South Africas oil and gas sector is set for growth as an upsurge in exploration and the increasing offshore prospects point towards considerable potential for its long-term upstream prospects, a study has suggested
According to Fast Market Research, the country also has vast unconventional resource potential, and with growing political support lifting the moratorium on hydraulic fracturing, the companies could see shale development permits issued as early as first half of 2014.
The main trends and developments in South Africa’s oil and gas sector are:
— Interest peaked in South Africa’s offshore potential with Shell, ExxonMobil and Total exploring in the deeper-water areas. Total has announced that it will begin drilling operations in its 11B/12B license in 2014. Shell has also hinted that it would begin drilling operations in its Orange Basin permit at some point in 2014, although this has not been finalised.
— There has been significant concern surrounding the mineral and petroleum development amendment bill, which was passed by parliament March 2014. The bill offers the state a 20 per cent free carried stake in all new developments, no limit on state ownership of assets and no clarity regarding the pricing terms for stake acquisition. Investors have voiced concern about potential resource nationalism and asset fire sales. It is probable that this level of regulatory uncertainty will delay major investment decisions over the short term, with long-term risks to the downside, depending on the manner of the bill’s implementation, the report said.
— In September 2012, South Africa’s Cabinet announced the end of a temporary ban on hydraulic fracturing (fracking), which had been in place since April 2011. Bundu Oil & Gas, Chesapeake Energy, Chevron, Falcon Oil & Gas, Sasol, Shell and Statoil are among the players actively pursuing the development of shale gas in South Africa. Growing political support for shale gas development could see exploration permits issued from as early as first half of 2014.
— Coalbed Methane (CBM) could provide a more immediate remedy to South Africa’s gas needs than shale. Australian company Kinetiko Energy continues to see strong production flows from its Amersfoort CBM pilot wells. The company could book gas reserves from the project in first half of 2014, while commercial production could begin in the next few years.
— In the downstream sector, it appears that with strong government focus on Project Mthombo, it is now expected the refinery will take precedence over coal-to-liquids (CTL) expansions and green field projects. This is largely due to the limited capacity from CTL and the strong refined project demand growth expected in South Africa. Initial plans sought a 400,000 bpd facility, although it now appears a 300,000 bpd refinery is more feasible. The construction of the project would also put PetroSA in a more dominant position in the downstream and weight heavily on less efficient competitors.
Total liquids production is expected to grow in South Africa as the Ibuhbesi Gas project adds to output, while improved gas availability to the Mossel Bay gas-to-liquids plant should see it function at higher utilisation rates. The agency forecast production to rise moderately from 169,000 bpd in 2013 to around 200,000 bpd by 2023. However, petroleum product consumption will grow at a stronger rate rising from 606,000 bpd in 2013 to 815,000 bpd by 2023.
The report has predicted that gas production will fare better than oil, with the Ikhwezi and Ibhubesi projects expected to considerably boost output over the forecast period.
