SA, Chinese firms team up on Moz–Gauteng gas pipeline study

1st April 2016 By: David Oliveira - Creamer Media Staff Writer

JSE- and Aim-listed oil and gas company SacOil signed a cooperation agreement with the China Petroleum Pipeline Bureau (CPPB) last month for the possible construction of a gas processing facility near the Rovuma basin, in Mozambique, as well as a 2 600-km-long, large-diameter pipeline to transport natural gas from the basin to Gauteng.

The estimated value of the project is $6-billion. SacOil CEO Dr Thabo Kgogo tells Engineering News that the project will be 70% debt-financed by Chinese and international banks, while the remaining 30% will be equity- financed, part of which will be covered by CPPB.

The project will now move into the prefea- sibility stage, which Kgogo estimates could take about 18 months to complete. “Optimis-tically, we are aiming to start construction in 2018, following a final investment decision.”

He notes that, owing to the CPPB’s extensive experience in gas infrastructure delivery spanning about 40 years, the company will act as the lead technical expert on the project.

Besides providing technical input, SacOil will primarily focus on addressing any regulatory issues and will also work closely with the firm appointed to provide the scope for the environmental-impact assessments.

Meanwhile, Kgogo highlights, all the companies involved in the project have two interests – ownership of the pipeline, on the one hand, and purchase agreements with upstream pro- ducers and distribution rights, on the other.

SacOil, CPPB, Mozambique’s national hydrocarbons company (ENH) and Mozambique private-sector consortium Profin Consulting will be involved in the gas distribution.

“The terms and agreements concerning the level of ownership and distribution rights are currently being discussed as part of the joint venture agreement,” he says, adding that, once the prefeasibility study has been completed, a project implementing company will be established. Thereafter, equity portions for the pipeline will be allocated to the various companies.

Kgogo notes that the pipeline to Gauteng could be completed within three years of construction, making the gas delivery date between 2020 and 2021, depending on the final investment decision by the upstream operators. However, the processing facility is likely to be completed within two to three years, offering SacOil and CPPB an opportunity to generate income through the supply of natural gas to markets near the Rovuma basin.

Meanwhile, Kgogo notes that, since joining SacOil in mid-2014, the company has changed its business model and strategy from being an oil- focused exploration company to an upstream, midstream and downstream oil and gas company.

“We believe that, if we are only an upstream producer solely focused on oil, the success of the business will depend heavily on the oil price. To avoid this, we had to derisk our portfolio and consider . . . gas projects, which are generally not affected by the oil price, affording us the opportunity to negotiate a fixed price over 20 years,” he says, concluding that this provides the company with a sus- tainable income not linked to fluctuating oil prices.