaged with you regarding the reporting process on the build programme and the socio-economic development implementation.

We are fortunate as country, God blessed us with sufficient sun which we could use to generate energy. Therefore, we need to take advantage of this blessing.

We congratulate you on this milestone and achievement – and wish you well as you begin implementation on your contribution to a sustainable and clean energy future.
Thank You.


The US Geological Survey announced in 2008 that SA had the world’s fifth largest shale gas reserves (485 trillion cubic feet [tap based on the results of a preliminary study. The reserves were located in the country’s dry hinterland, the Karoo.
The SA Department of Mineral Resources swiftly entered into technical co-operation agreements with three companies ahead in the exploration queue — Royal Dutch Shell, Falcon Oil & Gas, and Bundu Gas and Oil Exploration. It seemed all systems go for first exploration and then, pending those results, exploitation.

However, then two things happened. First, environmental activists and local interests, spearheaded by the Treasure Karoo Action Group, mounted a crusade against hydraulic fracturing in this arid and environmentally-sensitive region. This resulted in a moratorium on any activity, imposed by government in April 2011.

A task team was appointed, headed by the Petroleum Agency of SA (PASA), who was also tasked with processing applications to explore and would report on any issues raised. Second, the practical lessons of the shale gas industry in the US came into play. On the one hand, the economic payoff in the US had been tremendous. Its impact on energy prices in the US (down to one-fifth of 2005 levels) may have saved its economy. This, in addition to the 600 000 jobs created, at the very least cushioned the recession.

On the other hand, problems in the US were widely evident. Mostly reported on in SA were the environmental negatives about which there is neither consensus nor compromise to date. More relevant to the immediate future of the industry in SA were insights into the regulatory chaos in the US. The US shale gas industry developed ahead of its regulators who, arguably, have never quite caught up. Rational economic planning, property rights and environmental protection all came under pressure in the laissez faire environment.

Some US fracking areas resemble a crazy quilt, with an eclectic mix of operators and land owners, serviced by competing roads and pipelines. Different chemicals, storage methods and disposal solutions (for waste water) exist. So much confusion and concern have surrounded safety and environmental issues that state governments have stepped in. The seventeen-month moratorium gave South Africans a chance to consider both the potential and dangers of fracking.

During the hiatus it has become clear how unready SA is to exploit shale gas. In fact, the working group appointed by government implied exactly that in their recommendations. The Report of the Working Group of the Task Team on Shale Gas and Hydraulic Fracturing have produced a raft of recommendations allowing only ‘normal’ exploration (excluding hydraulic fracturing), while investigating the regulatory and institutional initiatives required to answer some of the questions raised.

At the time of writing, no shale gas exploration licences had been granted in SA. Falcon Oil & Gas applied for a licence before the end of 2012. If licences are issued, they will likely be very restricted. The three companies are unlikely to do much more than geological field mapping and hydrological studies in the next year — if that.

The report — accepted by Cabinet before the moratorium was lifted — suggests a few institutional processes. The creation of a monitoring committee to ensure comprehensive and coordinated augmentation of the regulatory framework and supervision of operations’ is one proposal. However, although there is no official appointment yet, there is a strong possibility that it will be based on the PASA-centred working group. This would make the PASA both referee and player, say environmentalists. It would be unlikely to lend legitimacy to the process in the eyes of the anti-fracking lobby.

Civil society institutions are gearing up for the same process. At least one network of academics is forming across a number of universities in SA. The objective is to create a space for public debate’, says Doreen Atkinson, associate professor at the Centre for Development Support at the University of the Free State. It would be foolish to rely on either government or the oil companies.

The International Energy Agency (IEA) published a set of ‘golden rules in May 2012 to deal with concerns about the environmental and social impacts of hydraulic fracturing for shale gas.

THE KEY RULES ARE: 1) Full transparency. 2) Measuring and monitoring of environmental impacts. 3) Engagement with local communities. 4) Careful choice of drilling sites. 5) Measures to prevent any leaks from wells into nearby aquifers.

The lEA argues that the technology and the know-how already exist for unconventional gas to be produced in an environmentally acceptable way. But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks.

The industry must win public confidence by demonstrating exemplary performance (while) governments must ensure that appropriate policies and regulatory regimes are in place’.

