Big gas exploration on SA's West Coast

15th September 2003 By: Jill Stanford

By the end of this year the Ibhubesi Gas Group will have spent $100-million on exploring the Ibhubesi gasfield, which comprises Blocks 1 and 2A, 280 km north-west of Saldanha Bay.

Although Sasol owns the prospecting rights to the block south of Ibhubesi and geologists believe this area may also yield gas, the 10-million-acre Ibhubesi field is at present the only one discovered off the West Coast of South Africa that contains potentially commercial volumes of gas.

The resource potential for the Ibhubesi field, which Forest Oil CEO Craig Clark describes in Texan terms as “a whole heck of a lot of gas” translates into 25,1-trillion cubic feet (Tcf) of natural gas.

Clark says one Tcf is rare and considered a world-class discovery that would be enough to meet the needs of a community and feed PetroSA’s gas-to-liquids plant in Mossel Bay for some time to come, but stakeholders in the project are dreaming of grander things. If the results of the exploration efforts pan out, in addition to supplying a gas-fired electricity-generating station and supplementing gas feedstock to PetroSA’s manufacturing plant, the use of this environment-friendly and cheaper primary energy source will be encouraged to spur industrial growth and development in the western and southern Cape regions.

“With the development of the appropriate infrastructure and the realisation of the full market potential of the gas available to South Africa, the percentage of gas in the energy balance may increase from less than 2% to 7%, bringing with it investments and economic growth,” says Minister of Minerals and Energy Phumzile Mlambo-Ngcuka. The promising prospects for proving up further natural gas reserves have prompted PetroSA to farm into the Ibhubesi field.

South Africa’s national oil and gas company has spent $40-million on a 30% stake in the Ibhubesi Gas Group, which also includes Forest Exploration International (South Africa), a subsidiary of Denver, Colorado, company Forest Oil Corporation, which is the operator, Anschutz Overseas (South Africa), a subsidiary of a privately-held US company, and Tokyo Sexwale’s Mvelaphanda Holdings, which holds an option to join the group.

“We are eager to start drilling again,” says Clark, announcing the start of a second drilling campaign in the gasfield.

He explains that the four- to six- well campaign, which will start this month, is intended to further define the potential resource discovered by an initial four-well drilling programme completed in mid-2001 and find new accumulations of gas using the semi-submersible rig that was successful in finding the first gas.

It is anticipated that the drilling will be completed in early 2004 and, after that, testing and evaluation of the results for the campaign will be conducted.

Ibhubesi’s gas is spread over a relatively wide area and lies in nume-rous disconnected but high-quality reservoirs, where a single well can produce 30- to 50-million cubic feet of gas (MMCF) a day.

Developing these gas resources, including the infrastructure necessary to deliver the gas to end-users, in this geographically wide, deepwater, remote environment will be complex and will cost between R4-billion to R6-billion.

In short, the ultimate recoverable reserves will depend not only on the amount of gas discovered, but also on the economics of the Ibhubesi project, which will be driven by the volume of gas and price paid by the offtake market.

The economic analysis, based on the estimated cost of the initial drilling, field development and the transmission of gas over 280 km to Saldanha Bay, suggests that first delivery could start in early 2006 with volumes in the range of 250 to 350 MMCF a day.

Economic models further suggest that, considering the investments already made, any delay in the first delivery date or reduction in the delivery rates will have a negative effect on the delivery price of the gas that is required to justify the project economically.

Although no firm sales contracts have been signed, based on expressions of interest from the various potential consumers, Forest envisages about 50 MMCF a day could go to the existing industrial customers in the Saldanha area, 100 MMCF a day could be used by a power plant to be located in the Saldanha area, and the remaining 200 MMCF a day could be shipped to the PetroSA gas-to-liquids manufacturing plant. PetroSA, through its downstream gas team, and the Ibhubesi Gas Group have begun discussions in this regard.

In addition to these base consumers, if any other creditworthy consumer signs a firm gas purchase agreement before the final orders for the equipment are placed, the Ibhubesi Gas Group will expand its system to accommodate these customers as well.

The offshore infrastructure will include an offshore platform and a pipeline to an onshore delivery point.

Sexwale explains that the gas will be brought onshore either by a 280-km-long pipeline from Ibhubesi to Saldanha or to Kleinzee, which is closer to the gasfield, and then piped down to Saldanha continuing to Cape Town and eventually Mossel Bay and Port Elizabeth linking up to Coega.

“There is a possibility that this pipeline could also link up with the Kudu gasfield offshore of Namibia,” he says.

PetroSA has been mandated by government to be the company that lays the West Coast Gas Pipeline, a 587-km-long natural gas pipeline network system between the Saldanha Bay industrial area and Mossel Bay on the South Coast.

