Escolar Documentos
Profissional Documentos
Cultura Documentos
za/industries/oil-gas-energy
The gas
www.pwc.com/za
equation
An analysis of the
potential of the natural
gas industry in South
Africa
June 2012
Contents
Foreword 2
Acknowledgements 3
Abbreviations 4
Introduction 5
Research approach 5
Analytical framework 6
Summary of findings 7
Market analysis 9
Natural gas supply and the bargaining power of suppliers 9
Natural gas demand and the bargaining power of buyers 15
Threats of new entrants and barriers 21
Pressure from substitute products 26
Rivalry 29
Conclusions 31
References 32
Contacts 35
PwC 1
Foreword
While debate about hydraulic fracturing for shale gas in the Karoo continues to grab the
media spotlight, the broader discourse about the role of gas in South Africas energy mix
needs to continue. With this in mind, this analysis investigates the current state of the
natural gas industry in South Africa and evaluates the potential for its future development.
There is significant interest in exploring for and/or developing a local natural gas
industry in South Africa;
It will be profitable for energy companies to engage in exploration and production (E&P)
activities;
It will be profitable for energy companies to engage in gas import and distribution
activities;
There will be wider environmental benefits for the country if that increased gas use
displace some elements of coal-fired energy generation;
The South African economy will benefit from gas developments through increased
energy security; and
Increased availability of natural gas will enable South Africa to maintain its leading
position in the gas-to-liquids sector.
Research approach
The project research began with an appraisal of the global natural gas industry by means of
a review of analyst reports, research papers and media reports. This was followed up with
an assessment of the legal, regulatory and energy planning landscape in South Africa. This
research provided a contextual understanding of the industry, which was brought to bear
in interviews held with selected participants in the local natural gas industry.
Limitations
Statistics and estimates used in this report have been obtained from industry analyst
reports and other information available in the public domain and have not been
independently verified.
Conclusion
We believe that South Africa stands at the dawn of a new energy era, driven by domestic,
regional and global developments. These developments have the significant potential to
transform the local energy landscape and regional economy.
I trust you will find this report to be informative and look forward to receiving any
feedback you may wish to share.
Chris Bredenhann
Southern Africa Energy Leader
Cape Town
June 2012
PwC 3
Abbreviations
Bbl Barrels
Bcm Billion cubic metres
CCGT Combined cycle gas turbine
CCS Carbon capture and storage
CSP Concentrated solar power
CNG Compressed natural gas
DoE Department of Energy
E & P Exploration and production
EIA Energy Information Administration
EPRI Electric Power Research Institute
FSRU Floating storage and regasification unit
GDP Gross domestic product
GJ Gigajoule
GHG Greenhouse gas
GTL Gas to liquids
IEA International Energy Agency
IPP Independent power producer
IRP2 Integrated Resource Plan second iteration
JOA Joint operating agreement
LNG Liquid natural gas
MMscf Million standard cubic feet
MMBtu Million British thermal units
Mmbbl Million barrels
NERSA National Energy Regulator of South Africa
NG Natural gas
NGV Natural gas vehicle
OCGT Open cycle gas turbine
Pasa Petroleum Agency of South Africa
PESTEL Political, economic, social, technological,
environment and legal
PPA Power purchase agreement
PV Photovoltaic
Rompco Republic of Mozambique Pipeline
Investment Company
SANAS South African National Accreditation
System
scf Standard cubic feet
SWOT Strengths, weaknesses, opportunities,
threats
tcf Trillion cubic feet
tcm Trillion cubic metres
TCP Technical cooperation permit
WEC World Energy Council
WTI West Texas Intermediate
Research approach
The analysis contained in this study is based on a study
of the global natural gas industry, including a review
of analyst reports, research papers and media articles.
This, together with an investigation of legal, regulatory
and energy planning issues in South Africa provided
an understanding of the industry, which was used to
inform interviews with selected participants in the local
natural gas industry, including regulators, national and
multinational gas companies.
1 Peters, 2010
2 World Energy Outlook 2009
PwC 5
Analytical framework
This study uses the Porters five forces model as a framework to understand the
gas industry in South Africa. Consideration has also been given to the wider
economic, political and regulatory environment to enhance the analysis of the
dynamics and drivers of the industry.
Threat of
New Entrants
Threat of
Substitutes
The combined effect of the five forces determines how dynamic, competitive and
stable an industry is. This usually provides useful information to aid companies
in developing their strategies.
In the South African context, the natural gas industry is still at a very early stage
of development with limited competition. All industry participants are therefore
impacted similarly by changes in the industry, and a five forces analysis on the
industry as a whole is therefore deemed to be appropriate to develop an industry
analysis.
