Preview: Africa Energy Yearbook 2013 by EnergyNet

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AFRICA ENERGY

YEARBOOK

2013

AFRICAENERGYFORUM

Bringing power to Africa

Key Statistics Relating to Africa’s Energy Access

Over the last decade, world’s

6 of the

10 fastest-growing

economies were in

Sub-Saharan Africa1

Electricity access in sub Saharan Africa is the lowest worldwide at 2 only

17%

600 million people and more than

10 million microenterprises across Africa have no access to electricity3

African manufacturing enterprises experience on average power outages per year4

56 days

Source: Please see Chanda Kapande’s article on page 61 2 http://www.afrepren.org/project/gnesd/esdsi/erc.pdf 3 http://www.lightingafrica.org 4 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES AFRICAEXT/0,,contentMDK:21935594~pagePK:146736~piPK:146830~theSitePK:258644,00.html

The Africa Energy Yearbook: Promoting Sustainable Energy Access For All

2013 Africa Energy Yearbook

Africa Energy Yearbook Volume 7, June 2013

Published by: Energynet Limited Fulham Green Bedford House 69-79 Fulham High Street London SW6 3JW

Editor: Articles, Directories & Project lists Amy Offord Amy.offord@energynet.co.uk +44 (0) 20 7384 8068

Artwork & Design: Catherine van Dyk Clear Impressions Publishing & Print Media Design clearimpressions@rocketmail.com +27 79 344 1649

Copyright c 2013 EnergyNet Limited ISBN 978-0-9551943-1-3 All righs reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of EnergyNet Limited.

www.energynet.co.uk

CONTENTS Acknowledgement Foreword From EnergyNet

Pg 1

Policies for progress Oliver Knight, Senior Energy Specialist, World Bank Renewable Energy Resource Mapping: A Crucial Public Stimulus to Commercial Investment

Jean-Marie Masse, Senior Advisor and Program Manager, European Investment Bank (EIB) Medium and Long-term Credit Risk Guarantees in Africa: Potential for Expansion of Support for Energy Projects

Doug Kuni, Managing Director, South African Independent Power Producers Association Challenges in Electricity Regulation in the Republic of South Africa (RSA)

Davide ChinigĂ˛, Research, Policy Innovation Systems, University of Edinburgh Energy Security and Livelihood Generation in Bioenergy Projects: The Case of Policy Innovation Systems for Clean Energy Security (PISCES)

Dr. Viren Ajodhia, Energy Economist, DNV KEMA Thijs Slot, Senior Consultant, DNV KEMA Tariff Structures, for Sustainable Electrification in Africa

Antonio Barbalho, Sector Leader, Multilateral Investment Guarantee Agency, World Bank Group Think Differently, and Keep Your Feet Firmly on the Ground, Credit Enhancement for Energy in Africa

Energy Efficiency: The Case for Renewables Desta Mebratu, Deputy Regional Director, UNEP Meseret Teklemariam Zemedkun, Senior Geothermal Expert, UNEP Renewable Energy for Sustainable Development in Africa

Alan Brent, Associate Director, Centre for Renewable and Sustainable Energy Studies, Stellenbosch University, South Africa A Value Proposition for Concentrating Solar Power for South Africa

Dr Kilian Hagemann, Director, G7 Renewable Energies South Africaâ&#x20AC;&#x2122;s REIPPPP: A Blueprint for Wind Power in Africa?

2013 Africa Energy Yearbook

contents André Clark Juliano, International Vice President, Construtora Camargo Correa João Teixeira Pires, Sustainability Manager, Construtora Camargo Correa José Augusto Braga, Director and Mix Design Consultant, Construtora Camargo Correa Marcelo Marchi dos Santos, Civil Engineer, Construtora Camargo Correa Miller Soares Rufino Pereira, Civil Engineer, Construtora Camargo Correa Sérgio Jeremias Elísio, Mechanical Engineer , Construtora Camargo Correa Brazilian Experiences, Technologies and Methodologies for Promoting Sustainable Development from Hydropower Plant Constructions

Chanda Kapande, Director, Harmattan Renewables Realising Africa’s Renewable Energy Potential

Ben Good, Chief Executive Officer, GVEP International Supporting the Development of the African Off-grid Energy Market

Oil and Gas Industry Insights

Paul Eardley-Taylor, Head of Energy, Utilities & Infrastructure Coverage South Africa & Africa, Standard Bank Nicholas Green, Analyst: Energy, Utilities & Infrastructure, Standard Bank The Pending Impact of Natural Gas on South Africa’s Energy Sector: How Natural Gas will Affect South Africa’s Power Generation and Energy Options

Taciana Peão Lopes, Head of the Energy Natural Resources and Infrastructure Practice, CGA Limited Paulo Ferreira, Advisor, Energy Natural Resources and Infrastructure Practice, CGA Limited Energy Efficiency – The Mozambican Case Energy, Natural Resources and Infrastructure Practice

Matt Ash, Director, Norton Rose South Africa at an Energy Cross-roads

Private Sector Perspectives Akinwole Omoboriowo, Chief Executive Officer, Genesis Electricity Limited, Nigeria Embedded Generation: A Panacea to African Industrial Power Supply Deficiency?

Edouard Préfontaine, Director, Corporate Development and Project Financing, SMF Energy Experience and Challenges of Developing an IPP in Solar Energy in Sub Saharan Africa

101

Bernhard van Meeteren, Energy Sector Specialist, FMO – Netherlands Development Finance Company This Is What We Have Been Waiting For!

105

Per Van Swaay, Senior Vice President, TCX Fund A Powerful Case for Local Currency

109

The Africa Energy Yearbook Interview Dr Sam Amadi, Chairman and Chief Executive Officer of the Nigerian Electricity Regulatory Commission (NERC) H.E Willem Isaacks, Deputy Minister, Ministry of Mines & Energy, Namibia Sumayya Athmani, Chief Executive Officer, National Oil Corporation of Kenya Peter Kieran, President, CPCS Transcom

31 73 95 115

Artists’ Corner Benon Lutaaya, Glen Green and Mary Visser

118

2013 Africa Energy Yearbook

contents Directories Conventional Thermal Generators Temporary power Wind power Hydropower Solar Power

119 127 130 132 133

Power Projects Conventional Power Projects Temporary Projects Solar and Winds Projects

135 167 169

Artists Benon Lutaaya: Untitled Unfinished Life My Memories Broken Scarred but Alive

