ENERGY INDABA

Report from Gas Commission of Energy Indaba

Gallagher Estate

7 – 8 December 2017

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PRESENTATION OUTLINE • Introduction on the Role of Coal in the South Africa Energy Mix • Opportunities across the value chain • Local, regional and global opportunities • Constraints

a. Policy, b. Skills c. Environmental issues

d. Infrastructure e. Funding

f. Current and emerging technologies

• Gas contribution to inclusive growth • Gas contribution to Transformation • Energy efficiency • Recommended solutions • Conclusion

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Role of gas (regionally & globally)

• Gas is an integral part of global energy mix;

• The demand of LNG is expected to grow exponentially;

• Sellers are expected to offer different contract pricing because of increase in buyers;

• Regionally there is a lot of emerging gas project in the Eastern i.e Mozambique

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Role of gas (regionally & globally)

• Gas is an integral part of global energy mix;

• The demand of LNG is expected to grow exponentially;

• Sellers are expected to offer different contract pricing because of increase in buyers;

• Regionally there is a lot of emerging gas project in the Eastern i.e Mozambique

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Policy

• Deregulation of electricity industry - For correct energy buying decisions, it is perhaps time that we move away from average electricity pricing approach and let the market set the price (except the wires business)

• Develop “gas freeway” - For the gas industry to develop, there is a need for the state to invest in the “gas freeway,” same as other networked industries (water, liquid fuels, electricity) – without a deliberate investment in transmission lines, development of the gas industry will be limited

• Gas & renewables complementarity - Gas should ideally complement renewable energies and gas fired power generation

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Policy

• Black ownership - Gas industry should be broadened to include local participation including black ownership and state particpation. We can’t have the same legacy issues in 20 years time.

• Legislative and Regulatory Framework – Alignment to talk to project development and distribution of gas.

• 1 Stop Centre - need to have an opportunity Centre where we can clearly define the value chain opportunities to develop black people who need to come into the industry.

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Policy

• Role for SOE’s – To leverage the opportunities of the natural gas economy, Government, the various SOE’s and private sector need to collaborate in the development of the natural gas supply chain for multi-sector use including the gas-to-power programme

• SOE’s plans to catalyse the natural gas economy in the Southern African region by driving the establishment of mid-stream infrastructure for the importation, storage, handling and regasification of LNG, and the transmission of natural gas to multi-sectoral consumers.

• Will partner with industry operators in downstream aggregation to support BEE & new industries

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Policy

• Multinational corporations (MNC) and Foreign Investors (FI) – Localization – need clear policy on Localization – “Legislative

pressure” to comply with policies of transformation – be clear in Tender conditions on Transformation / Localization rules/requirements (ie, stretch targets), and MNC and FI will respond with necessary social engineering

– Opportunity – bring specialist expertise yet able to use local skills, materials and resources for development

– MNC and FI to be supportive of transformation – investment into tertiary institutions – aimed building long term relationships

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Policy

• Multinational corporations and Foreign Investors – Policy – acknowledge that the types of energy utilization is always a

political / governmental policy choice

– Policy - Key for South Africa & FDI attraction is to create clarity around policy, process and timeline and if/when there are delays there is need to explain explicitly why this happens and what the next steps are.

– Localization – need clear policy on Localization – “Legislative pressure” to comply with policies of transformation – be clear in Tender conditions on Transformation / Localization rules/requirements (ie, stretch targets), and MNC and FI will respond with necessary social engineering

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Policy • Multinational corporations and Foreign Investors

– Opportunity – while MNC’s and FI’s are specialist in their respective operations, they are open to a broadened play in the value chain – identify lot of opportunities for skills transfer, South African (SOE), Black Industrialist programme - therefore keen to explore further cooperation in that respect

– SOE integration - SOE’s are proactively progressing the gas industrialisation process but this should be aligned with the wider governmental plans.

