The South African gas sector is likely to see an increase in mergers and acquisitions among gas producers in 2015, especially during the early part of the year, as the industry adjusts to deal with the effects of the dropping oil price, says North-West University School of Economics economist Requier Wait.
Some of the other challenges currently facing the sector are the lack of expansion of the country’s current gas reserves and the slow pace at which infrastructure, needed to deliver gas to the local market, is being developed, he adds.
Meanwhile, Dr Riaan Rossouw, a colleague of Wait’s at the School of Economics, says the ability of State-owned power utility Eskom to provide electricity will also be a significant concern for gas producers in 2015. “Gas is one of the options being considered to help stabilise [electricity] supply,” he says, adding that installing additional gas turbines is relatively easier and faster than building new nuclear plants.
However, Rossouw adds that research on the implementation of a gas policy in South Africa has been ongoing, including research by the Department of Energy, which is busy formulating the Gas Utilisation Master Plan (Gump).
Gump will aim to provide a framework for investment in gas-supporting infrastructure and outline the role that gas could play in the electricity, transport, domestic, commercial and industrial sectors.
Rossouw notes that the outcome of this policy research will help guide the development of the country’s gas industry.
Wait notes that South Africa needs more commercially viable reserves to expand the gas industry, which can be established only by securing sufficient exploration investment.
He adds that, with regard to the Karoo, more exploration is needed to establish the extent and commercial viability of the area’s shale gas resource.
Further, Wait highlights regulatory certainty and stability as factors that play an important role in promoting investment in the sector.
He suggests that South Africa consider increasing gas imports from neighbouring countries, such as Mozambique, until domestic production capacity has increased.
Wait tells Engineering News that Mozambique could have the capacity to meet South Africa’s gas demand, as it has become one of Africa’s most promising gas producers. He adds that Mozambique’s Petroleum Law, adopted in late 2014, aims to provide stability and clarity for investors, which should help promote the industry.
“A South Africa-based oil and gas company has recently announced the start of a feasibility study that will evaluate the construction of an additional gas pipeline between South Africa and Mozambique,” he says.
The Petroleum Law allows the Mozambique government to issue new gas and oil exploration licences, and also requires investors to partner with the State oil firm.
The law answers key industry questions regarding financing terms, developing liquefied natural gas facilities, using cross-boundary facilities, prioritising mega projects, government revenues and pricing formulas.
Wait tells Engineering News that there has been a marked increase in South Africa’s offshore exploration, but no major commercial discoveries yet.
“The outcome of the Minerals and Petroleum Resources Development Act Amendment Bill, coupled with the current low oil price, will influence investor sentiment and impact on the development of South Africa’s gas sector,” he predicts.
Rossouw believes that the Karoo basin currently holds the most potential for domestic gas production, but points out that the extent of commercially viable reserves will remain uncertain until exploratory drilling is complete.