Tag Archive | GUMP

Gas undoubtedly on energy back burner

Energy mix on gas unresolved…..

LP gasNot one word on gas and gas exploration, gas pipelines or gas as a contributor to the integrated resources plan has passed through Parliament in nearly one year. The last word was in respect of gas, whether oceanic or land-based, was the knowledge that fracking regulations had been published, the dropping of the oil price seeming to cool off any comment and certainly statements by international investors and companies.
President Zuma has, however made passing reference to Operation Phakisa, the plan to develop South Africa’s oceanic resources but most parliamentary reference to this programme has been in reference to the recent press releases by government in the form of a long term wish to build up South Africa’s maritime ability; create an international ship register and regulate for a merchant shipping fleet.
Going back a bit
In a parliamentary question in the National Assembly last year, Mr. S J NJIKELANAa, previously chairperson of the Energy Portfolio Committee, asked for a written reply by the then Minister of Energy on how far gas exploration had progressed and what urgent state intervention was planned, particularly as far as containment of fuel prices was concerned.
The reply came from the Department of Energy (DOE) in a reply that was somewhat evasive in that it summed what everybody knows; that the Integrated Resource Plan (IRP); the Integrated Energy Plan (IEP;) and the Gas Utilisation Master Plan (GUMP) are amongst the measures which were developed to improve South Africa’s multi-source security of energy supply.
The reply at the time gave responses on the then stage of renewable energy aggregating to cumulative contribution of 17800 MW to the IRP’s final estimate of energy from all sources of 40 000 Megawatts (MW). All of this really helped nobody.

Sourcing of energy
The second contributor to the formula was nuclear power contributing a much quoted 9600MW (and now expected to be more) and hydropower at 2600 MW, with“75% of new generation capacity being derived from energy sources other than coal”, it was stated.

 DOE finally got round to GUMP, describing it as “the development of a gas pipeline infrastructure for South Africa’s needs and to connect South Africa with African countries endowed with vast natural gas resources” but at the time DOE was still recovering from the shock of splitting up from environmental affairs and could not separate gas exploration from mining exploration, in that the Department of Mineral Resources was deeply involved. A total figure for gas has not been formulated.

Another problem for DOE.

In reality, the Petroleum Agency of South Africa (PASA) is technically responsible for GUMP although gas exploration seaDOE’s hydrocarbons division seemed to have been lumped with the problem of what has been described by most authorities and energy specialists as an “exciting hope” for solving SA’s energy problems.
In the meanwhile, it has become the poor child of the energy mix, Minister Joemat-Pettersson recently explaining last week DOE’s poor performance and lack of response on the gas issue as being due to short staffing and “too many issues” on hand.

Last definition

GUMP in fact, (when Parliament was last told} would take a 30-year view of the gas industry from regulatory, economic and social perspectives and this was in the final stage of internal approval and was expected to be released for public comment during the second quarter of the 2015 financial year.
The request for IP proposals for gas-fired generation through a gas-to-power procurement programme for a combined 3 126 MW allocation was expected to be released to the market in September this year, with a bid submission phase planned for the first quarter of 2016.

It seems that South Africa’s DOE can only handle one problem at a time. First it was Eskom and electricity and then the nuclear tendering process, which is in fact a very long term solution to South Africa’s energy problem, as put by one member.

Behind closed doors

Gas exploration, as a subject in itself, benefited from a final decision (which in fact is still mostly rumour in Parliament and unreported) that the Minister Rob Davies’s solution not to acquire 20% -25% “free carry” in gas exploration “finds” seems to be the last definitive action to be taken by government on the whole question of gas exploitation and development.

Meanwhile, Minister Joemat-Pettersson, Minister of Energy, was quoted in the media (and we quote tina-joemattEngineering News specifically) as saying that nuclear power was staying at 9600MW and hydropower at 2600 MW.
The Minister added, “We have paid little attention to gas . . . We have been preoccupied with nuclear [energy].  The South Africa we [are] dealing with now is not the same [as the one we dealt with] in 2013 [when many energy-generation plans were put into play]; the scenarios have changed,” she said to the Creamer organisation.

