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Slow, Unsteady, Push for Natural Gas in South Africa

By Toyin Akinosho

Every now and then, a siren call rings out, threatening that the proposed “Dash For Gas “ in South Africa is about to start.

The latest buzz is the cooperation agreement between four companies, including ENH, the Mozambican  state hydrocarbon firm, China Petroleum Pipeline Bureau a constructor, SacOil Holdings, a JSE listed E&P company and Profin, a private equity broker, for the construction of a second pipeline project to transport natural gas from Mozambique to South Africa.

This deal, for a 2,600km pipeline from the Rovuma Basin to Gauteng, was announced in early March 2016, around the same time that South Africa’s Petroleum regulatory agency, PASA, reported it would give the green light in the next 12 months to companies looking to explore for shale gas under the country’s semi-arid Karoo basin.

For optimists, it is about time. Africa’s largest electricity consumer is potentially the continent’s largest market for natural gas.

But insinuations about an imminent natural gas market in the continent’s most industrialised economy have been around for at least a decade, without the market really taking off. Lack of elite consensus has aided Government inaction to feed the lethargy.

South Africa has witnessed a series of stops and starts on the road to the domestic natural gas market. In 2009, PASA awarded a Technical Cooperation Permit to Shell to determine the Shale Gas potential in parts of the country’s Karoo Basin.  A year after, Shell applied for three exploration licences. PASA asked Shell to prepare an Environmental Management Plan (EMP) to back the application.

And just as Shell embarked on a series of public consultations for the EMP in 2011, a host of activist, ‘Not in My Backyard’ (NIBY) groups intervened, citing lack of water in the Karoo region and toxicity of fracking chemicals, to call for a halt  in exploration in the Karoo. Government promptly announced a 12 month moratorium on the licencing process until a full study was carried out on these environmentalist concerns.

Meanwhile, talk of the publication of a Gas Utilisation Master Plan GUMP, has been just that: Talk.  Authored by the Department of Energy, GUMP is meant to analyse the potential and opportunity for the development of South Africa’s gas economy and set out a plan of how this could be achieved. A key objective is to enable the development of indigenous gas resources and to create the opportunity to stimulate the introduction of a portfolio of gas supply options.  It was widely advertised that GUMP would be presented for public debate in June 2014. That date came and passed and close to two years later, GUMP still hasn’t been published.

Some distinguished commentators have argued that promulgation of GUMP before extensive commercial discoveries of gas in South Africa would be premature. Several international oil and gas players have licences to acreages offshore South Africa. “Why don’t you allow them to drill a number of wells, book some reserves, before you start a debate about how the resources would be utilized?”, note some analysts, including Standard Bank experts Paul Eardley -Taylor and Nicholas Green.

While Karoo gas exploration remains far-fetched, International oil companies have given signals that they will not move rigs to the prospective deep-water sites if the passage of the Mineral and Petroleum Resources Development Act (MPRDA), which has been in the parliament for ten years, is not concluded. One of the clauses in the bill that IOCs are challenging is one which entitles the state to a 20% free carry in exploration and production rights and an ‘uncapped’ further participation clause allowing the state up to 80% at an agreed price or under a production sharing agreement.

SOME OF US ARE CONVINCED THAT South Africa is industrialised enough to absorb billions of cubic feet of natural gas when they flow into the economy. The government, however, is not so sure.  “A challenge in developing the gas sector is to bring gas demand and supply on stream at the same time and spread geographically to stimulate broader localised demand through South Africa”, the Government says on its Independent Power Projects (IPP) website.

“Without such localised gas demand it is difficult to develop distributed gas supply and without such distributed gas supply it is difficult to develop localised gas demand”.  The IPP office thinks that “one way of breaking this impasse is to create significant “anchor” gas demand through the development of a Gas to Power Programme”.

And yet the Gas to Power Programme doesn’t come across as being driven with the urgency that government’s own statement insinuates. Requests for Information (RFI) to companies who’d want to invest in constructing power plants utilizing gas went out 15 months ago.  “Ministerial Determinations require that 3126MW of baseload and/or mid-merit energy generation capacity is needed from gas-fired power generation to contribute towards energy security”, the government says. “The gas required for such power generation will be from both imported and domestic gas resources”.  This process too has been slow.