30 35 65 90 114

Glen Green: Danakil woman – Ethiopia (L-07) Mt Horeb, Clarens – South Africa (SA-43) Mursi woman – Ethiopia (L-19) Dhows – Mozambique (L-35) Kolmanskop – Namibia (SA-19) Turkana woman – Kenya (L-02) Kokerboom, Richtersveld – South Africa (SA-33) Baobabs – Malawi (EA-17)

14 48 75 89 104 107 113 168

Mary Visser: Green Tiles Purple Dress Rushing Man Side Mirror Petrol Station Workers Drydock, Daybreak

8 71 84 125 131 166

Advertiser’s Index African Renewable Energies Ltd Andritz Hydro APR Energy Engerati Events Africa Herbert Smith Freehills Mapna Rand Merchant Bank Renewable Energy Monitor Standard Bank TCX Fund Groupe Jeune Afrique

42 OBC 126 6 170 2 26 66 36 76 108 72

Mt Horeb, Clarens – South Africa (SA-43) – by Glen Green

2013 Africa Energy Yearbook

policies for progress

Renewable Energy Resource Mapping: A Crucial Public Stimulus to Commercial Investment Mapping a country’s renewable energy resources is a crucial public investment for governments looking to encourage the sustainable expansion of renewable power generation. Knowing the scale and location of renewable energy resources such as biomass, small hydropower, solar and wind allows governments to strategically plan for their development and create favorable policies, and provides commercial investors with greater resource certainty, thus reducing project risk and speeding up deployment.

OLIVER KNIGHT

The author is a Senior Energy Specialist at the Energy Sector Management Assistance Program (ESMAP), a global knowledge and technical assistance program administered by the World Bank. ESMAP provides analytical and advisory services to low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, Finland, France, Germany, Iceland, Lithuania, the Netherlands, Norway, Sweden, and the United Kingdom, as well as the World Bank. For more information visit www.esmap.org

nfortunately many African countries do not have basic resource data, or the geospatial data (for example, digital maps of transmission networks) to be able to make use of resource maps. Satellite-based resource maps are available for the continent, but very few of these have been validated by high quality groundbased data (e.g. wind measurements taken at 80m, or surface solar measurements), introducing large margins of error and, in some cases, potentially missing localized resource hotspots. At the same time, Africa is power-hungry, with electricity demand outstripping supply in many countries, leading to high generation costs through the use of emergency diesel generation. If done correctly, a relatively small investment in resource mapping and geospatial planning could result in potentially large increases in investment in the sector, leading to greater low carbon energy generation and a welcome diversification of the electricity mix. For countries with high potential in one or more renewable energy resources, initial satellite-based or numerical modeling should be complemented by groundbased data taken over several years – for solar and wind, two years is probably sufficient (although whenever measured data are involved, the more the better).

“

Unfortunately many African countries do not have basic resource data, or the geospatial data to be able to make use of resource maps

“

Senior Energy Specialist World Bank

2013 Africa Energy Yearbook

policies for progress This makes renewable energy resource mapping expensive when compared to standard technical assistance projects, and will generally require specialist input for both the modeling and the data collection itself. However, for less than $5m it should be possible to comprehensively map a medium-sized African country for four renewable energy resources for the purposes of electricity generation: biomass, small hydropower, solar and wind. The data obtained should ideally be placed in the public domain, where they can be used by commercial developers and researchers for more specific purposes – for example, developers can make use of historical data to verify how representative their own measured data are to a ‘typical’ year, thus shortening the time they require to obtain a bankable site study. Once individual GIS layers are available for each resource, these can be brought together for the purpose of geospatial planning: essentially the process of cross-referencing the data with other key factors and constraints, such as the location of transmission lines, roads, protected areas, population centers and the like. This can enable governments to prioritize certain zones with high resource potential (and perhaps exclude others), and put in place the conditions necessary to facilitate

investment – such as a new transmission line, or fast-track permitting. Resource awareness can also help create a more informed regulator and off-taker, helping ensure that feed-in tariffs are realistic and fair. In recognition of the transformational potential of resource mapping, the Energy Sector Management Assistance Program (ESMAP) of the World Bank has recently launched a new initiative to support resource mapping and geospatial planning globally, with four projects initially proposed for Africa covering the following countries: Madagascar, Niger, Tanzania and Zambia. In all cases substantial ground-based data collection is anticipated, although initial outputs based on satellite and numerical modeling techniques could be available within a year. This initiative is one of the World Bank’s major contributions to the UN Sustainable Energy for All initiative, which aims to provide universal access to modern energy by 2030, double renewable energy output, and double the rate of energy efficiency improvement. Our hope is that by providing valuable resource information, African governments and commercial investors will have access to one of the crucial building blocks for scaling up the deployment of clean, distributed, renewable energy.

Green Tiles

– by Mary Visser

2013 Africa Energy Yearbook

oil and gas industry insights

The Africa Energy Yearbook Interview Sumayya Athmani, Chief Executive Officer, National Oil Corporation of Kenya The National Oil Corporation of Kenya is a state corporation under the Ministry of Energy charged with participation in all aspects of the petroleum industry. National Oil was born out a need by the Government of Kenya to have greater control of the petroleum sector which is a crucial determinant of the country’s economic performance.

enya’s Vision 2030 is the national long-term development blue-print that aims to transform Kenya into a newly industrialising, middle-income country providing a high quality of life to all its citizens by 2030. The Managing Director, Sumayya Athmani, will participate at the Africa Energy Forum 2013. Here she talks to us about how Kenya’s oil discoveries will contribute towards this initiative, and how best to approach the current barriers and opportunities faced by the sector. Question: Kenya’s Vision 2030 aims at turning the country into a middle income country in the next 18 years. To what extent will Kenya’s oil discoveries help meet this target? Answer: Kenya’s oil discoveries, if confirmed to be commercial, will certainly help to drive the wheel of economic transformation towards Vision 2030. Petroleum is the single largest import by Kenya, accounting for 21% of the country’s total imports. Own production will certainly help in management of the balance of payments and stemming loss of foreign exchange. A commercial discovery would also spur a whole new economic sector and industrial development which will serve to enhance realization of the Vision 2030. Question: How can the region’s governments cooperate and harmonise their plans for processing and transporting infrastructure in the sector? Answer: The East African Community which consists of all the five states in East Africa, with South Sudan and Somali also having shown interest, to join the block presents a good avenue for driving regional partnerships

for infrastructure development. In this respect, there is already in place a regional refinery development plan albeit that it needs to be revised in light of the recent trends in the region while there is already discussion of a LNG gas pipeline from Tanzania to serve countries in the region. The LAPSSET project which is being championed by Kenya is also aimed at regionally integrating petroleum and transport infrastructure. Question: Kenya’s skilled workforce and geographical location places the country in a strong position to become an oil industry hub, is Kenya’s government and industry ready to maximise the value that can be obtained out of this resource? Answer: Vision 2030 clearly articulates that Kenya shall be a regional hub for different services. In this respect, the National Oil Corporation of Kenya is working towards positioning the Kenyan Coast as a regional and