An industry can be defined in terms of the relationship between the value of the
product being offered, the intensity of competition and the bargaining power
that producers have relative to their suppliers.4
Threat of
New Entrants
Lack of infrastructure (-*)
Lack of incentives (-)
High development costs (-)
Environmental concerns relating to
shale gas (-)
Power of Power of
Suppliers Rivalry Customers
Natural gas prices are determined Low levels of competition in the industry (-) Buyers have limited sourcing options (-)
globally, effectively setting a ceiling (-) Regulatory environment supports Maximum prices are regulated, giving
Source of supply is uncertain (-) speculative ventures into the industry (-) buyers more power (+)
Alternatives to natural gas exist (-) Limited gas-on-gas competition (-) High switching costs away from existing
Few current suppliers in the market (-) Market dominated by one large player (-) energy sources (+)
Forward integration is possible (+) Backward integration is a possibility for
a large player like Eskom (+)
Threat of
Substitutes
Coal is a cheaper, albeit less
environmentally friendly, substitute (-)
Switching costs may be high (-)
Security of supply concerns leads to
the consideration of known and
proven substitutes (-)
PwC 7
The overall conclusion of the The drive for renewable energy in
analysis is that the local natural gas South Africa and the need to reduce
industry is relatively unattractive for greenhouse gas (GHG) emissions
new market entrants, with existing work together to establish demand
players having entrenched their for natural gas. Furthermore, South
position. Africas leading position in the GTL
market underscores the importance of
However, the research also natural gas to South Africa.
highlights the fact that the global
natural gas market is developing at But the industry faces a dilemma.
a fast pace as demand for cleaner In order to develop, large anchor
hydrocarbon fuels increases. Proven customers using significant gas
and probable global natural gas volumes are required. Indigenous
reserves are believed to have the reserves must still be proven and this
potential to provide for the energy can only be achieved with significant
needs of the world for the next 250 capital outlay. Exploration and
years. production (E&P) companies are,
however, unwilling to commit to
While South Africa does not have this without demand commitments,
significant proven reserves, the and the potential anchor customers
potential for significant indigenous that could create this demand are
natural gas reserves being found unwilling to commit until reserves are
remains a possibility. Significant proven.
proven indigenous gas reserves
would have a disruptive effect on
the industry, potentially upsetting
the strong position of the current
players, and open up the industry to
more competition.
The introduction of more natural gas into the energy mix in South Africa could
lead to a reduction in GHG emissions. Natural gas has also been proven to cost
less than nuclear energy as well as all types or renewable energy technology
currently available.
The dominance of coal in the South African energy mix and relative low cost of
coal will, however, prevent natural gas from taking a larger share of the total
energy mix.
5 BMI, 2012
6 BP, 2011
PwC 9
Figure 3: Proved reserves at end The global proven conventional natural gas reserves are equivalent to more
2010 (tcm) than 120 years of current global consumption.7 These proven reserves
exclude the large potential reserves that may be discovered and developed
South &
Central from unconventional sources such as shale gas. The IEA is of the view that
America North unconventional gas may be the key to expanding the long-term role of gas in the
7.4% America
9.9% global energy mix.
Africa
14.7%
Middle
East75.
The World Economic Forums Energy Vision Update 2011 estimates that with
8% Asia-Pacific the inclusion of unconventional gas, the worlds recoverable natural gas reserves
16.2%
are equivalent to more than 250 years of production at current rates.8
12%
Source: EIA
These volume estimates place South Africa in fifth position in terms of shale gas
reserves outside of the United States.
The basis for this estimate is a desk-top study of the geological formations
and drawing conclusions on the potential reserves based on the geology and
experience with the exploration of shale gas in the United States.
7 IEA, 2011
8 WEF, 2011
9 EIA, 2011
PwC 11
The Ibhubesi gas field is located in Imported natural gas
Block 2A. A production right has supply
been granted on this block. Forest
Exploration International (Forest) Foreign sources of natural gas are
who owned 53,2%, and acted as dealt with in two parts, being current
operator recently sold their stake to imports of natural gas and potential
African International Energy. PetroSA imports in the form of liquid natural
owns 24%, and Anschutz owns gas (LNG) or piped gas.
the remaining 22,8%.11 Eight wells
have been drilled in this block and, Currently natural gas is imported
according to Pasa, it is a field with into South Africa by Sasol Gas via an
multi-tcf potential. 865-km pipeline from the Temane
and Pande gas fields in Mozambique.