The largest gas-fired power plant in South Africa today is the Sasol owned and operated 175MW plant, located in its own premises in Sasolburg, and used for its own electricity needs. What should have been a silver lining is the announcement that the Australian independent, Sunbird Energy has a termsheet agreement with Eskom, the state electricity utility, to supply Ankerlig Power plant, one of Eskom’s diesel guzzling gas cycle turbine facilities, with 30Billion cubic feet a year for 15 years, from the Ibhubesi Gas field, the country’s largest undeveloped proven gas field. But Sunbird is currently broke and too fragile to raise the $1Billion required to develop the field and deliver the gas to Ankerlig. Sunbird is in the process of selling off all its African projects including Ibhubesi, to a consortium of South African firms.  Equally cash strapped is Eskom who will struggle to convert Ankerlig from diesel to gas-fired and then pay for the gas.

While gas to power is the easiest route to market for natural gas, there is a long list of alternative options to monetize gas, especially in a country with such a manufacturing base as South Africa. In their seminal 2013 paper,  Standard Bank experts Eardley -Taylor and Green list Gas to Industry (GTI),  for manufacturing; Gas to Liquids (GTL), Gas for Transportation (CNG fueled transport for example)  and Gas To Communities as other routes

The problem, they argued, was that discussions around infrastructure to transport the gas in country weren’t even being had. “What is the central policy instrument through which the gas infrastructure will be developed and funded?, they asked. The answer, for all of the last three years, has been blowing in the wind off the Cape Agulhas.

Dangote To Award Gas Pipeline Contract In “A Matter of Months”

Dangote Industries is evaluating detailed engineering scope for the 1,100km subsea gas pipeline project from Qua Iboe in the south east of Nigeria to Lagos in the country’s southwest.

Devakumar Edwin, Group Chief Executive in charge of the project, says he expects the contract to be awarded within the next six months. “We are creating a corridor of pipelines under the sea. They will help monetise stranded gas along the route. The pipeline system will pass under the sea and will not be prone to the frequent damages that occur on others now”.

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Three Companies Bid To Purchase Oando Gas & Power

Three companies: Helios, Quantum Power and the American equity fund KKR were in a bid to purchase Oando Gas & Power, the subsidiary of Oando Plc that’s involved in natural gas distribution and captive power solutions.

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Shell’s Trickle Production at Agbada Is Symbolic of Nigeria’s Gas Challenges

Shell Nigeria gleefully reported in the last fortnight, that it had ramped up to 20MMscf/d of gas, in the Agbada Early Gas Production Facility (EGPF), into its eastern domestic gas network.

This is a figure that is about a quarter of the plant’s installed capacity. The widely distributed press release about the ‘achievement’ is symbolic of the crying inadequacy of natural gas supply into the Nigerian electricity system, where over 4,000MW of power generation capacity is idled by lack of natural gas to supply them. At the moment, there are very few projects under construction that are aimed at boosting gas supply into the electricity system in a short amount of time.

They include the NPDC operated 150MMscf/d Utorogu NAG 2, which was expected to have been commissioned by August 2015 and the Seplat-operated increase of its Oben Processing Plant capacity from 300MMscf/d to 525MMscf/d. The country’s publicly generated power, which hit 5,074 megawatts on February 2, 2016, has dropped by 50% in the last two weeks due to gas shortages and transmission challenges.

The electricity industry is getting less than 70% of the 1Billion standard cubic feet per day it clearly needs to produce just 4,000MW of gasfired electricity. Still, Shell’s Corporate Media Relations Manager, Mr. Precious Okolobo, excited about his company’s Agbada achievement, explained that a peak production of 40MMscf/d is expected to be achieved, sometime soon, in addition to oil production of about 2,500 barrels per day.