Prequalification tenders closed on July 8 and July 10 respectively for contractors to perform a full environmental-impact assessment and for the design contract for the pipeline.

The first offtake station will be Saldanha Bay. With its established steel industry and the possibility of the port becoming a service port for the oil and gas industry, the town is already being mooted as a future industrial hub.

Desmond van Dieman Investment Holdings, a consortium of West Coast entrepreneurs, is leading a venture to build a R3,5-billion, 800 MW combined cycle gas turbine (CCGT) power plant in the Saldanha area.

The power plant is expected to come on line by mid-2006.

The other big user of gas will be Saldanha Steel, which is at present using more-expensive liquefied petroleum gas, but has plans to double its plant when natural gas becomes available and to process iron-ore in Saldanha so that it can be exported in more concentrated form with a big increase in earnings.

Any industry that uses large amounts of heat is also a potential gas customer as it will always be cheaper to burn gas to produce heat, to use the heat to generate steam and electricity and then convert the electricity back into heat in the factories.

The second pipeline offtake station will be Cape Town, where it is suggested that the gas can be used to transform the coal-fired Athlone power station into a gas-fired power station, resulting in savings on transporting coal from up-country and contributing to a cleaner atmosphere around the city.

The pipeline will then continue across the Cape to the world’s largest natural-gas-to-liquids plant, PetroSA, in Mossel Bay.

“We have determined that our existing gas reserves will be depleted by June 2008, and we are searching for a fresh injection of gas feedstock, particularly in our waters, so that we can extend the life and viability of our Mossel Bay plant,” says CEO Mpumelelo Tshume.

“The feed to our plant is about 220-million cubic feet of gas a day so 1,3- or 1,4-trillion cubic feet of gas will give us, at the current feed, gas supply for about 20 years,” he says, explaining the significance of the estimated 25,1 Tcf of gas.

Securing gas is also a means to improving the Fischer-Tropsch technology the company uses, and to use this expertise in gas-to-liquids projects in other parts of the world.

PetroSA believes that it will find a niche in countries which have ‘stranded’ gas – gas that is far away from potential markets and constitutes about half of the world’s gas reserves of 5 000-trillion cubic feet.

A secure gas supply would also add to the country’s synfuel supply, reducing imported liquid fuel Tshume says South Africa imports about 370 000 barrels of crude oil a day.

“The Mossel Bay plant produces 45 000 barrels a day crude equivalent; with the Ibhubesi opportunity this contribution could increase quite significantly,” he says.

The Western Cape pipeline is the second phase of the Department of Minerals and Energy’s gas infra-structure plan, which is intended to be a strategy for the development of the natural-gas industry in South Africa based on the White Paper on Energy (1998). “The first phase is the 865-km pipeline, which is being built at a cost of $549-million from Mozambique to Secunda,” says Mlambo-Ngcuka. As part of this phase the Lilly 1 gas pipeline from Secunda to Durban may have to be upgraded or replaced eventually. “The third phase is the West Coast to Gauteng via Sishen and the fourth phase is Port Elizabeth to Durban via East London, which will be the final link in creating a national gas grid for the country, in the same way that we have an electricity grid,” says Mlambo-Ngcuka.

She points out that not only will the gas grid be targeting the big cities, such as Mossel Bay, but the gas will be used along the way to supply smaller companies and cottage industries, thus creating many jobs.

There is a concern that the shortage of skills, particularly at artisan level, could put a brake on the number of major industrial developments that have become likely with the growth of the oil industry and the discovery of the gas off the West Coast.

“The servicing of oilrigs and floating production systems, hundreds of kilometres of undersea and overland gas pipelines, a new ‘Westgas’ oil-from-gas plant, a doubling of the Saldanha plant and several new power stations will require large numbers of artisans with welding and other metal-working skills, says Cape Town Regional Chamber of Commerce and Industry deputy director Colin Boyes.

In the past, most of the training of artisans was done by the railways, the dockyards, Eskom and the mines, but the restructuring of State enterprises has seen a drop in training by the apprentice system. In addition, the mining sector has declined and the average age of an artisan in South Africa is now 54.

“Artisans are the backbone of a modern industrial economy and the shortage of these basic hands-on skills is a major challenge,” says Boyes.

He says that Sasol, which is planning a number of big projects in various parts of the country, estimates that there is a shortage of 20 000 artisans.

Sector education and training authorities (Setas) have been introduced to improve the system and generate ‘learnerships’ to reduce the backlog in trained people, especially those from disadvantaged backgrounds.

“Within the Merseta (the Manu-facturing, Engineering and Related Services Education and Training Authority) there is frustration at the pace at which learnerships are being developed to cover areas where key skills shortages occur,” he says.

A recent skills audit in Cape Town by the Merseta has revealed shortages in key trades including welding. “The shortage is probably the result of the demand for these skills by the oil industry,” concludes Boyes.