The over-riding problem is that the issues of gas and hydraulic tracking have never been considered in SA legislation. The working group refers to the need to ‘augment the current legal framework. But certain areas may need to be redone.
Among others, the National Environmental Management Act needs to be amended to provide jurisdiction to the Department of Mineral Resources and the Department of Environmental Affairs. It is not clear which has the authority to give the final go-ahead to hydraulic fracturing. The problem has arisen before, in dune-mining on the Pondoland coast, and has never been adequately resolved.

The Mining and Petroleum Resources Development Act (MPRDA), which places all mineral commodities under the state licensing system, makes no reference to gas. The required amendments in this case are far from clear. But it already impacts on the controversy in one critical way — it limits the rewards to those who own land where shale gas is found. The act effectively ended the old SA fantasy of finding a gold (or gas) deposit in one’s backyard. If found, it belongs to the state and not the landowner. This guarantees on-going opposition.
Shell, the biggest and most active of the oil and gas interests, has suggested a means of compensation for landowners. But its vague statements — coupled with promises of tarred access roads to farms — seem to be entirely outweighed by the widely expressed concerns over water table contamination.

That raises what, in many minds, appears to be the greatest issue brought to light thus far — water. Each hydraulic fracking well requires 20 million ( of water. The availability of water may be something of a red herring. The amount is approximately the volume of eight Olympic swimming pools and each tracking operation only needs to be conducted once.

There has also been mention of trucking in water — perhaps sea water or treated waste water — from other parts of the country. What may be more serious is the possibility of contaminating underground water sources. The debate rages on.
Shell upstream general manager for SA, Jan Willem Eggink, argues that in a seismically stable area such as the Karoo well integrity can be guaranteed. Environmentalists, however, point out that there are instances in the US where wells have breached.

Whether contamination — as a result of the gas itself or the chemical used in the water for tracking has occurred is much debated. But it is clear that SA’s Water Act will need to be amended to accommodate these issues. Mining houses will likely have to take responsibility for the water integrity process, including decontamination. Municipal water treatment plants in the Karoo are unlikely to have the capability.

References are often made to the ‘dangerous’ chemicals used in tracking. This is a much-hyped issue, with many convinced that something like 260 different chemicals go into each tracking operation. In fact the correct figure is more likely six or seven. The problem is that there are secret patent-protected formulas which differ from company to company.

The 260 chemicals are the list of possible options that go into the mix. Miners tend to argue the concentrations going into the ground are far from dangerous and ‘wouldn’t even harm the skin’. But regulating this remains a mystery. Shell hopes to drill six wells, consecutively, in the two years after it receives an exploration licence. The other companies’ plans are less clear.

But the big question is whether some exploratory tracking operations will be permitted before regulatory gaps are filled — and, more importantly, trained staff put in place to assess, check, license and monitor. It seems tenable to suggest that the relatively small-scale exploration operations could be permitted if the state was to position itself to learn alongside these companies. But that all too often leads to excessive closeness and, ultimately, regulatory capture.

And if the state lacks the necessary capacity, will civil society be allowed an adequate role in the process? Will this be formalised and if so, in what way and through which functional areas? Shale gas tracking in the Karoo does not simply require an incremental increase in regulation and regulatory capacity.

If the reserves are anywhere near as large as suggested, it needs increased knowledge and performance from state departments. These include Mineral Resources, Environment, the National Treasury (taxes, oversight of licensing fees and service payments to state entities like PASA), Land Affairs, Agriculture, Co-operative Governance, Science and Technology and Energy Affairs. The role of gas (of any sort) in the national energy mix has been entirely ignored and has just begun to creep onto the table with the second report of the National Planning Commission in 2012.