Not on the agenda

In the remaining few weeks of the third parliamentary calendar sessions, no meetings of the parliamentary committee on energy are scheduled for this vital component of the energy mix, although the anti-fracking lobby was particularly evident at a recent energy committee meeting on the five nuclear vendor agreements.

karoo2They were particularly agitated to hear that the South Korean nuclear vendor offers included development of uranium deposits as part of their deal, such deposits known to be in the Karoo. The only movement recently therefore on gas development would seem to be in the area of Sasol development in infrastructure development locally, presumably in pipelines, and a rather “cool” statement from Shell Oil on fracking possibilities in the Karoo related the world price of oil.
The shortage of liquid petroleum gas (LPG) to meet market demand appears to be the only gas issue to coming before Parliament in the near future.
Other articles in this category or as background
Fracking, shale gas gets nearer – ParlyReportSA
Competition Commission turns to LP gas market – ParlyReportSA
Gas Utilisation Master Plan gets things going – ParlyReportSA
Oil sea gas/debate restarted by Parliament
Uncertainty in oil and gas exploration industry

Posted in Energy, Enviro,Water, Facebook and Twitter, Finance, economic, LinkedIn, Trade & Industry0 Comments

CEF hurt by Mossel Bay losses

CEF R3.4bn write down was “irregular” …..

PetroSA logoLosses incurred at the Central Energy Fund (CEF) gas to liquid facility at Mossel Bay operated by PetroSA have resulted in a revaluation of assets based on the expected life of the refinery but the impairment that resulted, to the tune of R3.4bn, was found to be “irregular” by the office of the auditor general (AG) when reviewing the CEF 2013/4 results.

CEO of CEF, Siswe Mncwango, appeared before the portfolio committee on energy together with the chief executives of subsidiaries PetroSA, iGas, the Strategic Fuel Fund (SFF), African Exploration and Mining (AE) and the licensing and regulatory petroleum body, PASA, to brief the committee on their annual report and to justify their financial performance in terms of the AG findings for the group.

PetroSA struggling

The key issue central to the impairment of R3.4bn, Mncwango said, was the necessity for subsidiary PetroSA, in terms of its mandate, to maintain its levels of gas feedstock at a sufficient level to meet strategic stock policy in the national interest.  It was necessary, he said, to undertake this accounting process in view of delays experienced in exploiting undersea gas fields.

He said, the plant started operating at Mossel Bay in 1992, the life of plant being estimated at 15 years, and then known as Mossgas. With the project not having the necessary funding for exploration at sea during its early years, the plant consequently became threatened far too early in its planned operating life.

Limited choices

CEF faced two financially driven options, Mncwango explained to parliamentarians.  There was a choice between running the plant at 50% capacity or to close it down, he said.  As the strategic need for gas feedstock was an imperative facing both CEF and PetroSA, it was decided to further explore the existing and nearby gas field area.

Project Ikhwezi was thus born but at this stage expensive drilling to greater depths and lateral drives have been encountered and with newly pioneered methods, this has resulted in major additional costs. However, PetroSA, in a briefing from their engineering head on the subject drilling expectations, indicated that they are confident that plentiful gas supplies are on the cards.

Long time drilling

The project involves tapping into gas reserves in Petro SA’s F-O field which is located 40km south-east of the production platform off the south coast of South Africa.  The first well drilled was finalised in 2013 and the final link between all wells is to be completed during 2014/2015, parliamentarians were told.

The delays that have been experienced have also negatively affected the finances of PetroSA, CEF said, and this had necessitated permission for a temporary impairment from national treasury. However, this was not certificated correctly according to the AG’s report and consequently the R3.4bn impairment became “irregular”.

Difficult waters

According to Andrew Dippenaar, PetroSA’s upstream acting vice-president, Project Ikhwezi may, and probably will, be producing in some eighteen months. The riskiness and speed necessary in trying to find gas in difficult waters has added to the problems, he said, on top of which the gas field is geologically problematic.

This has led to operating losses at refinery level with a result that some sort of accounting write off was necessary in the short term, despite this hurting PetroSA’s current cash reserves of R5.5bn. This amount will not be recoverable, CEF’s financial officer said but he was adamant that this was not a cash loss affecting the taxpayer, more a book entry. CEO Mncwango added that inherited delays in finding gas at sea in the immediate area close to the landing facilities had resulted in the current situation. These were many risks in oil and gas exploration, he said.

