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South Africa’s energy diversification: part one

Hydrocarbon Engineering,

South Africa’s oil and natural gas sectors tend to be overshadowed by the coal industry, because coal provides for over 70% of the country’s primary energy needs. In the past, however, coal’s share of the primary energy mix has been above 80%, so considerable effort has been made to diversify the energy industry. A number of initiatives and programmes have been launched to expand oil and gas production, and, in recent years, a significant shale gas resource has been identified. With international crude oil prices at a low ebb, however, there is less incentive to develop these reserves. This is not to say that it cannot be done. South Africa has a history of developing unconventional energy resources in its bid for greater self-sufficiency, and the country has shown its ability and determination to invent and employ technology to diversify its fuel mix.

This article focuses on South Africa’s energy sector, with emphasis on liquid fuels. But, when discussing South Africa’s energy markets, one must bear in mind, even when it is not about coal, it is about coal.

Dominance of coal in primary energy

Coal typically has provided for 75 - 80% of South Africa’s primary energy requirements, and only since 1996 has coal’s share been reduced to the 71 - 75% range. During the oil price shocks, coal was promoted as a substitute for imported oil, since the country had had such limited success in oil prospecting on the domestic front.

Primary energy demand grew at rates averaging 4 - 4.5% during the 1960s, 1970s and 1980s. Growth in consumption slowed to 1.6%/y during the 1990s, and it picked up to 2.3%/y from 2000 - 2010. Between 2010 and 2014, primary energy use has been roughly flat, amounting to 126.4 million tonnes of oil equivalent (toe) in 2010, and 126.7 million toe in 2014. Coal use has subsided slightly, replaced mainly by imported oil and an increase in nuclear power generation. South Africa started generating nuclear electricity in 1984. There has also been interest in renewable energy sources. Their use has grown swiftly, but from such a small base that their total contribution was less than half of 1% in 2014.

According to BP, coal supplies 70.6%, oil supplies 23%, natural gas and nuclear energy supply 2.9% each, renewables supply 0.5%, and hydroelectric power supplies 0.2% of South Africa’s primary energy mix.

Coal, oil, natural gas and shale gas reserves

The Oil and Gas Journal, in its ‘Worldwide Report’, places South Africa’s oil reserves at 15 million bbls. This amounts to a mere 0.12% of Africa’s estimated oil reserves, and a vanishingly small percentage of global oil reserves. The Oil and Gas Journal estimates that current crude production is 3000 bpd. South Africa’s natural gas reserves were listed as zero, though the country does produce natural gas and is known for its pioneering role as a gas to liquids (GTL) producer. Coal reserves, in contrast, as estimated by BP, stand at 30.15 billion t, amounting to 3.4% of global reserves, and having a reserves to production ratio of 116 years.

South Africa’s government began searching for oil and gas in the 1940s, under its Geological Survey of South Africa. The government formed Soekor Pty Ltd in 1965 to oversee exploration and development. Prospecting in the onshore areas of the Karoo, Zululand and Algoa basins proved disappointing. The government passed its Mining Rights Act in 1967, and it granted offshore concessions to a variety of international companies. The first offshore well was drilled in 1969. Superior Oil discovered natural gas and condensate in the Ga-A1 well in the Pletmos Basin.

In the following years, South Africa’s Apartheid system caused increasing internal resistance, strife and violence. The international community ramped up its opposition to Apartheid, beginning with bland diplomatic statements, but gradually adding teeth by instituting arms embargoes and other sanctions. South Africa largely became a pariah nation, and international oil companies gradually left. Many investors divested their holdings in South Africa. During those years, Soekor explored alone, and with little success. The end of Apartheid came in 1991, though most historians place the effective date at 1994, when the first multi-racial elections were held. The offshore areas were opened to international companies in a new licensing round held in 1994.

Re-entering the international community stimulated interest in South Africa’s oil and gas industry. The government established a new state oil company, known as the Petroleum Agency South Africa, in 1999. A new state oil company was formed in 2001 via the merger of Soekor and Mossgas, known as PetroSA. A new Mineral and Petroleum Resources Development Act was passed in 2002 and enacted in 2004.

The country’s oil and gas reserves are located primarily offshore in the south portion of the country in the Bredasdorp Basin and off the west coast of the country along the border with Namibia. The offshore area near Namibia includes the Orange Basin, believed to hold significant oil and natural gas reserves, but these are not yet fully prospected or commercial. This includes the Kudu gas field, which was discovered long ago, in 1974, by a consortium including Soekor and Chevron. Development and a pipeline to the coast are still under consideration.

The advances made in hydraulic fracturing in the US prompted countries around the world to assess shale oil and shale gas potential. In 2013, the US Energy Information Agency (EIA) published a report on shale resources, and South Africa was noted as possessing the eighth largest technically recoverable shale gas resource in the world. The EIA originally estimated the reserves to be 485 trillion ft3, but later revised the estimate down to 390 trillion ft3 to reflect a downsizing of the prospective areas. The shale gas resources are located in the Karoo Basin in three formations known as Whitehill (211 trillion ft3), Prince Albert (96 trillion ft3) and Collingham (82 trillion ft3).

The public had many environmental concerns over the potential development of the shale gas resource, largely over the heavy demands that hydraulic fracturing places on water resources. The South African government responded by placing a moratorium on shale gas exploration until the impacts could be considered. A government funded study later recommended that the moratorium be lifted, and this was carried out in September 2012. In October 2013, the government issued new technical regulations governing oil and gas exploration, particularly shale gas exploration and hydraulic fracturing. A year later, the Petroleum Agency of South Africa (PASA) announced that it would begin processing the existing applications for exploring the Karoo Basin, though it would not seek or accept additional applications. This timing corresponded with the Saudi Arabian decision to stop supporting crude oil prices, and global energy prices have plummeted since then. Although South Africa has undertaken energy projects that, at the time, seemed to be uneconomic, it would be surprising in today’s market to see large scale shale gas hydraulic fracturing developments go forward. Another period of high energy prices, however, could spur renewed interest, given the size of the reserve base and South Africa’s expertise in Fischer-Tropsch processes.

Read part two of this article here.

Written by Nancy Yamaguchi, Contributing Editor. This is an abridged article taken from the June 2016 issue of Hydrocarbon Engineering. Subscribers can view the issue online now by logging in.

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