To date this gas has been stranded Reserves are estimated around
due to insufficient demand for gas 2,6tcf.12 The pipeline has a capacity
and a lack of infrastructure. However, of 240 million gigajoules (GJ) per
Forest has indicated that it plans to annum. Sasol imported approximately
commercialise the gas through the 123 million GJ into South Africa
construction of a pipeline from the during 2010.13 Approximately 120
field to the shore to enable the supply million GJ is used annually by Sasol
of gas to a 750MW CCGT power plant. in the GTL and chemicals plant
in Secunda, while the balance is
The field is capable of producing distributed to commercial and
225MMscf/day, which is equal to industrial customers via a pipeline
30-40% of the energy used in the network covering more than
Western Cape. The field has not been 2 000km in the Free State, Gauteng,
fully developed and requires further Mpumalanga and KwaZulu-Natal.14
exploration and development activity In terms of the Gas Act (2001), Sasol
to prove the reserve estimate with is the primary gas supplier and
more certainty. The field will be distributor until 2014 for certain
developed in four phases, and will identified distribution areas.
consist of 99 wells, costing US$3-4
billion.
The Kudu gas field off the Namibian coast is significantly further developed.
This field, owned by Namcor, Gazprom, Tullow and PetroSA, was discovered 30
years ago. The gas reserves, estimated to be in the region of 1,8tcf, have been
stranded due to a lack of demand and infrastructure to commercialise the gas.
The field is located 170km offshore and has the potential to supply gas for the
generation of 800MW of power for 20 years.15
11 Pasa, 2011
12 World Bank, 2008
13 Sasol, 2011
14 Sasol, 2011
15 XYX Today, 2010
A global natural gas market has been enabled by the development of LNG
technology and gas is a globally traded commodity. Figure 6 describes the major
natural gas trade flows:
Figure 6: Major
Major trade trade movements
movements 2009 (Bcm)
Trade flows worldwide (million tonnes)
347.8
8
36.2 26.6
20.3
28.7
121.7
121
1 48.3 10
05.9 179.4
94
9.4
79.2
81.0
81
10
28.2 10
1
103
103.2
03
61.2
86.9 48.0
27.5
27.9 110
0.1
115.7
33.5
3.5 230.0 7
47.8
21.0
26.8
8
US
Canada
Mexico
41.7
S. & Cent. America
Europe & Eurasia
Middle East
Africa
Asia Pacific
Figure 6 clearly shows that South Africa is not on any traditional LNG trading
route. The growth in the LNG market, coupled with the exponential shale gas
growth in the United States, does, however, mean that capacity is available and
that trade
Imports routings
and exportsshould
2009 not necessarily be a barrier.
Million tonnes Thousand barrels daily
The closest source of LNG to South Africa is theimportsGulf
Crude of Guinea,
Product and there
imports
Crude are Product
exports exports
Crude
imports
Product
imports
Crude
exports
Product
exports
LNG
US developments in Angola (Soyo) which could also provide
442.8 122.0 another 2.2regional 89.5 8893 2550 44 1871
supply
Canada source. The extent of recent natural gas reserves
39.1 proven
15.3 in Mozambique
96.5 25.7 785 320 1938 538
Mexico 0.5 21.0 63.8 8.0 9 439 1282 168
creates prospects
S. & Cent. America for even closer regional supply sources.
25.1 South
41.3 Africa is
128.9 also 54.4 504 863 2588 1137
much
Europecloser to Qatar, a major LNG supplier, than the countries
513.3 152.0 in the North
23.1 72.9 10308 3177 464 1523
Former Soviet
16 Union 0.9 3.2 342.0 105.1 18 67 6868 2197
Atlantic.
Middle East Furthermore, significant CBM developments
7.0 in Australia
10.5 may
822.1also 91.6 140 219 16510 1916
provide a new supply source of LNG for South Africa.
North Africa 18.4 Various 10.0investigations
111.1 25.3 369 209 2232 528
West Africa 12.1 212.3 5.3 1 254 4263 110
into the viability of
East & Southern Africa importing LNG to South Africa have
21.9 been conducted.
5.7 14.8 These 0.3 439 119 297 6
include:
Australasia 22.8 17.1 12.8 2.0 458 358 258 42
China 203.5 49.8 4.7 29.4 4086 1041 94 614
India 145.8 10.4 0.1 35.4 2928 217 1.9 740
Importing LNG
Japan as feedstock for the PetroSA GTL plant;
176.5 35.3 16.5 3545 738 345
Singapore 46.3 79.8 2.3 72.0 930 1668 47 1505
Other Asia PacificLNG
Importing at Saldanha on the West Coast228.6 127.6 generation
for electricity 40.2 and 59.9 4590 2667 807 1252
Unidentified* 0.9 15.5 20.6 18 311 430
to World
Total supply natural gas to the industries in the 1892.5
Western Cape; 714.0and 1892.5 714.0 38005 14925 38005 14925
* Importing LNG at Coega in the Eastern Cape for the Coega Industrial
Includes changes in the quantity of oil in transit, movements not otherwise shown, unidentified military use, etc.