Chief financial officer of PetroSA, Lindiwe Bakoro, was insistent that as a result of long delays in exploration any hope of immediate profits might be delayed but long term viability had been planned for and this was expected.  Consequently, new valuations on assets were undertaken to re-gear the project with treasury permission.  However, Bakoro confirmed that PetroSA would await the final results of drilling and connection before any final write down-decision on the impairment took place.

Purchasing procedures

On other irregular expenditure items, totalling some R30m, that appeared in the CEF results noted by the AG, these again were for PetroSA.   Such were mainly as a result of the correct procedures not having been followed in terms of procurement procedure. 

The correct procedures were now followed throughout the CEF group, Mncwango said, and the AG had been satisfied on this subject, since the annual report had not been qualified. A specific “irregular” figure of R1.6bn was also reported for PetroSA in respect of its Ghana operations.

Again it was explained that this was a procedural and the necessary documentation on transfer of monies had been incorrectly processed.   It would appear that treasury permission had been applied for and granted in 2013 but the actual transfer of R1.6bn had taken place in 2014, a different financial year for the record. CEF reported that PetroSA, nevertheless, had shown a particularly good return for the first time on its Ghanaian liquid fuels investment, returning a profit for 2013/4 of some R560m

On or off. Who knows?

Asked if any discussions with Engen on downstream development in the name of PetroSA had progressed, CEF’s Mncwango said that any such discussions were confidential and he would not be drawn into further explanations since these were commercially sensitive, whether with Engen or any other body in the liquid fuels sector.

Ms. Nosizwe Nokwe-Macamo, CEO of PetroSA, concluded that steps were taken to effectively manage fruitless, wasteful and irregular expenditure and that the focus for the national fuels group in the period ahead included delivery on Project Ikhwezi and finalising funding arrangements for “downstream entry”.

Gas plan on the way

The meeting was attended by the deputy minister of energy, who said she was confident that steps taken by both CEF and PetroSA were in the interests of the national strategy on gas supplies and that cabinet were shortly to debate the gas utilization master plan (GUMP). This was in response to opposition members who had complained to the minister that South Africa’s liquid fuels and energy plans could not be finalised until the state’s future gas supply scenario was properly clarified.

Other articles in this category or as background

http://parlyreportsa.co.za/energy/petrosa-has-high-hopes-with-the-chinese/ http://parlyreportsa.co.za/energy/cef-still-has-its-troubles/ http://parlyreportsa.co.za/uncategorized/central-energy-fund-slowly-gets-its-house-in-order/

Posted in Energy, Enviro,Water, Facebook and Twitter, Finance, economic, Fuel,oil,renewables, LinkedIn, Special Recent Posts, Trade & Industry0 Comments


This website is Archival

If you want your publications as they come from Parliament please contact ParlyReportSA directly. All information on this site is posted two weeks after client alert reports sent out.

Upcoming Articles

  1. MPRDA : Shale gas developers not satisfied
  2. Environmental Bill changes EIAs
  3. Border Mangement Bill grinds through Parliament

Earlier Editorials

Earlier Stories

  • Anti Corruption Unit overwhelmed

    Focus on top down elements of patronage  ….editorial….As Parliament went into short recess, the Anti-Corruption Unit, the combined team made up of SARS, Hawks, the National Prosecuting Authority and Justice Department, divulged […]

  • PIC comes under pressure to disclose

    Unlisted investments of PIC queried…. When asked for information on how the Public Investment Corporation (PIC) had invested its funds, Dr  Daniel Matjila, Chief Executive Officer, told parliamentarians that the most […]

  • International Arbitration Bill to replace BITs

    Arbitration Bill gets SA in line with UNCTRAL ….. The tabling of the International Arbitration Bill in Parliament will see ‘normalisation’ on a number of issues regarding arbitration between foreign companies […]

  • Parliament rattled by Sizani departure

    Closed ranks on Sizani resignation….. As South Africa struggles with the backlash of having had three finance ministers rotated in four days and news echoes around the parliamentary precinct that […]

  • Protected Disclosures Bill: employer to be involved

    New Protected Disclosures Bill ups protection…. sent to clients 21 January……The Portfolio Committee on Justice and Constitutional Affairs will shortly be debating the recently tabled Protected Disclosures Amendment Bill which proposes a duty […]