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Last Updated: October 27, 2017
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Overview

South Africa has a large energy-intensive coal mining industry. The country has limited proved reserves of oil and natural gas and uses its large coal deposits to meet most of its energy needs, particularly in the electricity sector. South Africa also has a sophisticated synthetic fuels industry, producing gasoline and diesel fuels from the Secunda coal-to-liquids and Mossel Bay gas-to-liquids plants.

South Africa's energy sector is critical to its economy, as the country relies heavily on its large-scale, energy-intensive coal mining industry. South Africa has limited proved reserves of oil and natural gas and uses its large coal deposits to meet most of its energy needs, particularly in the electricity sector. Most of the oil consumed in the country, used mainly in the transportation sector, is imported from Middle Eastern and West African producers in the Organization of the Petroleum Exporting Countries (OPEC) and is locally refined. South Africa also has a sophisticated synthetic fuels industry, producing gasoline and diesel fuels from the Secunda coal-to-liquids (CTL) plant and the Mossel Bay gas-to-liquids (GTL) plant. The synthetic fuels industry accounts for nearly all of the country's domestically produced petroleum because crude oil production is very small.

South Africa’s economy has grown rapidly since the end of the apartheid era in 1994, and the country is now one of the most developed nations in Africa. South Africa has the second-largest economy in Africa, in terms of gross domestic product (GDP), and it has the highest energy consumption on the continent, accounting for about 28% of total primary energy consumption in Africa, according to BP Statistical Review of World Energy 2017.[1] Despite rapid economic growth over the past few decades, economic problems from the apartheid era remain, particularly poverty and the lack of economic participation among disadvantaged groups. The South African government has committed to ensuring that black-owned companies have access to energy and mining sector activities under its Black Economic Empowerment (BEE) program. In addition, the 2000 Petroleum and Liquid Fuels Chartersets a target to place 25% of the oil industry (across all facets) in the hands of black-controlled energy companies.

According to a 2015 study by the U.S. Energy Information Administration (EIA), South Africa holds the eighth-largest technically recoverable shale gas resources in the world (390 trillion cubic feet) primarily located in the Karoo basin. The South African government hopes that shale gas will provide the country with a reliable alternative fuel to coal. However, regulatory uncertainty and environmental concerns have delayed exploration. Some progress was recently made when the Petroleum Agency South Africa (PASA) announced that it would start processing existing applications for exploration permits in late 2017.[2]

In 2016, 70% of South Africa's total primary energy consumption came from coal, followed by oil (22%), natural gas (4%), nuclear (3%), and renewables (less than 2%), according to BP Statistical Review of World Energy 2017 (Figure 2).[3] South Africa's dependence on coal has led the country to become the leading carbon dioxide emitter, on a volumetric basis, in Africa (accounting for 35% of emissions in Africa) and the 14th-largest emitter in the world, according to the latest BP Statistical Review estimates.[4]

Figure 1. Map of South Africa

Map of South africa

Source: U.S. Department of State

Figure 2. Total primary energy consumption in South Africa, 2016

Energy sector management

PetroSA, a South African state-owned company, operates upstream oil and natural gas producing assets in South Africa, along with the GTL plant in Mossel Bay. Sasol, a privately owned company based in South Africa, operates the Secunda CTL plant, has a majority interest in the Natref oil refinery, partially owns the pipeline transporting natural gas from Mozambique to South Africa, and is involved in coal mining.

Regulatory organizations

South Africa has several government agencies and companies involved in the coal, natural gas, and oil sectors. The Petroleum Agency of South Africa (PASA) regulates oil and natural gas exploration and production and provides public data on those activities. The National Energy Regulator of South Africa (NERSA) regulates the electricity sector, natural gas pipeline industries, and petroleum pipeline industries. NERSA regulates electricity prices and promotes private sector participation by encouraging investment by independent power producers (IPPs) and off-grid technologies to meet rural energy needs. Eskom—the state-owned electricity company—generates about 90% of South Africa's electricity and owns and operates the national electricity grid.[5]

Major companies

South Africa's upstream oil and natural gas sectors are dominated by the state-owned company Petroleum Oil and Gas Corporation of South Africa (PetroSA), while the downstream oil sector is more diversified and includes companies from Europe, North America, and Asia. BP, Shell, Chevron, Total, and Engen are the main players in the downstream oil and petrochemical industry. PetroSA operates all upstream oil- and natural gas-producing assets in South Africa, along with the GTL plant at Mossel Bay. The company also participates in oil and natural gas activities internationally.