“

Kenya’s oil discoveries will help drive the wheel of economic transformation towards Vision 2030

“

2013 Africa Energy Yearbook

oil and gas industry insights

“

The biggest obstacle remains inadequate and aged infrastructure, which presents significant bottlenecks to the effective distribution of petroleum in Kenya

“

ultimately global petroleum logistics trading hub and is already working on a project to set up one of Africa’s largest petroleum tank farms and offshore import terminal in Mombasa with sites also set on developing the petroleum infrastructure for the upcoming port of Lamu. In addition, National Oil is working towards positioning Kenya as Africa’s oil and gas upstream services hub to support the growing E&P programmes in East, Central and Southern Africa. In this respect, National Oil is already working towards setting up a seismic processing centre, modern data centre with a visualization facility as well as a modern geochemical laboratory. National Oil is also looking to work with the Government of Kenya to drive an ambitious capacity building programme aimed at ensuring more Kenyans get the requisite skills for driving Kenya’s and East Africa’s fledgling oil and gas upstream sector. Question: What are the immediate obstacles to Kenya’s oil industry? Answer: The biggest obstacle remains inadequate and aged infrastructure, which presents significant bottlenecks to the effective distribution of petroleum in Kenya. In addition, there is need for extensive capacity building to provide the skills that will be required for driving the oil and gas industry forward.

Sumayya Athmani Chief Executive Officer National Oil Corporation of Kenya Sumayya Hassan-Athmani is the Chief Executive Officer of the National Oil Corporation of Kenya. She holds a Bachelor of Laws (Hons) degree from Lancaster University, a Master of Laws degree in Commercial Law from the University of Bristol, UK and is an advocate of the High Court of Kenya. She joined National Oil in 2004 as the Company Secretary and Legal Affairs Manager from private law practice where she worked as a commercial and conveyance attorney and later appointed Deputy Chief Executive Officer (DCEO) then acting CEO before being confirmed to the position in 2011. During her tenure as CEO, National Oil has registered a number of major successes in the upstream, midstream and downstream segments of the petroleum business and was declared the Africa National Oil Company of the Year in 2011.

2013 Africa Energy Yearbook

energy efficiency: the case for renewables

Renewable Energy for Sustainable Development in Africa

Desta Mebratu Deputy Regional Director UNEP Dr. Desta Mebratu has more than 24 years of experience working for industries, government agencies, universities and international organizations. He joined UNEP in August 2003 as the Regional Industry Officer for Africa and is currently serving as Deputy Regional Director of UNEP Regional Office for Africa. His main areas of expertise are: Resource efficient and cleaner production, environmental management systems, sustainable development policies and Green Economy. He published more than 40 articles in peer-reviewed journals, books and conference reports. Dr. Mebratu is a chemical engineer by background and has a PhD of engineering in Industrial Environmental Economics and an MBA in International Business.

Meseret Teklemariam Zemedkun Senior Geothermal Expert UNEP Meseret is currently working for United Nations Environment Programme and manages and coordinates the UNEP African Rift Geothermal Facility Project (ARGeo). Meseret worked for about 20 years in the Geological Survey of Ethiopia. In recent years, her professional focus has been on the development, implementation and coordination of African regional geothermal programmes. She has been closely involved in different international assignments of: (i) ICS- UNIDO; (ii) the African Union Commission; (iii) SKM of New Zealand and (iv) BGR of Germany. Meseret has a PhD in Earth Sciences-Geothermics. She did post graduate research work in geothermal science and technology in Iceland, Italy and USA.

In 2010, six of the worldâ&#x20AC;&#x2122;s te n fa ste st - g row i n g e co n o m i e s we re i n Africa and seven African countries are expected to be in the top 10 over the next five years (The Economist 2011). Despite the encouraging economic growth registered in recent years, the speed of lifting a vast majority of the African people from poverty remains low, in comparison to progress achieved in others. Hence poverty eradication and sustainable development remain the core issues of Africaâ&#x20AC;&#x2122;s development agenda.

or African countries, economic and social development cannot be achieved in the absence of adequate energy supplies. While reliable energy services, by themselves, are not sufficient to eradicate extreme poverty, they are necessary for creating the conditions for economic growth and improving social equality.

United Nations Environment Programme. Regional Office for Africa, P.O.Box: 47074-00100, Nairobi, Kenya. The views expressed in this paper do not necessarily represent the decision or the stated policy of the United Nations Environment Programme.

2013 Africa Energy Yearbook

energy efficiency: the case for renewables With the average annual GDP growth rate of 6.2% adopted in 2010 by the Programme for Infrastructure Development of Africa (PIDA), roughly a three-fold growth in GDP by 2030 and seven-fold by 2050 (IRENA 2013) was predicted. This may entail a much larger energy demand and call for a better performing energy sector. Energy poverty remains a serious obstacle to economic and human development in most parts of the continent. As a region, Africa continues to face critical challenges related to its energy sector, which is characterized by lack of access to modern energy services (especially in rural areas), poor infrastructure, low purchasing power, low investments and over-dependence on traditional biomass to meet basic energy needs. This paper discusses the role of renewable energy for Africa’s development in increasing access to modern energy services and speeding up the socio-economic development of the continent. It also highlights the key interventions and measures that need to be taken by African countries in order to scale up renewable energy development in the region.

Why renewable energy 38

Besides the overall environmental benefits, including the reduction of Green House Gases that contribute to climate change, the development of renewable energy resources could lead to a number of economic and social benefits. The following could be cited as the major ones (UNEP 2011). • Energy security: Renewable energy can make a major contribution to energy security at national and local levels. At the local level, renewable energy sources can ensure a more stable and reliable supply either through local mini grids or household level systems such as PV or biogas, reducing disruptions from a centralized grid or fuel supply. In this context, they offer diversification in energy generation, thus strengthening energy security and resulting in a sustainable energy mix. • Energy poverty: Renewable energy sources can also play an important role in a comprehensive strategy to eliminate energy poverty. This is particularly true of small-scale RTs that are made locally and operate on the basis of solar, thermal et cetera. Geothermal resource development and utilization can create significant job and enterprise opportunities both directly and indirectly. Cost effective solutions including clean biomass and off-grid renewableenergy technologies, such as solar PV, with low operating costs and flexible, small-scale deployment options provide the basis for addressing energy poverty at the local level. • Economic benefit: As the maturity of technologies and the related “learning effects” progresses, renewable energy technologies have increasingly become competitive. In view of future growth in energy demand and against a background of rising fossil-fuel prices and uncertainty regarding peak oil, most oil importing African countries

are spending a large percentage of their export revenues on imported oil. Renewable energy could play a vital role in minimizing fuel imports by providing an alternative to thermal-based electricity in the form of, for example, small hydro-power units, cogeneration (using biomass as fuel) and geothermal energy. • Employment opportunities: A shift to renewable energy sources brings many new employment opportunities. Due to the higher labour intensity of renewable energy compared with thermal power generation, increased investment in renewable energy would add to employment in the short-term. • Modular flexibility: The modular nature (i.e. the fact that they can be applied incrementally) of most renewable and the consequent low and progressive nature of investment requirements make them particularly suitable for capitalconstrained African countries while at the same time provides the opportunity to produce energy where it is needed and immediately used.