Government departments come with different visions of the future, silo mentalities and other qualities associated with the bureaucratic battleground. This without even considering the decisions around tax breaks, incentives and guarantees to private
sector investors. Shale gas possibly poses the greatest challenge since 1994 to the SA government’s obligation to secure a sustainable investment climate, which is characterised by appropriate regulation. The country can only hope that there are bright people working on a solution. The lEA argues that ‘the technology and the know-how already exist for unconventional gas to be produced in an environmentally acceptable way. But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks. ‘The industry must win public confidence by demonstrating exemplary performance (while) governments must ensure that appropriate policies and regulatory regimes are in place’.
JSE Supplement

February 18 - Digging deep for the future

Digging Deep For The Future

What was the main mandate and, beyond that, the long-term strategy/vision behind the Africa Exploration Mining and Finance Corporation, when it was re-launched in 2007?
The main mandate is to ensure that there is security of energy supply for South Africa. This we do mainly through prioritising Eskom needs for coal currently and for future power stations as they come into operation.
Further, the mandate is to ensure there is security of energy supply for future sources of energy beyond coal e.g. lithium (car batteries and other), uranium (nuclear), limestone (for cleaner energy production) etc., in line with the country’s energy mix strategy for the future. Lastly, it is to support the country’s minerals beneficiation strategy by securing beneficiable minerals largely in the iron and steel value chain.

When the AEMFC was launched there were fears that this was an indication of the state’s intention to nationalise. Please comment on this.

This is not the State’s way of nationalisation. It is simply a way of ensuring that the State participates in the mining industry to ensure current and future security of energy supply and support the country’s strategy of minerals beneficiation.

What is the size and national presence of the organisation, and how many employees does it have nationally?
AEMFC is currently running an open cast (thermal) coal mining operation close to the Kendal and the currently under construction Kusile power stations in the Mpumalanga province. The site employs a total of 256 people including contractors.

How has the entity been able to support state owned enterprises in particular Eskom, to deliver? Has the AEMFC been able to deliver on its projection of 800,000 tonnes of coal initially and is this likely to increase to the projected 1.68 million tonnes per annum?
Figure 1: Sicelo Sikakane
The 800 000 tonnes of delivery has been achieved in the first year of mining. The 1.6 million tonnes per annum will also be achieved. Management has seen an excellent ramping up of mine activities and this is largely thanks to our colleagues in the operations, our partners in infrastructure development in the mine, the local business and the community and our main customer ESKOM. It has not been easy but we are humbled by the success we have achieved through this combined effort.

We know that part of the reason for the launch of the AEMFC is to enable the government to move beyond regulator to “participator”. However – one might say that the AEMFC has an unfair advantage over other mining companies, being state owned. Any comment on this?
AEMFC is treated like any other mining industry player and has no unfair advantage.

How has the AEMFC been affected by the mine unrest that is currently affecting the country?
This has not affected AEMFC. This is not however to say we are not concerned by the recent developments. We are extremely concerned.

What other big projects is the AEMFC involved in, besides the Mpumalanga coal-mining one? Please give us some details.
There are various exploration projects that are at different stages of development mainly in the areas of Mpumalanga, Limpopo and Kwa Zulu Natal, involving various mineral resources mainly in the energy production and beneficiable minerals space.

Some have suggested that the government does not have the requisite experience to run a mine profitably, citing previous years’ losses as examples. How does the enterprise intend to make itself more efficient and profitable?
We are blessed with impressive and educated talent both at operations and at corporate office who have been at top institutions and worked for blue chip private companies. Not all of them come from a mining background which is good. We employ young and old to infuse experience and youth for obvious reasons. Our business processes are not different from the private sector and in some cases better. We have our eyes firmly on the ball and we are quietly aiming to prove a point.

Does the enterprise have any plans to go beyond the South African borders, and if so when and where?
If one looks at what is available within the continent and our shareholder’s business commitments to our neighbours (through various bilaterals) including
the regional integration efforts, we are the obvious vehicle to achieve the said goals of our shareholder. It therefore makes sense that this is firmly in our sights and our strategy does indeed have these plans.

How is, or how will the AEMFC support BEE companies who have purchased mining rights but were struggling to move forward because of financial reasons?
We are open to discussion and we have indeed had various discussions with previously and CURRENTLY disadvantaged companies. The challenges they face are in many forms including financial. We cannot sadly assist financially. We can assist in other ways. We have to thread VERY CAREFULLY in this regard because as a State Owned Enterprise we cannot be seen to be favouring other entities and not others. We strive for fairness and strict adherence to the PFMA.

How do you define your role and what are the challenges of working in the mining industry?
Our role is to ensure the security of current and future energy needs of the country. Challenges are many but more importantly include key elements like efficiency of production, the extremely important element of mining safely, development of surrounding communities including business and ensuring that growth is maintained in a responsible non exploitative and environmentally friendly way.