Sasol is another major player in South Africa's energy industry and operates Secunda, one of the world's largest coal-based synthetic fuels plant. The company holds majority interest in the 88,000 barrels per day (b/d) Natref refinery. Sasol is also involved in coal mining and marketing of natural gas and oil products. According to Sasol, the company mines 40 million metric tons (MMt) of marketable coal per year (mostly used at the Secunda CTL plant) and exports about 2.8 MMt per year. Sasol distributes and markets natural gas produced in Mozambique that is exported to South Africa via a pipeline partially owned by Sasol.[6]

Sasol has operations around the world, ranging from supplying petrochemicals to using its proprietary Fischer-Tropsch conversion technology to pursue opportunities to open GTL plants. Sasol has a 49% stake in Qatar’s Oryx GTL plant (Qatar Petroleum owns 51%) that came online in 2007. Sasol also has GTL projects in Nigeria and Uzbekistan. Sasol is also considering developing a GTL plant at Lake Charles, Louisiana, in the United States and a GTL plant in Alberta, Canada, although both projects are now on hold as a result of recent low oil prices.[7]

Major companies that participate is South Africa’s coal sector include Anglo American, BHP Billton, and Xstrata Coal. The South African-based, majority black-owned coal company Exxaro also ranks among the top producers. Coal mining in South Africa is mainly undertaken by privately owned companies, and the shareholders of Richards Bay, the country’s main coal port, are all private companies as well. The state-owned company Transnet controls the railways used to transport coal from the mines to the ports.

Coal

South Africa has the world's tenth-largest amount of recoverable coal reserves and holds 75% of Africa's total coal reserves. Coal consumption in South Africa is expected to continue to increase as new coal-fired power stations are scheduled to come online to meet rising demand for electricity.

South African proved coal reserves were estimated at 11 billion short tons at the end of 2016, the 10th-largest in the world, according to the BP Statistical Review of World Energy 2017. South Africa’s coal reserves accounted for 75% of those in Africa and 1% of total world reserves.[8]

South Africa's economy is heavily dependent on coal, as it accounts for about 70% of the country’s total primary energy consumption (Figure 2). The electricity sector accounts for more than half of the coal consumed in South Africa, followed by Sasol’s petrochemical industries, metallurgical industries, and domestic heating and cooking, according to Eskom.[9]

South Africa’s coal production and consumption levels have remained relatively stable over the past decade. In 2016, the country produced an estimated 277 million short tons (MMst) and consumed 191 MMst of coal (Figure 3).[10] Most of the coal produced comes from the Witbank, Highveld, and Ermelo coal fields, which are located in the eastern part of the country near Swaziland. South Africa has the potential to increase coal production, particularly from the resource-rich Waterberg basin in the northeastern area of the country. One of the main bottlenecks to increasing coal exports is the lack of railway infrastructure used to transport coal from the inland mines to the ports. Transnet, South Africa’s railway operator, is investing billions of dollars to expand railway infrastructure over the next few years. Several railway projects are slated to be commissioned by 2021, which should facilitate transporting coal to export facilities and demand centers within South Africa.[11] However, weaker global coal demand, lower international coal prices over the past few years, and some regulatory uncertainties have delayed investments in these mine projects.[12]

Some of South Africa’s mining projects are allocated to domestic electricity generation versus coal exports. South Africa’s electricity consumption is increasing, and coal production will be needed to fuel new power plants that are currently under construction. Coal use—especially by Eskom and Sasol—is expected to rise over the next few years.[13] Eskom is expanding its coal-fired electricity capacity to meet growing demand by bringing online coal-fired power plants—Medupi (4,764 megawatts (MW) and Kusile (4,800 MW)—in stages by 2022. Two units of the Medupi power plant and the first unit of the Kusile plant (collectively 2,388 MW of capacity) were operational by September 2017.[14] However, coal consumption in the power sector is expected to face competition from natural gas and renewable energy in the next few years.

Figure 3. Total primary coal production and consumption in South Africa

Coal-to-liquids (CTL)

South Africa produces synthetic fuels from low-grade coal and a small amount from natural gas. At the Sasol synfuels plant in Secunda, more than 37 MMst of coal each year are converted into liquid fuels and a range of chemical feedstock. The plant houses two factories with a total capacity of 160,000 b/d of oil equivalent.[15} Sasol proposed an expansion of Secunda's capacity and construction of another CTL facility, although these projects have been postponed until it has a provision for carbon capture at these facilities.[16]

Exports

South Africa exports about 30% of its coal production and is the fifth-largest global coal exporter. Most of South Africa’s coal exports are sent to Asia, with India being the largest recipient.

