“South Africa presents a strong case for the development of an integrated gas industry - covering the exploration, production and beneficiation of gas - with huge potential for energy supply diversification, broader industrialisation and job creation,” says Khwezi Tiya, Head, Oil and Gas South Africa, at Standard Bank.

The strategic development of this resource has the potential to re-invent growth, setting the South African economy on a higher, and much more inclusive, growth path. In 2004, Standard Bank was involved in the financing of the 865 km ROMPCO pipeline, supplying Sasol’s Secunda processing plant in South Africa with gas from the Pande and Temane gas fields in Mozambique. This pipeline increased South Africa’s gas-based energy generation from 1.5% to 4% of overall supply, “highlighting the huge potential for gas to play a much larger role in the country’s energy mix,” says Mr Tiya.

Currently, the largest natural gas projects under development in Mozambique are in the Rovuma Basin, in the very far north of the country. There is no immediate likelihood of linking these by pipeline to South Africa. Instead, the off-take from these projects have been earmarked by their lead developers, Anadarko and ENI , for global sale to largely Asian or global gas portfolio players, such as British Petroleum (BP), who signed a 20-year agreement in 2016 to purchase 100% of the gas from the ENI-led Coral development, offshore Mozambique.

In short, “the bulk of Mozambique’s new gas production is unlikely to be coming to South Africa,” explains Mr Tiya.
This means that, there is indeed scope for South Africa to develop its own natural gas sector over time. In the short to medium term, however, South Africa will also need to consider broader global imports. 

To this end, Standard Bank’s experience working on; the ROMPCO gas pipeline, the bank’s studies and advisory on the Rovuma basin gas projects, and the development of South Africa’s successful IPP programme – which by 2016 had attracted R192 billion to the country’s renewable energy sector – will prove critical in informing South Africa’s evolving gas policy dialogue.

As such, Mr Tiya believes, “that Standard Bank’s experience locally and across the continent has a lot to offer the South African government’s current iteration of its Integrated Resource and Energy plans.” At the moment legislation governing exploration and production of oil and gas is under review in Parliament.  “Once passed, these amendments are expected to encourage a lot more exploration,” says Mr Tiya.

Given that South Africa is only just beginning to explore for gas, a number of global exploration companies have ‘farmed in’ on fields, sharing exploration rights that were held by junior companies. This has attracted global resources to the expensive and risky exploration phase, allowing the pooling of resources – and the sharing of cost and risk.

There is a stated commitment from a policy perspective, including the DTI-led Gas Industrialisation Programme, to encourage the development of multiple markets for gas - within South Africa. While the interest shown by these global companies is driven by the potential for substantial discoveries in South Africa, given that South Africa is only just beginning to explore for oil and gas, the right policy framework is critical if South Africa is to attract sufficient investment to its emerging gas sector. To this end, South Africa’s Gas Industrialisation Programme is expected to act as a catalyst for the development of a rational and competitive gas industry by enabling multiple markets for gas.

“Using gas for thermal heating in industry, for electricity generation, and then also for domestic consumption, for example, will create a number of downstream sectors that purchase, beneficiate, distribute and sell gas, gas energy, and gas products to different markets and sectors in South Africa,” explains Mr Tiya. “In this way, we expect policy and legislation to enable the growth of an entirely new gas-based value chain, throwing off a host of investment opportunities in new industries, marketing networks, consumer bases and revenue streams along the way,” he adds.

Given that the world is currently over-supplied with liquefied natural gas (LNG) and other gas derived products, it is expected that in the beginning South Africa will use imported gas in the form of LNG whilst exploration for indigenous resources gathers momentum. 

According to Mr Tiya, partnerships between international and local players to invest in proven gas resources with access to a global market will open up multiple opportunities in the gas value chain. This will make investment in South Africa an attractive option for gas majors seeking new consumers in a market expected to remain oversupplied in the medium-term.

By getting the legislation right, beyond merely diversifying South Africa’s energy mix, “gas has the potential to marshal global private capital to build entirely new industries, markets and asset classes in South Africa,” he says.
“While this will certainly deepen the county’s energy resilience, it also has the potential to add jobs through a host of economy-transforming ancillary supply, beneficiation and distribution industries,” says Mr Tiya.