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CONSTRAINTS - Skills

• There are inadequate skills within the gas sector: locals need to partner with major companies for skills transfer

• Where skills and expertise are to be imported for either professional services, procurement, construction and maintenance, a black owned entity (Preferably black youth) to partner and work closely with them for skill transfer purpose so that in the future we will not have to import that particular skill

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Policy

TRANSFORMATION

• Should transformation be only realized through Government imposition of rules/regulation or should voluntary application by industry also be considered

• Legislation to ensure the new entrance into the Gas space to develop Community and Enterprise development programmes to develop and capacitate local entrepreneurs, especially black youth, women and people with disabilities. This to be a requirement for licensing of Gas activities and continues monitoring and enforcement is key to ensure the promises are well.

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Policy

DoE – Opportunity / Leverage

• Long term annuity benefit - DoE has an opportunity to benefit from long term annuity benefit

• Intergovernmental cooperation - – Opportunity cost of protracted delays in promulgation of MPRDA

(~5year delay);

– Loss of Time Value of Money,

– forfeiture of social investment

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Policy

• South Africa’s economy is structurally very dependent on energy intensive sectors such as Mining & Manufacturing for labour absorption

• Both sectors are performing poorly because of high and rising energy input costs, low cyclical commodity prices and declining labour productivity

• Security of affordable power supply is critical to the survival of these labour absorptive sectors

• The current over supply is due to a significant drop in demand coupled with improved supply (plant availability & new build Medupi/Kusile)

• South Africa’s existing dispatchable power generation plans are lumpy, capital intensive and have long implementation schedules (especially nuclear)

• Providing for more gas-fired MW can address security of supply based on LNG imports and stimulate exploration for indigenous hydrocarbon resources, whilst providing a safety net for delays or cancellation of the nuclear and/or coal build programmes

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CONSTRAINTS - Infrastructure

• Government must build a network of pipeline, without interconnection of pipelines no growth or market for gas. i.e Government is progressing this through Operation Phakisa Phased Gas Pipeline Network Development for which a Strategic Environmental Assessment is currently underway

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CONSTRAINTS - Environmental issues

• Government should lead shale gas exploration and development but should be conscious of the environmental issues

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CONSTRAINTS - Funding

• Government is not funding most of the Energy projects they are

using Public/Private partnership-Bank require big major companies to take the risk because of the balance sheet;

• Small companies don’t have financial muscle to take the risk therefore funding is required.

• Government should target and redirect the commitments by the financial sectors that are being made towards black empowerment towards the energy sector

• DoE should find a way of unlocking the existing capital base to catalyse the development of the energy sector

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Growth and Transformation

• Big companies and foreign investors are driven by profit and are reluctant to partner with local companies to grow the sector;

• Government must leverage the creation of opportunity network: i.e most people have entrepreneurial ideas but don’t have access to network to advance their ideas

• Since the industry is still new in South Africa and many companies enters the market in the absent of proper legislation. Government/Regulator to fast track the development of Gas legislation as a tool to drive economic transformation. Because failure to do so will cost us a long period to correct

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Growth and Transformation Enterprise development

• What enterprise development does Government have for applicant for licences in the gas sector;

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Growth and Transformation Skills development

• There are inadequate skills within the gas sector: locals need to partner with major companies for skills transfer;

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Recommendation • Rules or regulation of the sector must continue but

posture around the rules must change;

• Conversation of gas should not limited to generation of electricity: ie gas-to power

• Gas expert must be brought in to contribute to the Department sector codes;

• Government must play a role in respect of environmental opportunities related to shale gas exploration

• LNG should be looked at broader than gas to power i.e LNG to industry and LNG automotive

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Recommendation • The gas value chain must be linked to local companies to

provide services

• The DoE must conduct a thorough stakeholder mapping to identify their roles and responsibilities

• DoE to prescribe integrated reporting as part of the sustainability into the gas development programme

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THANK YOU

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