The development imperative In 2010, six of the world’s ten fastest-growing economies were in Africa and seven African countries are expected to be in the top 10 over the next five years (The Economist 2011). This notwithstanding, the level and speed of lifting a vast majority of the African people from poverty remain low, in comparison to progress achieved in other world regions. Hence poverty eradication and sustainable development remain the core issue on Africa’s development agenda. For African countries, economic and social development cannot be achieved in the absence of adequate energy supplies. While reliable energy services, by themselves, are not sufficient to eradicate extreme poverty, they are necessary for creating the conditions for economic growth and improving social equality. Africa’s power generation capacity makes up 3.5% of the world’s total- disproportionately low in relation to the continent having 15% of the world’s population. As depicted in Table 2, the per capita electricity consumption in Africa averaged 124 KWh/yr, which is less than 1/20th of the global average of 2,782 KWh/yr. Only 30% of Africans had access to electricity, about a third of the global average of 87%. Extending rural electrification can also help to enhance linkages between rural farming and non-farming activities, which will be a powerful mechanism for growth and poverty reduction (UNECA 2011). However, bringing electricity to the rural poor has been an endless challenge for Africa. The low level of energy use and its undeveloped structure, both by mode of supply and by end-use, are mainly attributed to: • the undeveloped states of the energy production and distribution infrastructures;

2013 Africa Energy Yearbook

energy efficiency: the case for renewables

Table 1: Access to, and per capita consumption electricity Regions

Sub Saharan Africa

Africa

World

Access to Electricity (% of population)

Per capita Consumption (KWh/Year)

107

124

2782

(Source: compiled from WEO, 2011 and IRENA 2011)

• the small sizes of the continent’s economies and consequently, the low income levels of the population and its low purchasing power for commercial energy; and • The undeveloped states of the structures of the continent’s economies where the absence of large industries outside the main urban areas renders geographic equity in power supply economically non-viable.

resources have an important role to play in covering future heat demand. The wind power potential is highest in the high standing terrains of Northern and Eastern Africa. Solar power potential is highest in the Sahara followed by the Kalahari and the Ogaden. High temperature geothermal resources are best suited to electricity generation around and in the region of the East African Rift System (EARS), with other resources suited to direct heat applications in agriculture and industry existing in Northern and Southern Africa as well. Central Africa is especially well endowed with potential for sustainable biomass use while other regions also have potential for using bagasse for electric power generation. However, these energy endowments remain largely underutilized. For example, only 5% of the continent’s potential of hydropower and less than 1% of its geothermal potential are developed and utilized (Source: IRENA 2011). Renewable energy resources developed so far make up only 16% of the total installed electric power generation capacity comprising: (a) 21.2 GW from hydro, (b) 1.7 GW from wind, (c) 1.1 GW from Biomass, and (d) 0.2 GW from geothermal energy (Source: IRENA 2011).

Renewable energy potential in the region Africa is richly endowed both with vast non-renewable (oil, gas and coal) and renewable energy resources (hydropower, solar, wind, geothermal and biomass). It is estimated that the continent has about 1,750 TWh potential of hydropower (Source: UNIDO 2009) and more than 20,000 MW of geothermal potential (Source: IPCC 2011). The continent receives abundant solar radiation throughout the year and recent studies have confirmed the availability of abundant wind energy resources along some of the coastal and specific inland areas of Africa (Africa Wind Energy Association, http://www.afriwea.org//). Africa’s renewable energy potential is substantially larger than the current and projected power consumption of the continent. To date, almost half of African countries have undertaken national resource assessments for one or more renewable energy resources. Solar and wind assessments exist for at least 21 countries, biomass assessments in at least 14 countries and geothermal assessments for power generation in at least 7 countries. Local geothermal, solar thermal and bio energy

Africa success stories – Fostering renewable energy development Renewable energy feed-in tariffs in Kenya Kenya adopted renewable energy feed-in-tariffs (REFIT) in 2008, a policy it revised in January 2010. The REFIT aims to stimulate market penetration for renewable energy

Table 2: Renewable Energy Potentials by region TWh/yr (Compiled from IRENA 2011) Region

Wind

Solar

Geothermal

Hydro

Biomass

Northern

3,000 – 4,000

50,000 – 60,000

0.3 - 0.6

0.1 - 3.7

105

0.1 - 3.5

Southern

25,000 – 30,000

Western

0–7

50,000

Eastern

2,000 – 3,000

30,000

>125

578

0.7 - 2.7

Central

1,057

1.8 - 3.1

Total

5,000 – 7,000

155,000 -170,000

>125

1,844

3.0 - 13.6

2013 Africa Energy Yearbook

energy efficiency: the case for renewables technologies by making it mandatory for energy companies or utilities to purchase electricity from renewable energy sources at a pre-determined price. This price is set at a level high enough to stimulate new investment in the renewable sector. This, in turn, ensures that those who produce electricity from renewable energy sources have a guaranteed market and an attractive return on investment. Aspects of a REFIT include access to the grid, long-term power purchase agreements and a set price per kilowatt hour (kWh). Kenya REFIT covers electricity generated from wind, biomass, small hydro, geothermal and biogas, with a total electricity generation capacity of 1300 MW. For more information: www.unep.org/greeneconomy/SuccessStories/ FeedintariffsinKenya/tabid/29864/Default.aspx.

Loans for solar water heaters in Tunisia

“

The tourism and industry sectors are also involved, with 47 hotels engaged by late 2009 and there are plans to encourage the industry sector to make greater use of the sun’s energy.