WAGP Exported Less than 60MMscf/d Average in 2015

The total volume of natural gas export through the West African Gas Pipeline in 2015 was 21.62Billion cubic feet, which translates to an average of 59Million cubic feet of gas per day(MMscf/d), according to the December 2015 edition of the Monthly Report of the NNPC, the Nigerian state hydrocarbon company.

WAGP is a five year old facility constructed to deliver gas from Nigeria to Benin Republic, Togo and Ghana. The contracted volume from WAGP to Ghana, the largest economy of the three, is 133MMscf/d. The country barely received a third of that volume for most of 2015.

The best month of WAGP delivery in that year to the three countries was September, when the pipeline pumped an average of 94MMscf/d. But that figure is a stark outlier in the data. The closest behind it is 79MMscf/d recorded in August 2015, followed by 61MMscf/d in July 2015. Ghanaian officials have lamented severally, that the unreliability of gas supplies from the WAGP is a major reason for electricity outage in their country.

Botchwey’s Board Retires, No Mention of Takeover of Ghana Gas by GNPC

ghanaThe statement of retirement of the Board of Ghana Gas Company did not mention the company’s transition into a subsidiary of Ghana National Petroleum Corporation, the state hydrocarbon company.

Instead Kwesi Botchwey, Ph.D, former Minister of Finance and the chairman of the retiring board, spoke of  two things; the setting up of administration of Ghana Gas and delivery of the  Western Gas Infrastructure  and the wrap up of the project’s first phase.

The Board of Ghana National Gas Company (Ghana Gas)was set up in July 2011. It established the administrative and operational structure of the company from scratch; built an onshore gas processing facility to process raw natural gas and produce various products including lean gas for power production, liquefied petroleum gas and other natural gas liquids for domestic and industrial use and implemented the Western Gas infrastructure project with the successful  commissioning of the Gas processing plant, associated pipelines and auxiliary equipment in November 2014, “despite a number of incipient challenges”.

Botchwey stated, in a note released as an adjunct to the retirement notice, that the anticipated completion of  the 2nd  mandatory shut down of the Gas Processing Plant at Atuabo on January 31, 2016, would symbolize the successful completion of Ghana Gas’ first year of operations.“The event marks a major milestone signifying the completion of the first phase of the Western Gas Infrastructure Project.”
What Dr. Botchwey didn’t mention, which was as significant as the operational issues, was that a process was on course to transfer its ownership of Ghana Gas to the GNPC, as a limited liability company.

He did say, in November 2014, that“the Board of Ghana Gas had“not passed any resolution nor has the Board filed the necessary papers to effect the change in ownership, nor held a single meeting with the Transaction Advisor and it cannot therefore be said that the process has been undertaken and concluded”.

As of the time of the exit of the Board, from all indications in Botchwey’s statement, Ghana Gas had not passed on to GNPC.

Swiss Company Plans Virtual Gas Pipeline in Nigeria

Geneva based Powergas International Limited (PIL)

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Lindi is ready for LNG

By Sa’ad Bashir, in Dar es Salaam

The Tanzanian government is officially ready to host the construction of Liquefied Natural Gas (LNG) Plants(Trains) at the port town of Lindi in the country’s southeast.

The government has paid $6Million (12 billion shillings) for assessment and compensation of 450 people in the backwater coastal town, located on Lindi Bay, 450km south of Dar es Salaam.

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No Gas Yet In New Utorogu Plant

By Toyin Akinosho, in Warri

Nigeria has a brand new gas processing plant and it is capable of processing one hundred and fifty million standard cubic feet of gas per day (150MMscf/d). But not a single molecule of natural gas has been introduced into the facility.
When it comes on stream, the Utorogu NAG 2 Plant will be the second gas processing plant to be commissioned in the country in 2015. With Seplat’s 150MMscf/d plant hooked up in February 2015, Nigeria has added 300MMscf/d of gas processing capacity in the last eight months.

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Ghana Gas Master Plan “In Sight”

By Toyin Akinosho

The Ghanaian government is planning to build a pipeline to connect the Wet African Gas Pipeline (WAGP) in Takoradi,

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