Assessment of the Upstream Sector in the Oil and Gas Industry

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Mr. Muzi W. Mkhize Chief Director : Hydrocarbons Policy E-mail: muzi.mkhize@energy.gov.zaTel: 012 406 7570/1

SCOPE

The Department of Energy seeks to brief the Committee on the following subject:•Creation of an enabling environment – the role of Government:

Status quo from a government perspective; Current government programmes in oil and gas industry; How has the private industry responded; What the future holds for the industry; and Promote access to gas in an affordable and safe manner.

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KEY CHALLENGES

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Security of Supply

HDSAEmpowerment

Lower Consumer Prices

& Input Costs

A difficult balancing act

BACKGROUND• Pre-2001 gas industry was not regulated whereas the downstream

petroleum industry was regulated through the Petroleum Products Acts, 1977 (Act No. 120 of 1977);

• The White Paper on Energy Policy of 1998 was adopted to, amongst others, ensure: Security of energy supply through diversification – energy mix; That the oil and gas sector is transformed through a statutory framework

(policies, legislation, regulations and guidelines).• Upstream legislative framework on oil and gas is covered by the Minerals

and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002) [MPRDA]. The promotion aspects are under the Petroleum Agency of South Africa (PASA) and the regulatory matters are handled by DMR. S79 of MPRDA: concerns application to the Minister/PASA for the exploration

rights, and accommodates notification of interested persons and affected communities.

S79(4) “a” and “b” addresses Environmental Management Program (EMP) and consultation with interested parties and affected communities within 30 days of the application.

Mediums for consultation: newspapers, workshops, posters, provincial gazettes, notice of magistrate courts.

S39 of MPRDA provides for EMP with the Environmental Impact Assessment (EIA) and financial security for rehabilitation.

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DOWNSTREAM GAS REGULATORY FRAMEWORK• Downstream legal / regulatory framework on gas is covered by the Gas Act,

2001 (Act No. 48 of 2001), whose objectives are to: Promote the efficient, effective, sustainable and orderly development and

operation of downstream gas activities; Facilitate investment in the gas industry; Ensure the safe, efficient, economic and environmentally responsible

transmission, distribution, storage, liquefaction and re-gasification of gas; Promote companies in the gas industry that are owned or controlled by HDSAs

by means of licence conditions so as to enable them to become competitive; Ensure that gas transmission, storage, distribution, trading, liquefaction and

services are provided on an equitable basis and that the interests and needs of all parties concerned are taken into consideration;

Promote skills development among employees in the gas industry; Promote employment equity in the gas industry; Facilitate gas trade between the Republic and other countries; and Promote access to gas in an affordable and safe manner.

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Regs associated with the Gas Act were promulgated in 2007

GAS VALUE CHAIN

FieldsTransmission

GatheringDistribution

Transmission Power Station/Bulk User

Large Industrial

Small Industrial

Domestic

Market

There is a need for an anchor customer - security of demandTransformation throughout the value chainGas Utilisation Strategy under development by DoE

DOWNSTREAM OIL REG. FRAMEWORK• Downstream oil/petroleum regulatory framework is covered by the

Petroleum Products Act, 1977 (Act No 120 of 1977) as amended by Act No. 58 of 2003 & Act No. 2 of 2005 – the latter covering only technical changes

• The PPA’s objectives are to: Provide for the licensing of manufacturers (refiners), wholesalers and retailers of

petroleum products Modernise the outdated Petroleum Products Act No. 120 of 1977

o Amend, substitute or repeal obsolete provisions

Prohibit certain actions relating to petroleum products Provide for appeals and arbitration -

o Balance of power between retailers & wholesalers

Promote the transformation of the RSA petroleum and liquid fuels industryo “Give effect” to the Charter through licensing

Authorise the Minister of Minerals and Energy to make specific regulationso Thereby ensuring that governance of the liquid fuels sector is in line with Govt’s policy objectiveso Give effect to policy issues identified in the Energy White Papero Allow for provision of information

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Imminent internal discourse on draft new PPB

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Technological advances enabling E&P in difficult terrains

DOWNSTREAM OIL REG. FRAMEWORK (contd.)• The Petroleum Pipelines Act, 2003 (Act No 60 of 12003) is a key piece of

legislation for the oil/petroleum industry. Its objectives are to: Promote competition in the construction and operation of petroleum pipelines,

loading facilities and storage facilities; Promote the efficient, effective, sustainable and orderly development, operation and

use of petroleum pipelines, loading facilities and storage facilities; Ensure the safe, efficient, economic and environmentally responsible transport,

loading and storage of petroleum; Promote equitable access to petroleum pipelines, loading facilities and storage

facilities; Facilitate investment in the petroleum pipeline industry; Provide for the security of petroleum pipelines and related infrastructure; Promote companies in the petroleum pipeline industry that are owned or controlled

by HDSAs, by means of licence conditions to enable them to become competitive; Promote the development of competitive markets for petroleum products; Promote access to affordable petroleum products; and Ensure an appropriate supply of petroleum to meet market requirements.

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CURRENT ACCESS REGIMES

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Energy Resource / Carrier

Transmission Distribution Storage Route Change, connection, strengthening or upgrading

Petroleum common carrier common carrier 3rd party access to uncommitted capacity

Yes proposer’s cost

Gas Commercially reasonable 3rd party access

monopoly Commercially reasonable 3rd party access

Yes proposer’s cost

Electricity Non-discriminatory 3rd party access

Non-discriminatory 3rd party access

n/a Yes condition of licence, proposer’s cost

Access to infrastructure – key enabler

THE NEAR FUTURE• Establishment of NERSA in 2005 through the Energy Regulator Act of

2004 provides for the: Regulation of the petroleum pipelines and gas industry through licensing –

HDSA empowerment being a key aspect thereof; and Approval tariffs and prices.

• Review process of the Gas Act led to the development of the Gas Amendment Bill, 2013, which seeks to, amongst others: promote companies in the gas industry that are owned or controlled by HDSAs

in accordance with the BBBEE Act and gas sector specific requirements; promote the equitable provision of gas transmission, storage, distribution,

trading, compression, liquefaction and re-gasification services in the public interest;

promote skills development and employment equity in the gas industry; facilitate the development of competitive markets for gas and gas services.

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THE NEAR FUTURE (contd.)• Amendment of the MPRDA:

State free carry, etc.; and One Bill or two Bills?

• Review of the Petroleum Products Act: New Petroleum Products Bill; Internal discourse;

• Petroleum Pipelines Act: Normal process of plan-do-review in policy formulation

• Overall challenge of an integrated approach to deal with: Structural issues; Concurrent jurisdiction – streamlined framework

o Well coordinated function of various regulatory institutions over same / different segmentso Convergence of energy carriers / resources (e.g. diesel / gas -vehicle propulsion & power gen)

Entry barriers to the capital intensive industryo Development, upgrade, maintenance and access to infrastructureo Risk profile (high risk offshore E&P)

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Regulatory certainty is key for investments; Diagnosis report of White Paper: Private sector investment not as high as envisaged – Govt participation esp. required for backbone infrastructure.

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