“

The solar water heater market in Tunisia showed a dramatic increase when low interest loans were made available to householders, with repayments collected through regular utility bills. This reduced the risk for local banks, while simultaneously showing borrowers the impact of solar heating on their electricity bills. Prosol – a joint initiative of Tunisia National Agency for Energy Conservation, UNEP, and the Italian Ministry for Environment, Land and Sea – has helped more than 105,000 Tunisian families get their hot water from the sun, based on loans of over $60 million, a substantial leverage on Prosol’s initial $2.5 million cost. Its success has led the Tunisian Government to set an ambitious target of 750,000m2 of solar panels for 2010-2014. Many

jobs have been created, as 42 suppliers and more than 1000 installation companies have sprung up to service the solar market. The tourism and industry sectors are also involved, with 47 hotels engaged by late 2009, and there are plans to encourage the industry sector to make greater use of the sun’s energy. A project is underway to make photovoltaic energy available to a further 15,000 households through a similar loan and repayment scheme. For more information: http://www.unep.org/unite/30ways/story.aspx?storyID=49

Overcoming barriers The principal barriers for the development and expansion of the supply of renewable energy are often the same across countries. The major barriers identified by UNEP (2011) in relation to renewable energy development are: risks and incentives associated with renewable energy investments, including fiscal policy instruments; relative costs of renewable energy projects and financing; market failure related to investments in innovation and R&D; electricity infrastructure and regulations; technology transfer and skills; and sustainability standards. To encourage large and sustained private investment in Africa’s renewable energy resources, a combination of research and development (R&D)-push and demand-pull measures is needed. Examples from studies conducted by the Global Network on Energy for Sustainable Development (GNESD) show that governments should establish dedicated and authorized agencies to promote, initiate and finance renewable energy projects and programs (GNESD 2006). Although major technical and financial breakthroughs have been achieved internationally with respect to renewable energy, their contribution to Africa’s energy problems remains minimal (except for hydropower). To increase their contribution using market-based approaches, major barriers to the wider dissemination of renewable energy on the African continent will need to be overcome. These barriers can be categorized as being: i) Policy, regulation and institutional framework; ii) Information and technical capacity; and iii) Financial. (A) Policy, Regulatory, and Institutional framework The successful development and dissemination of renewable energy is governed by laws and fulfilled by appropriate institutions covering the different technical, economic to market aspects. In Africa, there is inadequacy of clear, coherent, consistent and conducive policy and regulatory frameworks that accelerates and enhances renewable energy development. A clear, predictable and stable policy environment can create

2013 Africa Energy Yearbook

energy efficiency: the case for renewables the confidence required to stimulate private investment, as discussed in the success story presented earlier (UNECA 2011). Countries that have a clear direction and leadership from the government in the form of well coordinated policies and regulations have made significant progresses in increasing the share of renewable energy in their energy mix. The absence of such an enabling condition makes it difficult for the private and industrial sector to operate effectively and expand their investments in the development and use of renewable energy in the continent. (B) Information and Technical Capacity A major technical barrier is the lack of accurate and well organized renewable energy resource data. Although some progress has been made in recent years, the data on renewable energy, especially for solar and wind, is still scanty. Ensuring secure and sustainable commercial development of renewable energy also depends on institutional and human capacities as well as business and market capabilities. Inadequate technical skills in the continent affect the development of renewable technologies. Inadequate domestic technical skills account for poor maintenance of imported systems and lack of provision of adequate after-sales technical back-up service. Hence, there is need for high and middle level technical manpower in business development, manufacturing and overall management. The public sector also lacks adequate personnel to undertake effective monitoring and evaluation. (C) Financing and Investments Global investments in renewable energy jumped by 32 per cent between 2009 and 2010 to a record US$ 211 billion. Countries in Africa posted the highest percentage increase of all developing regions (excluding the emerging economies of Brazil, China and India). In Egypt, renewable energy investment rose over the same period by US$ 800 million to US$ 1.3 billion as a result of the solar thermal project in Kom Ombo and a 220-MW onshore wind farm in the Gulf of Zayt. In Kenya, investment climbed from virtually zero in 2009 to US$ 1.3 billion in 2010 across technologies such as wind, geothermal, small-scale hydro and biofuels. Small but significant advances were also made in Cape Verde, Morocco and Zambia (UNEP, Bloomberg New Energy Finance, 2011). In relative terms, however, investments in clean energy remain negligible in Africa, and concentrated in a very small number of very large projects (UNEP, Bloomberg, 2010), pointing to the need to enhance the capacity of institutions and people and to significantly leverage increased financing. Much of the credit for the “mainstreaming” of renewable energy goes to governments that have policies, at the national, regional and local levels, driving investment in renewables forward (UNEP, Bloomberg New Energy Finance, 2011).

Conclusion The rapid and vast socio economic development in Africa during the recent past has engendered a fast growing demand for commercial energy. Africa’s huge and untapped renewable energy sources, if utilized, can immensely contribute to the energy needs of the continent. Developing and utilizing these resources would make significant contribution to the broader regional objective of poverty alleviation and sustainable development. For Africa to benefit from its renewable energy resources it needs to tackle head-on some of the key challenges. Existing and newly developed global, continental and regional programmes and initiatives on sustainable energy development in Africa can be used as a vehicle to address the above challenges and assist African countries to develop their energy sector on a sustainable basis. This includes the Program for infrastructure development in Africa (PIDA) and the UN Initiative on Sustainable Energy for All. The African Programme on Sustainable Energy Development, which is currently being developed as part of the regional implementation mechanism for Rio+20 outcomes is believed to serve as a useful platform to facilitate this development in the region.

41 References 1. Africa Wind Association: http://www.afriwea.org// 2. Foster, V., and C. Briceño-Garmendia (ed.), 2010. Africa’s Infrastructure: A Time for Transformation. Washington D.C. The World Bank. 3. GNESD. 2010. Policy Brief: Achieving Energy Security in Developing Countries. www.gnesd.org/Downloadables/EnergySecurityDevCountries.pdf. 4. IPCC 2011: Special Report on Renewable Energy Resources and Climate change Mitigation: Chapter 4: Geothermal Energy.http//srreen.ipcc. wg3.de 5. IRENA 2011: Scenarios and Strategies in Africa. . www.irena.org 6. IRENA 2011: Renewable Energy Country Profile. www.irena.org 7. IRENA 2013: Africa’s Renewable Future. The path to sustainable growth. www.irena.org 8. The Economist. 2011. A more hopeful continent: The lion kings?The Economist 06-01-2011. www.economist.com/node/17853324. 9. The Economics Intelligence Unit, 2012, Africa: open for business. The potential challenges and risks. 10. UNDP and WHO. 2009. The Energy Access Situation in Developing Countries, A Review Focusing on the Least Developed Countries and sub-Saharan Africa. 11. UNECA, 2011, A Green Economy in the Context of Sustainable Development and Poverty Eradication: What are the Implications for Africa? 12. UNEP, Bloomberg New Energy Finance. 2011. Global Trends in Renewable Energy Investments 2011. Analysis of Trends and Issues in the Financing of Renewable Energy. 13. UNEP, 2011, Towards Green Economy: Pathways to Sustainable Development and Poverty Eradication 14. UNIDO 2009: Scaling up renewable Energy in Africa. 12th ordinary session of Heads of State African Union. 15. World Energy Outlook 2011.