South Africa exported about 30% of its coal production (85 MMst in 2016), making it the world’s fifth-largest global coal exporter. Asia received nearly two-thirds of South Africa’s coal shipments, with the largest destination being India, which accounted for nearly half of South Africa’s coal exports (Figure 4).[17] Europe is the second-largest regional importer of South Africa’s coal, followed by the rest of Africa, the Middle East, and the Americas. South African exports have shifted to India and South Asia and away from Europe and China over the past several years.

About 95% of South Africa’s coal is exported via the Richards Bay Coal Terminal (RBCT), and the remainder is exported via the Maputo and Durban terminals.[18] RBCT is located on the eastern coast of South Africa and is one of the world's largest coal export terminals. It began operation with a design capacity of 13 MMst per year in 1976, and it has since gone through several capacity expansions, increasing the export terminal's design capacity to its current level of 100 MMst per year.[19] There are proposals to expand RBCT’s capacity to 121 MMst per year. These plans have been delayed because the terminal still operates below its capacity as a result of inadequate rail capacity needed to transport coal produced at inland coal fields to the RBCT.[20] However, progress has been made over the past few years to increase the terminal’s throughput volumes. In 2015, the RBCT exported more than 83 MMst of coal for the first time before declining to 80 MMst in 2016 (Table 1). Even though exports to Asia and Africa rose in 2016, coal shipments to Europe were weak in 2016, driving down overall exports from RBCT.[21]

Table 1. Richards Bay coal terminal shipping statisticsmillion metric tonsYearCoal shipped201172.2201275.3201377.4201478.6201583.1201680.0Source: Richards Bay Coal Terminal, Reuters

Figure 4. South Africa's coal exports, by destination, 2016

Natural gas

South Africa imports natural gas from Mozambique via pipeline to supply Sasol's Secunda synfuel plant and to fuel natural gas-fired power plants. South Africa produces a small volume of natural gas offshore, which is mainly used to supply the Mossel Bay GTL plant.

In 2016, South Africa produced about 40 billion cubic feet (Bcf) of dry natural gas and consumed nearly 180 Bcf; the difference of 140 Bcf was imported from Mozambique via pipeline (Figure 5). South Africa has very limited proved natural gas reserves but potentially large shale gas resources. Most of South Africa’s natural gas is produced from the maturing offshore F-A field and South Coast Complex fields and sent to the GTL facility in Mossel Bay via an offshore pipeline.

PetroSA intended to develop the F-O field, also known as Project Ikhwezi, to sustain natural gas supplies to the GTL facility, although field reserves and production potential have been severely overestimated by the state company.[22] The company plans to tap into nearby prospective areas, such as the E-BK Project, to continue natural gas flows to the GTL plant.[23] One of the most viable opportunities for offshore field development is the Ibhubesi natural gas field, owned by a joint venture of the South African firms Sunbird (the field operator) and PetroSA. The Ibhubesi field holds at least 540 Bcf of recoverable reserves. The field developers aim to finalize a natural gas supply agreement with South Africa’s state-owned electricity firm, Eskom, in 2017 and to begin production by 2020 to replace some of the country’s diesel-fired power.[24] Sunbird received the environmental authorization for the Ibhubesi natural gas project in August 2017.[25]

The government aims for new natural gas production from offshore conventional fields, onshore shale gas developments, regional imports from Mozambique, and potential liquefied natural gas (LNG) imports to reduce the country's reliance on coal in the electricity and industrial sector in the long term. Currently, infrastructure constraints limit the role of natural gas in the country's electricity sector.

South Africa created a new natural gas plan that includes constructing several natural gas-fired power plants and at least two LNG regasification terminals by 2025. South Africa’s Department of Energy has proposed building nearly 290 Bcf/y of capacity from two floating LNG import terminals on the eastern side at Richards Bay and the southeastern coast at Port Coega. South Africa reported that it plans to move forward with the bidding process for the facilities in late 2017 and to begin importing LNG by 2020. PetroSA has also considered building a floating regasification facility to supply the Mossel Bay GTL plant in the future.[26]

Figure 5. South Africa's natural gas production and consumption

Shale gas resources

EIA estimates that South Africa holds 390 trillion cubic feet of technically recoverable shale gas resources. Environmental concerns led the government to place a moratorium on shale gas exploration from April 2011 to September 2012. Recently, South Africa’s government has started to process pending applications for shale exploration permits.