Less than 0.05.
Development Zone and power generation.
Note: Bunkers are not included as exports. Intra-area movements (for example, between countries in Europe) are excluded.
PwC 13
According to the Electric Power Oil and gas prices have traditionally
Research Institute (EPRI), the current been coupled, with gas trading at
LNG market is a buyers market with a constant differential to oil. In the
large volumes of excess supply since period from 1996 to 2005, West Texas
2008 as a result of the global recession Intermediate (WTI) crude traded
slowing down demand growth.17 The at a differential of around US$1 per
decline in conventional natural gas MMBtu against the Henry Hub gas
production in the United States led price. During 2010, WTI crude traded
to the creation of significant LNG at about US$9 per MMBtu higher than
demand, which was met through LNG the Henry Hub gas price.
developments around the world.
European spot and contract gas prices
With the unexpected shale gas have also been trading well below oil
developments in the United States, equivalent levels. It has been argued
LNG demand disappeared virtually that diverging production costs are
overnight, leaving excess supply driving the price spread. Shale gas
capacity for which the LNG operators developments in the United States
have to find a market. High oil prices have led to a long-term cost curve for
have also resulted in expectations that natural gas at US$4-5 per MMBtu,
gas prices will remain high and, as a while the cost of oil is constantly
result, developers have been willing increasing as conventional oil reserves
to invest in LNG projects, further are depleted.18
increasing supply.
The lower prices potentially support
There have also been expectations the case for importing LNG as an
of significant LNG demand growth alternative energy source in the
from India and China, which have not diversified energy mix for South
materialised. In the case of China, Africa. Research conducted for this
this is as a result of insufficient report confirms that there are a
regasification capacity, and not actual number of parties willing to invest in
demand. This near-term excess supply the infrastructure required to import
results in lower prices. LNG, and the demand analysis dealt
with later in this report confirms the
Increased LNG demand is also seen viability of this.
from Japan following the 2011
tsunami.
Conclusion
Future gas supply may potentially not be constrained,
but at present sufficient supply may be a problem. This
improves the bargaining power of suppliers, as buyers
have fewer choices. The availability of substitutes,
however, weakens the bargaining power of gas suppliers.
The demand for natural gas, dealt with in the next section,
is also not of such a nature that it would place suppliers in
a strong bargaining position. Forward integration in the
industry is certainly a possibility and this will strengthen
the bargaining power of suppliers.
17 EPRI, 2010
18 Abadie et al, 2011
19 Porter, 1998
20 IEA, 2011
21 Peters, 2010
22 IEA, 2011
23 IEA, 2011
PwC 15
Table 1: Principal drivers of natural gas demand by sector
Power (+/-)* Industrial output (+/-) Gas-fired generation (+) Less emissions (+) Best available CCGTs Not significant in most (+/-) Regulation of CO2
generation and household income is sensitive to changes in intensive than other fossil have a sizeable efficiency regions as power plants are emissions;
levels, which rise and fall relative fuel prices and CO2 fuels (local pollution/ advantage over coal-fired typically built close to major
with economic activity, prices; climate); plants; an electric vehicle infrastructure (+) Policy uncertainty favours
are strong determinants of breakthrough could raise gas-fired plants to reduce risk;
electricity demand. (+) Short lead times for (+) Increase flexibility of electricity needs
construction; low capital the system with more (-) Support for renewable and
costs. renewable capacity. nuclear power.
Industry (+/-) Industrial output (+) Gas is usually the (+) Reduced impact of (-) Potential to raise boiler Not significant in most (+) Government-subsidised
strongly correlates with gas preferred fuel for new gas use on air quality efficiency by installing new regions as factories are gas pricing to protect
demand for process heat equipment; compared to other fossil- units; typically built close to major domestic industry; (-)
and steam-raising. fuels; infrastructure. Efficiency standards for
(-) High gas prices (-) Increased use of combined industry equipment.
encourage use of more (+) No need for heat and power (CHP) plants.
efficient boilers. management of waste
products.
Transport Not significant because (+) Payback period for (+) In road transport, gas (+) Potential to improve gas (+) NGVs require large (+) Policies promoting use of
penetration of natural gas purchasing an NGV is less emissions intensive storage technology to extend network of refuelling NGVs (personal and fleets) to
vehicles (NGVs) is small. shortens with higher oil than oil and able to NGV range. stations; improve energy security and/or
prices. improve local air quality. air quality.
(+) Pipeline gas transport
raises power needs in
compressors.