Turkana woman – Kenya (L-02) – by Glen Green

“GVEP’s strategy is to remain focused on what we do best: helping small energy businesses to grow in order to expand energy access.” – Ben Good, GVEP International- page 67

2013 Africa Energy Yearbook

oil and gas industry insights

The Pending Impact of Natural Gas on South Africa’s Energy Sector: How Natural Gas will Affect South Africa’s Power Generation and Energy Options

Paul Eardley-Taylor

Nicholas Green

Head of Energy, Utilities & Infrastructure Coverage South Africa & Africa Standard Bank

Analyst: Energy, Utilities & Infrastructure Coverage South Africa & Africa Standard Bank

Paul Eardley-Taylor is Standard Bank’s Head of Oil & Gas Coverage for South Africa & Southern Africa, focused upon relationship management oversight and developing sector client strategies. Paul has 14 years energy investment banking experience encompassing leading project / privatisation advisory, project finance and corporate banking teams. Prior to joining Standard Bank in January 2009, Paul spent over 10 years with HSBC, working on EMEA oil & gas, power and utlity transactions and was based in London and Johannesburg.

Nicholas Green is an Analyst in the Oil & Gas coverage team for South Africa & Southern Africa. He has been at Standard Bank since 2010 and has worked on various renewable energy deals. As the leading bank in Africa, Standard Bank is well placed to assist and advise clients on transactions, securing financing and refinancing for any power and infrastructure transaction, whether from an investor, contractor or equipment supply perspective.

As has been outlined in the National Development Plan (‘’NDP”), South Africa needs to resolve a number of energy challenges in order to achieve its growth and development objectives. The most significant energy challenges can be seen in terms of each of the power generation and liquid fuels sectors.

s is well known, South Africa has suffered from major energy challenges centred around a shortage of base load power since early 2008. Although two major coal-fired plants have long been under construction, any relief from the ‘’supply crisis’’ is not expected until 2014/2015, by which time most of the national capacity will be 30-35 years old. However, recent and on-going activity in the South African onshore and offshore Oil & Gas (‘’O&G’’) industry illustrates a developing consensus amongst global oil & gas industry players, that South Africa has material offshore, shale and coal bed methane (“CBM”) reserves of natural gas which can be appraised and then extracted. Separate to this, South Africa’s neighbour – Mozambique –

2013 Africa Energy Yearbook

oil and gas industry insights

Figure 1: SA Offshore O&G: Recent Highlights (PASA/Standard Bank)

has recently found globally material gas reserves, which may also be offered to South Africa. If correct, we argue that South Africa has an opportunity over the next decade to undertake its own ‘’dash for gas’’, replicating the development success that the US and UK markets experienced with the development of their respective gas-related and gas to power industries. Significantly, if the resources have a purely domestic market, we believe they can also be largely priced in Rand (which offers multiple economic benefits). From our perspective, assuming the resources are economic, South Africa is at a distinct advantage in that: • Other markets have incurred the lengthy and expensive R&D costs in terms of extraction and beneficiation technologies; and • Per the recent development of renewables in South Africa, for example, the South African gas sector development is probably able, to a large extent, to be funded privately - This will remove a significant burden from the SA fiscus (which has recently had to provide significant financial support to fund Eskom); and

- Separately, this will lead to increased taxation revenues, increased energy security as well as extensive socio-economic development benefits.

Offshore Development In contrast to many areas in Africa, South Africa’s offshore coast has been under-explored. There are various reasons behind this including the Apartheid limitations; the fact that SA’s water becomes fairly deep, fairly quickly (meaning drilling would be expensive) and the likelihood the area was gas prone (a more challenging route to market than oil). However, there has recently been an upswing in offshore block activity, per the below schematic. As can be seen from the above, SA offshore has now attracted most of the key international players. As well as Shell and BHP Biliton (already incumbent), the last 1224 months has seen the market entry of Anadarko; Afren (through Thombo); Cairn India; Canadian Natural Resources; ExxonMobil and Total. Some parties see an extension of the Cretaceous Fan plays present in West Africa, others have linked the Falkland Islands geology to South Africa. Presently, a number of participants are shooting 2D seismic and have

2013 Africa Energy Yearbook

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Figure 2: SA Shale Gas: Current Status (PASA/Standard Bank)

3D seismic planned. Assuming rig availability, we expect the initial exploration wells to be drilled in 2014. If early wells near to the shore (say 100 km or less) find material gas, we expect an intense debate on how quickly the gas can be monetised. In parallel with shale gas, if there are material gas finds we expect an early debate upon a Gas Master Plan (‘’GMP’’) (to decide how SA should monetise any resources)

Shale Gas Since 2006, shale gas – and increasingly shale oil - has been a very important driver in the energy requirement of the United States, which has materially benefitted the US economy. However, outside of the USA, shale’s progress has been more sporadic and subject to stop-start processes. The US EIA estimates the Shale gas potential in South Africa to be in the order of 485Tcf (2011) which needs to be significantly reduced for economically recoverable amounts. For example, the Econometrix Report assumed 25-50Tcf whereas the Government’s own Report assumed 30 Tcf. Naturally, the figure will only be known following future exploration and appraisal wells. However, what is clear though is that even these figures will be

transformative. Why? Only 1 Tcf of natural gas is needed to fuel 1,000 MW of Combined Cycle Gas Turbines (‘’CCGT’’) for 25 years. Separately, SA’s existing Mossel Bay GTL plant was developed on only 1 Tcf of reserves. Of course, the same point also applies to offshore gas or CBM As elsewhere in the world, Shale Gas is presently an issue under debate in South Africa, from both a political and an environmental standpoint. On 7th September 2012, the SA Cabinet announced the end of the exploration moratorium. Subsequently, the Department of Mineral Resources’ (‘’DMR’s’’) Minister Shabangu clarified seismic work can start immediately but hydraulic fracturing would only take place once mining regulations had been amended (which should take 6-12 months from September 2012). We understand the current status of the regulations is that all internal work has been completed and it will shortly go to SA Cabinet, before being publicly debated. Assuming satisfactory regulations are released, we envisage a significant educational programme to be put in place – intended to address relevant environmental concerns. We expect that exploration will commence sometime in 2014. If initial exploration activities are successful shale gas will likely play a significant role in future iterations of the