According to a June 2013 report released by EIA, South Africa has 390 trillion cubic feet (Tcf) of technically recoverable shale gas resources, making the country the eighth-largest holder of technically recoverable shale gas resources in the world. Technically recoverable resources represent the volumes of oil and natural gas that could be produced with current technology, regardless of oil and natural gas prices and production costs.[27]

South Africa’s shale gas resources are located in the Karoo basin in the Whitehill (211 Tcf), Prince Albert (96 Tcf), and Collingham (82 Tcf) formations. EIA lowered its estimate from 485 Tcf to 390 Tcf in the most recent report because the prospective area for the three shale formations in the Karoo basin was reduced by 15%. The Whitehill Shale’s recovery rate and resource estimates were also reduced because of the geologic complexity, according to the report.

Environmental concerns regarding water usage and hydraulic fracturing, one of the processes used to facilitate the extraction of shale gas, led the government to enact a moratorium in April 2011 on issuing exploration licenses for shale gas exploration. The moratorium was lifted in September 2012 after a government-funded study recommended that it was safe to continue shale gas exploration. In June 2015, South Africa’s Minister of Mineral Resources enacted technical regulations to govern petroleum exploration, particularly standards for shale gas exploration and hydraulic fracturing. These regulations balance the economic opportunity of shale gas development to improve the country’s energy security against environmental concerns.[28] South Africa approved shale gas development in the Karoo basin in early 2017. However, the government’s regulations were contested and declared invalid by the Eastern Cape’s High Court.[30] Petroleum Agency South Africa (PASA) had announced it would start processing existing applications for exploration permits in late 2017, although drilling for shale gas could face delays.[31]

Gas-to-liquids (GTL)

The GTL plant at Mossel Bay was commissioned in 1992 and is one of the largest in the world. PetroSA operates the plant, in addition to the offshore gas fields that provide the fuel. The plant has the capacity to process 45,000 b/d of liquid fuels through a Fischer-Tropsch Process, where natural gas is converted to synthetic liquid fuels. The plant produces several synthetic liquid fuels, of which more than half is unleaded petrol (motor gasoline) and the remainder includes: paraffin (kerosene), diesel, propane, liquid oxygen and nitrogen, distillates, eco-fuels, process oils, and alcohols.[32]

The Mossel Bay GTL refinery has operated well below its nameplate capacity for several years and produced less than 22,000 b/d in 2016 because of insufficient natural gas supplies.[33] As a medium-term solution to keeping the GTL plant operating, PetroSA installed a condensate splitter in 2016 and can process about 18,000 b/d of heavy liquid condensates in addition to natural gas.[34]

Natural gas pipelines

Natural gas from Mozambique is imported through a 535-mile pipeline and transported to Sasol's Secunda synfuels plant. Sasol, the South African government, and the government of Mozambique own the pipeline through a joint venture, ROMPCO (the Republic of Mozambique Pipeline Investments Company).[35] The pipeline has a peak capacity of 550 million cubic feet per day of natural gas and was part of a $1.2 billion natural gas project started in 2004.[36] The pipeline has expanded its capacity in recent years to accommodate growing natural gas markets in both Mozambique and South Africa.

Two proposals are pending for a natural gas pipeline that would run from Mozambique’s Rovuma basin in its northeastern province Cabo Delgado to demand centers in South Africa. SacOil Holdings, a South Africa-based oil and natural gas company; the Mozambican national oil company; a consortium of Mozambican private sector companies; and China National Petroleum Corporation’s (CNPC’s) subsidiary, China Petroleum Pipeline Bureau (CPP), signed a cooperation agreement in March 2016 and are studying the possibility of constructing the $6 billion, 1,615-mile African Renaissance Pipeline. CPP would provide 70% of the funding from Chinese financial firms. The second project is the Gasnosu Pipeline, proposed by the Mozambican state oil company and South African firm, Gigajoule, and supported by South African utility Eskom.[37] Several significant gas discoveries have been made in Mozambique’s northeastern Rovuma Basin over the past few years. South Africa is a viable market for Mozambique’s future production given South Africa’s limited proved gas reserves and its need to sustain production at its GTL plant. However, both proposed pipelines involve long distances and high capital costs, current LNG regasification proposals are likely to be more economically competitive in the near term.

Petroleum and other liquids

South Africa has small amounts of proved crude oil reserves, and the country’s crude oil production is very small. Synthetic fuels, derived from coal and natural gas, account for about 86% of the country's domestic petroleum liquids production.

According to the Oil & Gas Journal, South Africa has proved crude oil reserves of 15 million barrels.[38] All of the proved reserves are located offshore in southern South Africa in the Bredasdorp Basin and off the west coast of the country near the maritime border with Namibia. South Africa's petroleum and other liquids (total oil) production was about 134,000 barrels per day (b/d) in 2016 (Figure 6). Synthetic fuels, derived from coal and natural gas, accounted for about 86% of the country’s domestic petroleum supply. Less than 5,000 b/d of crude oil and lease condensate is produced at the Oribi and Oryz fields operated by PetroSA. The country's crude oil and lease condensate production continues to decline as oil fields mature and as no commercially viable discoveries have been made. Refining gains accounted for about 10% of domestic petroleum liquids supplies.