Other (+/-) Demand for gas for (+/-) Petrochemicals Relatively insensitive. (+) Technical advances in GTL Not significant in most (+) Policies to support
feedstock use is closely feedstock demand is very or other technologies could regions as industries using domestic industries that utilise
tied to industrial production sensitive to price of gas greatly boost use of stranded feedstocks are typically built natural gas inputs (fertilisers,
and GDP. relative to naphtha. gas. close to major infrastructure GTL and petrochemicals).
*(+/-) Indicates drivers with the potential to cause either higher or lower gas demands; (+) for drivers that can raise demand; (-) for drivers that can lower demand.
24 PetroSA, 2010
25 PetroSA, 2010
26 Gigajoule, 2011
PwC 17
Eskom has already completed the
environmental impact assessment
for the CCGT conversion, as in its
initial design this conversion was
China is in the initial stages of anticipated.29
developing its natural gas markets.
Large cities, including Shanghai and Gigajoule estimates that the
Guangdong, are in need of natural conversion of Ankerlig would result
gas, but there is a complete lack of a in a price of R0.70/kWh, which
natural gas pipeline network, similar compares very favourably with any
to South Africa. Critics argue that the other form of new generating capacity
demand from these cities alone would under consideration in South Africa.
not consume the volumes of natural
gas that would make LNG projects The Ankerlig CCGT project would
viable.27 It has been suggested that also provide the anchor customer
the urban pipeline network would necessary to make the investment in
gradually be formed once large the required infrastructure feasible,
industrial gas users (such as power and would act as the trigger for the
producers) provide the basis for the construction of additional pipeline
Gigajoule believes that there is a creation of the natural gas industry. infrastructure that could supply
market for natural gas in South The same argument can be applied industry and households in the
Africa, sourced on the international to the South African scenario, where, Western Cape with gas.
LNG market, in supplying Eskom once gas is available, infrastructure
and independent power producers development could be motivated. Forest believes that there is no
initially. However, once an anchor demand uncertainty with respect to
customer can be secured, further One of the projects that Gigajoule natural gas, but that concerns revolve
demand will develop, focussed on has been motivating is the conversion around supply uncertainty. From this
industrial, commercial, residential of the Ankerlig power station in the perspective, this could be overcome
and public transportation users. Western Cape to CCGT. This project through LNG imports, which could
This can be achieved through would have a capital cost of between act as the trigger for the development
CNG technology until such time R4B and R7B (US$570m and US$1B). of the required distribution and
as a comprehensive transmission The current configuration of Ankerlig transmission infrastructure, until
and distribution network can be consist of nine 150MW (1350MW such time as indigenous gas supplies
established. in total) OCGT units running on have been developed. Once this
diesel. The plant has an efficiency of infrastructure is in place, industrial,
In the absence of the development of 32.7% and is utilised less than 6% commercial and domestic users may
the Ibhubesi gas field, or any of the per year. A conversion to gas-fired be more willing to consider converting
other indigenous gas plays referred CCGT will increase the output to 2 to gas-fired energy sources.
to earlier, South Africa will have to 070MW, allowing it to operate at 51%
rely on imported LNG for the gas- efficiency, which could be utilised When considering demand for natural
fired power generation anticipated in 47% of the year. gas, it is also important to look at
the IRP 2010. industrial development nodes, as
Gas for the CCGT configuration would this is more than likely where the
The concept of gas-fired power be sourced from the global LNG biggest demand for energy will be. It
generation acting as an anchor market and supplied to an offshore would be appropriate to conclude that
customer to provide demand in the submerged receiving terminal, which natural gas demand opportunities
large volumes required to make would consist of a demountable are located in the Western Cape,
LNG projects viable, is similar to the buoy, flexible marine riser and a KwaZulu-Natal, Gauteng and the
position in China. Both countries rely floating storage and regasification Eastern Cape. Gauteng and KwaZulu-
heavily on coal as a primary energy unit (FSRU). This configuration and Natal already have gas supplies
source and natural gas makes up only technologies would result in savings and there is unsatisfied demand,
around 3% of the total energy mix. over conventional LNG infrastructure essentially as a result of a supply
Lessons could therefore be learned requirements for onshore shortfall and distribution network
from China. regasification and storage.28 constraints.
Wind
40 000
Cumulative
Megawatt
39 000 demand
38 000
37 000
34 000 Coal
33 000
32 000
31 000
30 000
00:00 06:00 12:00 18:00 24:00
Time
Shortfall
Source: PwC
PwC 19
Conclusion
The bargaining power of buyers in the existing
market in South Africa is reduced by the strong
position of suppliers, where Sasol dominates the
market. Buyers wishing to engage in large-scale
natural gas projects that require significant volumes
will, however, be able to use these volumes in their
negotiations to increase their bargaining power.