2013 Africa Energy Yearbook

oil and gas industry insights Integrated Resource Plan (‘’IRP’’); any Integrated Energy Plan (‘’IEP’’) and any GMP. Our initial expectation is for well-head gas generators to play a major role in the route to market (say by 2016-17 for appraisal wells), with CCGT IPPs, GTL and gas to transport likely to follow afterwards as routes to market. Multiple companies have shown interest in shale gas including Shell (3 Exploration Licence applications); Bundu (1 EL application); and Falcon Oil & Gas (1 EL application), to whom Chevron have recently farmed in. Previously, Sasol/Statoil/Chesapeake submitted a Technical Co-operation Permit with Sungu Sungu recently being awarded two TCPs. Please see the previous page for a schematic of the current shale gas opportunity in South Africa:

Coal Bed Methane CBM is produced by non-traditional means, and therefore, while it is sold and used in the same way as traditional natural gas, its production is very different. CBM is generated either from: • A biological process as a result of microbial action; or from • A thermal process as a result of increasing heat with depth of the coal

80 Albeit CBM exploration is still in the early stages of development in Southern Africa, it accounts for respectable portions of USA and Australia’s natural gas supply (including LNG feedstock). South Africa is a Top 10 global coal player, including being the third largest coal exporter in the world. The potential for CBM extraction geologically exists. The DMR/Department of Energy (‘’DoE’’) have confirmed that interest in prospecting for CBM in South Africa has increased. They report that there have been a large number of applications for rights to explore for this resource and that CBM empowerment entities, such as Badimo Gas a BEE company focused on CBM, are emerging. Some recent activities include those of Sunbird Energy, who have to date drilled three core holes at Ermelo, and are approximately halfway through an eight core hole programme in the Mopane region. As with offshore and shale gas, we expect successful exploration wells to lead to demands for a GMP to outline how the gas will be monetised.

Mozambique Offshore Since 2010, the Anadarko and Eni led consortia have made material offshore discoveries in Areas 1 and 4 of the Rovuma Basin - which are likely to mean that Mozambique will become a major natural gas producer: • Anadarko’s discoveries to date total an estimated 35-65 Tcf of recoverable gas, with gas in place of around 100 Tcf (Anadarko, Jun/Nov 12)

• Eni records gas in place of 75 Tcf (ENI, Feb 13) Current gas in place estimates sit at 175Tcf (based on Eni and Anadarko announcements). For Area 1, reserve certification has commenced and will be completed in early 2013. It is estimated that this potential places Mozambique in the top 10 of global gas reserve rankings and in the top 5 countries for non-associated gas which can be easily monetized. Since 2004, South Africa has purchased onshore Mozambique gas (through Sasol who turn the gas into petrochemicals). The obvious question is whether South Africa may also purchase Mozambique offshore gas? At this stage, we are not sure. Why? Firstly, the Rovuma Basin discoveries are some 2,000 kms from Panda (the northern terminus of the existing gas pipeline to South Africa, itself quite full). There is therefore a large geographical obstacle which must be addressed by new, expensive infrastructure or the gas has to be transported in the form of LNG (requiring new infrastructure to be built in South Africa). Secondly, the export pricing of the offshore gas may be influenced by Asian LNG sales (which customers are more likely to be able to pay a higher gas price – in USD – than South Africa). However, given that PetroSA is exploring the possibility of building a floating regas terminal at Mossel Bay (to supply the GTL plant and Eskom’s diesel-fired power station at Gourikwa), the possibility should not be discounted.

Routes to Market Having established the significant potential for offshore, shale and CBM resources in South Africa, as well as the significant, now proven, offshore Mozambican resources, we now turn our attention to the routes-to-market and the associated infrastructure options. In contrast to many emerging markets where gas has to be exported (at least initially) – for example, Mozambique, South Africa has on paper has a very large market for consuming its (potential) indigenous natural gas. Route-to-market possibilities include: • Gas to Power (GTP) – 3,128 MW GW of GTP per December 2012 Government Gazette (implementing the Ministerial Determination of October 2012) – Highly competitive base load GTP tariffs per the graph in Figure 4 – In time, we expect in the order of 15 GW+ GTP (for example, by adding the IRP2010 nuclear capacity to the gas capacity) • Gas to Industry (GTI) – New gas pipelines to Mossel Bay/Coega (South) and one along West Coast to Saldanha/CPT Coverage South Africa & Africa – Reduced energy costs for SA manufacturing at both locations (per the US model)

2013 Africa Energy Yearbook

oil and gas industry insights • Gas to Liquids (GTL) – Expansion/Modernisation of existing Mossel Bay/ Sasolburg GTL plants – Potential new GTL in Karoo • Transportation Options (GTT) – Roll-out of Compressed Natural Gas (CNG) fuelled transport – National filling stations network and repowering of truck and bus fleets, leading to balance of payments savings (reduced oil imports) • Gas to Communities (GTC) – Offshore gas will supply huge amounts of LPG – LPG from shale gas (after additives) – Huge benefits for rural/poor communities (e.g. reduced wood consumption, increased safety) These options are represented in Figure 3 below. The in-country gas infrastructure requirements include new CCGT plants and multiple gas pipelines. The coastal region may require multiple LNG receiving terminals (potentially floating), the repowering of existing OCGT plants to gas fed CCGT plants, new CCGT plants and new and extended gas pipelines.

Focus on Gas to Power Due to economic growth since 1994 and increased connections (84% are now connected), SA’s electricity demand has significantly increased. National economic policy since the 1970s has encouraged electricity-intensive

industry, including beneficiation of mineral resources. However, no new power stations were built meaning reserve margins declined with growth. In January 2008, SA endured massive “load shedding” (when reserve margins were 5%) which may return between 2010-2016 (per the Government’s Medium Term Risk Mitigation document – part of IRP). Construction of Eskom’s new build coal plants are running later than intended and are at significantly higher than planned capital costs. Security of supply is highly precarious. Eskom’s 35,408 MW of coal plants (net maximum capacity) were designed in the 1970s to run at 75% capacity factors (as were their supplying mines). The IRP envisages such 30 year old coal/nuclear plants run at 85% capacity factors for the foreseeable future. This is unlikely – Eskom’s latest figures show availability of 81% for 1H12 – equivalent to a reduced availability of 1,582 MW every day (compared to IRP2010’s targets). This naturally creates an environment for new power sources to enter the market. On 5th October 2012, the Minister of Energy’s Ministerial Determination (ratified by Government Gazette in December 2012) announced the following MWs will be made available to IPPs: 1. 3,200 MW renewable energy capacity (this follows from the 3725 MW of renewables under procurement through the existing IPPPP programme)

