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Blue Chip Issue 85

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Blue Chip Journal is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry. Visit Blue Chip Digital: https://bluechipdigital.co.za/

BLUE CHIP OIL AND GAS

BLUE CHIP OIL AND GAS Good news for the South African economy Petroleum Agency South Africa is enabling oil and gas discoveries to kickstart investment and growth. Massive new gas finds off the coast of South Africa and the positive interest shown by international investors in the oil and gas sector have brought good news for country’s citizens. In the shadow of loadshedding and global energy price spikes brought on by domestic state capture and Russia’s war on Ukraine respectively, South Africans can be pleased that new resources are being found nearby and there is a plan to use them effectively. The economic effect of the most recent finds off the coast of Mossel Bay alone will be significant if they are marshalled in a coordinated manner (see box). New certainty in the regulatory environment and hard work by Petroleum Agency South Africa (PASA), the agency which evaluates, promotes and regulates oil and gas production in the country, has seen increased interest in South Africa’s potential as a destination for investment dollars. The fact that TotalEnergies was willing to bring an expensive oil exploration rig all the way to Mossel Bay from Norway more than once is an indicator of the seriousness with which this oil major is treating the South African project. TotalEnergies is a 45% shareholder alongside Qatar Petroleum (25%), CNR international (20%) and Main Street, a South African consortium (10%). Actually drilling the gas and delivering it via a pipeline to PetroSA (the national oil company which runs Mossgas) and Eskom (the national utility) will cost a lot more money, and that is where several subsectors within the national economy will benefit the most. In effect, the decision to go ahead and commercialise the gas find will create a new market for gas in South Africa. The massive resources of natural gas that Renergen has been working on for the last few years reached commercial production in October 2022 in the northern Free State. Renergen, through its subsidiary Tetra4, is the only holder of an onshore petroleum production licence issued by the Department of Mineral Resources and Energy through the PASA. The production rights area covers 187 000 hectares around the towns of Welkom, Virginia and Theunissen. Liquid natural gas for the domestic market and helium for export from this project will create an entirely new stream of energy options. Most offshore exploration interest tends to come from foreign investors because of the high costs but within South Africa, there is a growing number of local participants. A women- and black-owned company, Imbokodo, is making a name for itself as a participant as a shareholder in a number of licensing rounds. False narrative “I wish that as South Africans we can have a holistic debate around our energy mix,” says Dr Phindile Masangane, CEO of Petroleum Agency 44 www.bluechipdigital.co.za