32 Porter, 1998
PwC 21
Energy Outlook lists the following
above-ground barriers to shale gas
development:
33 Pasa, 2011
34 Peters, 2010
35 Gas Act, 2001
36 Golder Associates, 2011
37 IEA, 2011
PwC 23
Figure 8: Life cycle analysis: Coal vs natural gas
8 000
6 000
Coal
life cycle
Coal
4 000 LNG
life cycle
Natural gas
Natural life cycle
gas
2 000
0
Combustion Life cycle Combustion Life cycle LNG
High
Low
500
400
300
200
100
0
Pulverised Integrated Natural gas LNG
coal coal gasification combined cycle combined cycle
PwC 25
Pressure from substitute
products
Substitute products place a limit on the profitability of an
industry, as in a monopolistic environment where there are
no alternatives, the supplier has the ability to demand a
premium for its product. Substitutes give customers choices
and place suppliers under pressure.42 In the context of this
analysis, natural gas has many substitutes as an energy
source, including electricity generated from coal, industrial
heating powered by fuel oil and refined petroleum products
produced from crude oil.
42 Porter, 1998
Solar 11%
Pumped Storage 3%
Coal &
other 47% Gas/Diesel 11%
Hydro 5%
Nuclear 13%
PwC 27
From point of view of levelised cost of electricity, gas-fired CCGT would provide the cheapest form of energy
for South Africa.
Total plant cost per kW (ZAR) 16 880 3 955 5 780 28 290 16 930 50 910 37 225
The IEA World Energy Outlook 2009 further supports these conclusions, as demonstrated in
Figure 12
Figure 12: Long-run marginal cost of generation for gas-fired CCGT power plants
compared with other technologies and fuels in OECD countries in 2015-2020
12
10
0
Gas Coal Coal Coal oxyfuel Nuclear Wind
CCGT ultra-supercritical 16 CC with CCS onshore
Once an anchor demand for natural gas can be established, it can act as a substitute for
various other energy sources, including in public transportation, industrial and commercial
enterprises, and even domestic applications. However, the key barriers such as supply, lack
of infrastructure and switching cost must be removed before this could happen.
Conclusion
While natural gas can be seen to be more environmentally friendly and
economically competitive than other hydrocarbon-based energy sources,
there are a number of substitutes in which committed capital projects are
also already under way. This, combined with the barriers listed earlier,
leads to the conclusion that pressure from substitute products will have a
negative impact on the development of the local natural gas industry.
PwC 29
Market analysis of the
extent of competitive
rivalry
Given that the natural gas industry
is immature and not significant in Because there is insufficient
South Africa, there is not a significant competition in the market, NERSA Conclusion
amount of rivalry within the industry. sets minimum and maximum prices
It could be argued that the
This can mainly be attributed to the to protect customers. This is a further
abovementioned factors contribute
lack of indigenous supply and the admission that the level of rivalry in
to the lack of competition, and if
dominant position that Sasol has the industry is low.
competition were to be encouraged,
in the local market. This position
more players would be encouraged
is protected through the Gas Act, Given the limited number of players in
to enter the industry. The fact that
which gives Sasol exclusivity for the market, and the dominant position
there are 67 TCP or production
the importation of natural gas from of Sasol, there is currently very little
licence permits issued or under
Mozambique until 2014. gas-on-gas competition.
consideration for onshore exploration
and production activities point to
Rompco (Republic of Mozambique Another factor impacting rivalry
an industry in its early stages of
Pipeline Investment Company), is the capital intensity of the
development. The entry of a number
a subsidiary of Sasol with a 25% natural gas industry. Significant
of potential rivals could create more
minority stake held by i-Gas, operates capital investment is required
competition and reduce the current
the gas pipeline between Mozambique to build pipelines and other gas
high level of industry concentration.
and South Africa. Section 36 of the processing facilities. In order to
Gas Act makes specific mention of the promote competition, the regulatory
Once gas reserves are proven and
Mozambique Gas Pipeline Agreement framework makes provision for third-
comprehensive infrastructure is
entered into between the Minister party access to uncommitted capacity
established, more rivalry will develop,
of Energy, the Minister of Trade and in existing infrastructure. In the
and the possibility of switching
Industry and Sasol Limited with current South African context, this is
between suppliers may even become
respect to the importation of natural of academic value only as there is no
a reality. While the impact of rivalry
gas by pipeline from Mozambique to uncommitted capacity and therefore
in the natural gas industry in South
South Africa. very limited rivalry.