Figure 3: South Africa’s Gas Infrastructure Options (Standard Bank)

2013 Africa Energy Yearbook

oil and gas industry insights 2. 1,274 MW MTRMP (Medium Term Risk Mitigation Plan) determination – Of which 474MW natural gas included under the IRP 2010-2030 new build options for the years 2019 to 2020 – 800 MW to be generated from industrial cogeneration sources 3. 7,761 MW baseload determination – 2500 MW to be generated from coal included under the IRP 2010-2030 new build options for the years 2014 to 2024. – 2,609 MW to be generated from hydro energy sources (exactly matches IRP 2010) – 2,652MW to be generated from Natural Gas (including Liquefied Natural Gas or Natural Gas delivered by a pipeline from a Natural Gas Field) which represents the capacity allocated to CCGT and Open Cycle Gas Turbines (OCGT) in the IRP 2010-2030 for the years 2021 to 2025. The above effectively creates the route-to-market for GTP in South Africa. The determination is silent on the specific procurement process (intended to follow in later

2013) but appears to permit cross border importation from IPPs. In addition, we expect debate around fuel switching

who will build, fund, own and operate the necessary gas infrastructure (including gas-driven infrastructure, e.g. power transmission lines)? There are several questions to be answered in this regard. For example, what is the central policy instrument through which the gas infrastructure will be developed and funded? And who will be involved in the process? For example, SA now has an IRP (for the power sector), but does not yet have an Integrated Energy Plan (‘’IEP’’), covering energy more broadly (inclusive of the power sector). IEP discussion to date (e.g. November 2012 Parliament presentation) indicates the process to date is centred on policy not implementation of infrastructure Conceptually, and as the diagrams make clear, a major challenge to resolve is that the new fuel sources are located in different areas (e.g. the Karoo, Offshore, Limpopo) to the demand centres with new types of generation/processing infrastructure needed to use the gas and transport output. Clearly, such projects are inter-dependent. Monetising a gas field needs a route to market and a route to market needs a fuel source. Moreover, the gas pipeline in the middle is only relevant if there are assured reserves and a use for the gas (the Chicken and Egg challenge)

of existing OCGTs (e.g. Eskom Atlantis/Gourikwa) and conversion to natural gas. In optimistic scenarios, a variant on a UK style dash for gas (20 GW of IPPs built in ten years) may be possible.

Discussion of the impact of Natural Gas on Power Tariffs Figure 4 illustrates the levelised cost of electricity (“LCOE”) for a number of technology sources relative to the Eskom blended tariff. The LCOE is a discounted present value of all future average tariffs, inclusive of all relevant financial and technical assumptions. Its purpose is to commercially compare one technology source against another. It is evident from the graph that at a gas price of between US$6 and US$10 the LCOE cost of natural gas (labelled shale here) is less than Eskom’s new build coal fired power stations as well as Eskom’s blended tariff.

Policy and Commercial Issues: Infrastructure The core policy issue outstanding is that if South Africa Inc believes that natural gas resources are likely to be economically advantageous to utilise in South Africa,

From our perspective, it appears that the critical priority is to facilitate the drilling of Exploration Wells (across offshore, shale, CBM). This activity does not commit SA to a particular course of action nor expose it to undue environmental risk. Post drilling though, SA’s hydrocarbons resources would be identified and it would allow the drafting of a GMP, which could feed into existing policy documents (IRP, IEP) as well as the other parties who may play a role in the ‘’dash for gas’’ going forward – e..g Transnet Pipelines, PetroSA etc.

Policy and Commercial Issues: Upstream South Africa’s upstream O&G activities are governed by the Minerals & Petroleum Resources Development Act (‘’MPRDA’’). The MPRDA is currently in the process of amendment through an ‘’Amendment Bill’’. In a statement, Cabinet describes the MPRDA as giving effect to section 24 of the Constitution “by ensuring that the nation’s minerals are developed in an orderly manner while promoting justifiable social and economic development”. Since 2002, the Act’s provisions have been relatively uncontroversial. However, the significant ongoing interest in shale gas, offshore gas and – to a lesser extent – CBM mean it is vital to ensure the Amendment Bill is appropriate

2013 Africa Energy Yearbook

oil and gas industry insights

Figure 4: Gas to Power - Base Load Tariff Path Comparison (Standard Bank)

for O&G development. Key elements of the Amendment Bill under debate include, among others: • The proposed abolition of the Petroleum Agency of South Africa – “Designated Agency”; • Beneficiation requirements determined by the DMR Minister, potentially impacting on route to market choices the attractiveness of SA upstream; • Potential discrepancies between the objectives of different Government Ministries (e.g. DMR’s upstream objectives v DoE’s GTP focus); • An increase in the State’s free carried interest, with a shift to the inclusion of the production phase; and • An increase in Broad-Based Black Economic Empowerment Requirements for the sector (which with the increase in the State’s interests, may impact on control and valuation of upstream projects, potentially affecting investor appetite)

Conclusion:

Again, from our perspective, we see drilling Exploration Wells as the key priority to determine the scale of SA’s upstream resources (across offshore, shale and CBM). We would argue the optimal Amendment Bill should bear this in mind, together with the scale of other African market opportunities and the need to build the associated gas infrastructure (high cost) to take the hydrocarbons to market. We expect the MPRDA to evolve over time due to the clear economic advantages of promoting a growing SA O&G sector.

more towards natural gas by 2020 (or similar).

Leading

international

players

believe

that

South

Africa has material offshore, shale and CBM reserves and have applied for exploration licences to prove this. Similarly, it is well known that South Africa lacks base load power capacity and has an ageing installed base of coal-fired power (as well as a need to import significant hydrocarbons). Accordingly, there appears the potential for South Africa to develop its own hydrocarbons reserves and in parallel undertake its own ‘’dash for gas’’ which could encompass power; liquid fuels; transport and industrial markets among others. Following the drilling of initial exploration wells, we envisage routes to markets could be developed such that the direction of South Africa’s economy tilts

Noting natural gas is not – on the whole – an internationally traded commodity, we expect there to be the potential to price elements of domestic prices in Rand, which will provide a further boost to its rapid uptake in the national economy. We envisage the next 12-18 months will be a crucial phase in determining whether this vision can be realised.

Purple Dress â&#x20AC;&#x201C; by Mary Visser

2013 Africa Energy Yearbook