JOHANNESBURG – Optimistic assumptions predict that the shale gas finds in South Africa may be worth R1 trillion – but without a strategic gas plan, the broader economy may lose out. A plan built around a similar framework as that of the National Development Plan (NDP) is needed for the gas industry.
The oil sector across the continent paints a grim picture. According to the PwC 2013 Oil and Gas Review, Africa currently contributes 8% to the world’s total oil supply but the continent has little refining capacity – constituting only 3.6%, and only 2.9% actual throughput. So we pump up the oil, send it elsewhere to be refined and buy it back-despite the growing demand for energy in Africa.
However, there is very little room to play catch-up as the economies of scale and global competition make it difficult, if not impossible, for African refineries to make a real dent to production, says Chris Bredenhann, director at PwC’s advisory division.
The South African case
There is increasing interest in South Africa due to shale gas and oil exploration. The PwC review indicates that the country currently has 7.3% of the total 15.7% shale gas potential on the continent.
Late last year the South African government lifted the moratorium on shale gas exploration.
Even though the monetisation prospects are still a long time away, without a broad plan around skills development, local beneficiation and how supporting industries can be involved, the local economy may lose out.
He says that the current Mineral and Petroleum Resources Development Act provides very little clarity on what the future holds and doesn’t engage the other facets of the industry that speak to socio-economic development. However, he believes there are steps that South Africa can take to ensure that beneficiation is not only limited to certain groups.
Bredenhann emphasises that the same approach that was taken when developing the NDP should be applied to developing the South African gas plan. Mozambique, for example, has developed a Gas Master Plan. In an Engineering News article John Smelcer, Oil and Gas head at Webber Wentzel, said Mozambique’s plan “explores options for a framework for carrying out projects, further highlighting the need to add value to extracted gas.”
However, he cautions that this does not mean that South Africa would be involved in the entire process. The country has to be investor friendly and attract the big players who have even bigger pockets and can afford to take the risks when exploring for opportunities. Currently Shell, Bundu Oil & Gas and Falcon Oil & Gas are among some of the companies awaiting exploration licences in the Karoo.
The country, says Bredenhann, does not have the financial capacity and skills to carry out projects on its own – it needs to partner with multinational companies and approach them with a plan. This industry requires high investment but has a potentially low success rate, he cautions.
There are other challenges
South Africa is not alone in facing these challenges. The PwC review indicates that infrastructure, uncertain regulatory frameworks, a lack of skills, high set-up costs and corruption are still major issues to be dealt with in African countries. He does note though that South Africa could be perfectly placed to address some of the infrastructure challenges.
The review indicates that even though African countries have taken steps to deal with corruption, only 55% of participants found the regulations to be effective. Recently an Economist article described governments as acting as conduits for corruption, stating that deals are “structured to be a “safe-sex transaction”, with the government acting as a “condom” between the buyers and seller.”
But the opportunity is still there
Every four days a new oil and gas deal is brokered on the continent. Africa still has approximately 2 217 unexplored blocks and $30 billion worth of industry investment. In 2011 and 2012 alone $19.4 billion was invested through deals. The PwC review also indicates that African direct investment has increased.
Despite the challenges the report highlights that with countries like Mozambique and Tanzania entering the fray as new players, opportunities for export are abound. However, at the same time the shale gas industry in the US is affecting the global industry as the US becomes more self-sufficient.
Whether African countries stand to gain or lose will depend on how they position themselves globally.