Africa is neutral at present, it should
become more positive as the industry
This agreement was reached before Competition in the onshore shale gas
grows and more market entrants
the Gas Act was enacted and Sasol play is also fairly limited, partly due to
appear.
was attempting to protect itself the extensive size of the exploration
from adverse conditions that may blocks that have been created. In 2011
have been included in the Gas Act. there were only five major shale gas
In terms of the agreement, Sasol developers holding exploration blocks
obtained 10-year exclusivity from under TCPs:
the date of the first import on the
import and distribution of natural Royal Dutch Shell (185 000 km2);
gas from Mozambique.45 In addition,
Falcon Oil and Gas (30 000 km2);
mandatory third-party access to
the pipeline was only allowed for Sasol / Chesapeake / Statoil
greenfield and brownfield customers (88 000 km2);
that consume a quantity of gas in Sunset Energy (4 600 km2); and
excess of specified minimums.
Anglo Coal (50 000 km2)46
45 DoE, 2001
46 EIA, 2011
PwC 31
References Energy Information Administration,
2010. Country Analysis Briefs. [Online].
[Online]. Available from: http://www.
iea.org/weo/docs/weo2011/WEO2011_
Available from: http://ei-01.eia.doe.gov/ GoldenAgeofGasReport.pdf. [Accessed 29
Abadie, O, Ineson, R, and Stoppard, M, 2011.
emeu/cabs/South_Africa/NaturalGas.html. May 2011].
Mind the Gap: Gas versus Oil prices. [online].
[Accessed 5 June 2011].
Available from: https://client.cera.com/aspx/cda/
Jaramillo, P, Griffin, W M, and Matthews,
client/report/report.aspx?KID=61&CID=11797.
Energy Information Administration, HS, 2007, Comparative life-cycle air
[Accessed 25 July 2011].
2011. World Shale Gas Resources: An emissions of coal, domestic natural gas,
initial Assessment of 14 regions outside the LNG, and SNG for electricity generation.
Aktouf, O, Chenoufi, M, and Holford, WD,
United States. [Online]. Available from: Environmental science & technology,
2005. The False Expectations of Michael Porters
http://www.eia.gov/analysis/studies/ 41(17), p 6290-6296
Strategic Management Framework. Problems &
worldshalegas/. [Accessed 23 June 2011].
Perspectives in Management, 4, pp. 181-200.
Li, Y and Bai, F, 2009. A policy study
Eskom, 2008. Guide to Independent examining the use of imported LNG for
Arons, H De S and Waalenwijn, 1999. A knowledge
Power Producer (IPP) process. [Online]. gas-fired power generation on the South
base representing Porters Five Forces Model.
Available from: http://www.eskom.co.za/c/ east coast of China. Energy Policy, 38, pp.
[Online]. Available from: http://publishing.eur.
article/552/home/. [Accessed 24 June 896-901.
nl/ir/repub/asset/753/eur-few-cs-99-02.pdf.
2011].
[Accessed 30 July 2011].
Lochner, P, Gordege, E and Wren, S, 2006.
Eskom, 2011. Fact Sheet Ankerlig and Scoping and Environmental Impact
Argyres, N and McGahan, A, 2002. An Interview
Gourikwa Gast Turbine Power Stations. Assessments for the proposed Coega LNG-
With Michael Porter. Academy of Management
[Online]. Available from: http://www. to-Power Project, Eastern Cape, South
Executive, 16(2), pp. 43-52.
eskom.co.za/content/GS_0002AnkerlGou Africa. [Online]. Available from: http://
rikGasTurbPstnsRev5~1.pdf. [Accessed 12 recruitment.eskom.co.za/content/Draft_
Booms, BH and Bitner, MJ, 1981, Marketing
June 2011]. ScReport_FINALOct06.pdf. [Accessed 4 May
Strategies and Organisation Structures for Service
2011].
Firms, in Marketing of Services, J. Donnelly
Gas Act, 2001. Act No. 48 of 2001: Gas Act,
and W.R. George (eds), American Marketing
2001. Molopo Energy Limited, 2010. Our Projects:
Association.
South Africa. [Online]. Available from:
Gigajoule, 2011. Natural Gas http://www.molopo.com.au/projects/
BP plc, 2010. BP Statistical review of World Energy
Vehicles. [Online]. Available from: south-africa/. [Accessed 9 July 2011]
2010. [Online] Available from: http://www.
http://www.gigajoule.co.za/index.
bp.com/sectiongenericarticle.do?categoryId=9
html?lf=1;pg=17;ai=5. [Accessed 16 July National Energy Act, 2008. Act No. 34 of
023779&contentId=7044843. [Accessed 5 June
2011]. 2008: National Energy Act, 2008.
2011].