OIL AND GAS BLUE CHIP n and right and environmental authorisation in Mossel Bay to full production and t jobs. applications when the exploration n and right and environmental authorisation profitability, saving about 1 200 direct jobs. ment right expires, or earlier. The agency t jobs. applications when the exploration A complete shutdown and abandonment ad to expects the licensee to use worldclass technologies and standards to ment right expires, or earlier. The agency of this refinery would not only lead to ffects ad to expects the licensee to use worldclass technologies and standards would to reverberate throughout the town of job losses at the refinery, but the effects wn of minimise the effects of the gas and ffects egion, gas condensate production on the wn of minimise the effects of the gas Mossel and Bay and the Southern Cape region, ut R2- environment, while maximising the incountry benefit or local content from egion, gas condensate production on since the the refinery contributes about R2- el Bay ut R2- environment, while maximising the billion incountry benefit or local content economy, from and 6% to the Southern Cape a year, or 26% of the Mossel Bay Cape this development to support South el Bay acity. Africa’s economic recovery. Cape this development to support South economy when producing at full capacity. Africa These discoveries could indeed support acity. Africa’s economic recovery. The Petroleum Agency South Africa gas both the country’s economic recovery and Africa These discoveries could indeed support awaits the licensee of these gas ction its transition to a clean energy future. gas both the country’s economic recovery discoveries and submitting its production ction its transition to a clean energy future. ors ors OIL AND GAS right and environmental authorisation applications when the exploration right expires, or earlier. The agency expects the licensee to use worldclass technologies and standards to minimise the effects of the gas and gas condensate production on the environment, while maximising the incountry benefit or local content from this development to support South Africa’s economic recovery. These discoveries could indeed support both the country’s economic recovery and its transition to a clean energy future. International investors INTERNATIONAL BRANDS SHOWING AN INTEREST IN SOUTH AFRICAN OIL AND GAS South Africa, of the heated debate about sources of energy OIL AND GAS supply. “We do need to OIL diversify AND GAS our energy mix.” A binary choice is often presented between renewable energy technologies and fossil fuels. A recent report published by the International Energy Association (IEA) argues against framing the debate in that way. Both can and should be used, according to Africa Energy Outlook 2022. A key factor in allowing Africa to continue to industrialise will be an uptick in the discovery and use of gas. If all the gas so far discovered in and off Africa was used, the continent’s share of global emissions would rise by 0.5% to 3.5%. “We should not be brought into a false narrative and a false choice,” says Dr Masangane, in agreeing with the report’s conclusions. “It can be both and that is what this report is in Mossel Bay to calling full production for.” and right and environmental authorisation profitability, saving about Dr 1 200 Masangane direct jobs. applications points when out that the exploration Mossel Bay to full with production South and Africa’s excellent A complete shutdown and abandonment right expires, or earlier. The agency profitability, saving about 1 200 direct jobs. of this refinery would solar not resources only lead to expects it makes the licensee sense to use localise worldclass technologies and standards to the solar value chain A complete shutdown and abandonment job losses at the refinery, but the effects to boost manufacturing, of this refinery but would the not country only lead to would reverberate throughout the town of minimise the effects of the gas and should not ignore job losses at the refinery, but the effects Mossel Bay and the Southern what Cape it has. region, “At gas the condensate same time, production we on know the would reverberate throughout the town that of the gas value since the refinery contributes about R2- environment, while maximising the incountry benefit in or local country, content from so let’s also capitalise Mossel Bay and the Southern Cape region, billion a year, or 26% chain of the is Mossel well Bay established since the refinery contributes about R2- economy, and 6% to the Southern Cape this development to support South on that.” billion a year, or 26% of the Mossel Bay economy when producing at full capacity. Africa’s economic recovery. economy, and 6% to the Southern Cape The Petroleum Agency The South multiple Africa uses These discoveries of gas could indeed play support economy when producing at full a capacity. major role in helping awaits the licensee of these gas both the country’s economic recovery and The Petroleum Agency South Africa discoveries submitting South its production Africa its transition to a away clean energy from future. fossil fuels while at the awaits the licensee of these gas same time boosting discoveries economic submitting growth. its production “We need gas not just in electricity and transport,” noted Dr Masangane, “but International investors importantly for South Africa, which is in desperate need International investors of an economic turnaround, is for us to use this gas for our manufacturing industry.” right and environmental authorisation applications when the exploration right expires, or earlier. The agency expects the licensee to use worldclass technologies and standards to minimise the effects of the gas and gas condensate production on the environment, while maximising the incountry benefit or local content from this development to support South Africa’s economic recovery. These discoveries could indeed support both the country’s economic recovery and its transition to a clean energy future. HOW GAS DISCOVERIES CAN BOOST SOUTH AFRICA’S ECONOMY The gas discoveries that have been made off the coast of South Africa (near Mossel Bay), when linked with the massive finds off the coast of Mozambique and the enormous potential that exists in fields off the Namibian coast, amount to what could become a seachange in the regional economy. TotalEnergies and its partners have deployed the Deepsea Stavanger offshore drilling rig, pictured passing Table Mountain on its way to work off the coast of Mossel Bay, and they have achieved significant successes. The two fields where finds have been made are called Luiperd (where 2.1-trillion feet of contingent gas resources has been found, enough to power a medium-sized city for five years) and Brulpadda (1.3 Tef), which are part of Block 11B/12B. If this gas were to be piped to the existing gas-to-liquid plant at Mossel Bay, Mossgas, then instead of spending about R12-billion on decommissioning the plant, the facility could instead start generating R22-billion in taxes and royalties and save South African taxpayers R26.5-billion through not having to import oil and refined products. PASA estimates that the gas found in these blocks could produce 560-million cubic feet per day of gas for more than 15 years. TotalEnergies’ expenditure on stream phase one could amount to -billion in 2027 and create 1 500 direct jobs, 5 000 indirect jobs and increase the country’s gross domestic production by R22-billion. The plan is to run the gas via a pipeline to a new fixed steel platform, and from there to use the existing pipeline to get the gas to Mossgas. Up to 18 000 barrels per day of condensate and 210-million cubic feet per day (MMcfd) are expected to be pumped to the facility. Gas condensate is a hydrocarbon liquid stream separated from natural gas and is used for making petrol, diesel and heating oil. Credit: Anton Swanepoel petroleumagencysa.com Petroleum Agency SA @sa_petroleum Petroleum Agency of South Africa @petroleumagency

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