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 sig-nificant 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-to-gas conversion present another opportunity for South Africa, as the country is short of liquid fuels.

The country has a liquid fuels refining capa- city 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 inceasing 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 Vene-zuela 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 a local chemicals industry and associated manufacturing,” Sprott highlights.

Major Discoveries and Challenges
There are major new natural gas develop-ments 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 poten-tial 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 com-position 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 under-stands 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 chal-lenges 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 gener-ation 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.