Petroleum Agency SA, 2011. Moratorium Van der Spuy, D, 2010. Natural gas an
on receiving applications. [Online]. Available update of South Africas potential. Presentation
from: http://www.petroleumagencysa. to SANEA on 21 July 2010. [Online].
com/files/Morotorium%20on%20new%20 Available from: http://www.sanea.org.za/
Applications%20in%20the%20Karoo.pdf. CalendarOfEvents/2010/SANEALecturesCT/
[Accessed 15 June 2011]. Jul21/SANEA%20presentation%20July%20
2010%20with%20notes.pdf. [Accessed 7 June
Petroleum Agency SA, 2009. Application 2011].
procedure in respect of Permits and Rights to
Petroleum Exploration and Production. [Online]. World Bank, 2005. Project Finance and
Available from: http://www.petroleumagencysa. Guarantees: World Bank provides enclave IBRD
com/Files/Guidelines_Application_procedure. Guarantee to cross-border gas project. [Online].
pdf. [Accessed 20 June 2011]. Available from: http://www-wds.worldbank.org/
external/default/WDSContentServer/WDSP/IB
Petroleum Agency SA, 2011. Exploration Map /2010/03/12/000334955_20100312070319/
of South Africa. [Online]. Available from: Rendered/PDF/534550BRI0PFG110Box345611B
http://www.petroleumagencysa.com/files/ 01PUBLIC1.pdf. [Accessed 16 July 2011].
Hubmap07a11.pdf. [Accessed 9 July 2011].
World Economic Forum, 2011. Energy Vision
Peters, D, 2010. Speech by the Minister of Energy, Update 2011 A new era for gas. [Online].
Ms Dipuo Peters (MP), at the occasion of the Third Available from: http://www.weforum.org/
Annual Natural Gas Conference, Indaba Hotel, reports/energy-vision-update-2011-new-era-gas.
Johannesburg, 7 September 2010. [Online]. [Accessed 16 July 2011].
Available from: http://www.info.gov.za/speech/
DynamicAction?pageid=461&sid=12758&t World Energy Council, 2010. Report on Shale
id=17351. [Accessed 9 March 2011]. Gas. [online]. Available from: http://www.
worldenergy.org/publications/2843.asp.
PetroSA, 2010. PetroSA annual report [Accessed 9 July 2011].
2010. [Online]. Available from http://www.
petroleumagencysa.com/files/Hubmap07a11. XYX Today, 2010. US Company Invests $2 Billion
pdf. [Accessed 9 July 2011]. in Ibhubesi Gas Fields. [Online]. Available from:
http://xyxtoday.com/ibhubesi-gas-fields-attract-
Porter, ME, 1985. Competitive Advantage: 2-billion-investment-by-u-s-company/2210303/.
Creating and sustaining superior performance. [Accessed 17 June 2011].
New York: The Free Press
PwC 33
PwCs energy industry
expertise
PwC helps energy companies evaluate priorities, assess risks, create value and
build stakeholder confidence. Our global energy practice focuses on delivering
professional services to companies of all sizes and across all segments of the
industry.
Renewable energy
South Africa has extensive, proven resources of renewable energy, especially
in solar, wind and wave energy, and biomass production. Renewable energy in
South Africa has the potential to create thousands of long-term jobs and ensure
energy security and sustainable development in the future.
Our business solutions are tailored to meet clients individual needs. We provide
industry-specific solutions in the fields of audit and assurance, tax, deals and
consulting services to help companies address their business and stakeholder
issues.
Chris Bredenhann
Southern Africa Energy Leader
Cape Town
Tel: +27 (0)21 529 2005
chris.bredenhann@za.pwc.com
Kasief Isaacs
Southern Africa Renewable Energy Leader
Cape Town
Tel: +27 (0)21 529 2741
kasief.isaacs@za.pwc.com
Angeli Hoekstra
Southern Africa Power and Utilities Leader
Johannesburg
Tel: +27 (0)11 797 4162
Angeli.hoekstra@za.pwc.com
PwC 35
Notes
This document is protected under the copyright laws of South Africa and other countries as an unpublished work. This document contains information that is proprietary and confidential to
PricewaterhouseCoopers Incorporated, which shall not be disclosed outside the recipients company or duplicated, used or disclosed in whole or in part by the recipient for any purpose other than
to evaluate this proposal. Any other use or disclosure in whole or in part of this information without the express written permission of PricewaterhouseCoopers Incorporated is prohibited.
PwC 37
2012 PricewaterhouseCoopers (PwC), the South African firm. All rights reserved. In this document, PwC refers to
PricewaterhouseCoopers in South Africa, which is a member firm of PricewaterhouseCoopers International Limited (PwCIL),
each member firm of which is a separate legal entity and does not act as an agent of PwCIL. (12-11147)