South Africa's deepwater offshore Orange Basin near Namibia is believed to hold substantial oil and natural gas resources, although limited exploration activity has occurred in the area. In 2009, Shell acquired exploration rights over a large block in the basin. Shell obtained an environmental authorization for exploration drilling in 2015. However, the company is years away from potentially producing any commercial reserves.[39]

Figure 6. Petroleum and other liquids production and consumption in South Africa

Downstream

South Africa consumes the second-largest amount of petroleum in Africa, behind Egypt. The petroleum consumed in South Africa comes mostly from its domestic refineries that import crude oil and its CTL and GTL plants. South Africa imports crude oil mostly from OPEC countries in the Middle East and West Africa.

EIA estimates that South Africa’s petroleum consumption was 691,000 b/d in 2016. The petroleum products consumed in South Africa come mostly from its domestic refineries that import crude oil and its CTL and GTL plants. The country also imports an increasing amount of petroleum products because overall oil consumption continues to rise. In 2016, South Africa imported an estimated 155,000 b/d of petroleum products, mostly from Asia and the Middle East, according to Global Trade Tracker (GTT).[40]

The South African government is considering a policy to encourage greater use of liquefied petroleum gas (LPG) in the residential, commercial, and industrial sectors to diversify fuel sources and provide low-income households with more affordable and cleaner-burning fuels.[41] A few LPG processing and storage facilities are set to come online in Saldanha Bay and Richards Bay during the next few years to meet the country’s rising demand for this product.[42]

Refining

South Africa has the second-largest crude oil distillation capacity in Africa at 493,000 b/d, surpassed only by Egypt, according to the OGJ January 2017 estimates (Table 2).[43] The government has proposed plans to implement new, tighter fuel standards that would require upgrades at all refineries. However, because of low returns on investment, refinery operators have yet to upgrade their facilities. The new fuel standards will raise refiners' operational costs. The government’s initial deadline to upgrade the refineries was July 2017, but this target has been delayed indefinitely.

South Africa imports oil products to make up for the country’s widening supply shortfall. South Africa’s Department of Energy and the South African Petroleum Industry Association (SAPIA) have been discussing a cost-recovery program for the refineries since 2015.[44]

PetroSA and Chinese national oil company, Sinopec, considered building a new refinery in 2012, but they canceled the project based on high capital cost. In March 2017, Sinopec announced that it plannned to purchase a 75% share in Chevron’s refinery in Cape Town. The Chinese national oil company was in discussions with the South African government, whose main concern is to continue operations and upgrade the refinery to meet the new fuel standards.[45] However, the minority stakeholder of Chevron’s downstream assets in South Africa prevented the acquisition deal from moving forward. Swiss—based oil trading company, Glencore, then decided to acquire these assets in October 2017, although the bid is under review.[46]

Crude oil imports

In 2016, South Africa imported 416,000 b/d of crude oil, according to GTT data. South Africa imports crude oil mostly from OPEC countries, namely Saudi Arabia (38%), Nigeria (29%), and Angola (19%) (Figure 7).

South Africa’s top oil supplier has shifted from Iran to Saudi Arabia in recent years. In 2011, Iran was South Africa’s largest crude oil supplier, accounting for about 27% of South Africa’s total crude oil imports.[47] But in 2012, South Africa's crude oil imports from Iran dropped because of U.S. and European Union (EU) sanctions against Iran. U.S. sanctions, directed toward foreign financial institutions that facilitate oil-related transactions with the Central Bank of Iran, entered into full force in July 2012. To avoid the sanctions, Iranian crude oil importers had to show or pledge significant reductions in their Iranian crude oil purchases to receive a 180-day renewable exemption. South Africa halted Iranian crude oil imports before the July 2012 deadline and was granted exemptions. South Africa has not resumed imports from Iran despite the sanctions on Iran being lifted in 2016. The country continues to substitute Iranian imports with supplies from Saudi Arabia, Nigeria, Angola, and other countries.

Table 2. South African crude oil refinery capacityRefineryCompanyLocationCapacity (b/d)SaprefShell and BP PLC PetroleumDurban170,000EnrefEngen PetroleumDurban135,000ChevrefSinopec (formerly owned by Chevron)Cape Town100,000NatrefNational Petroleum Refiners of South AfricaSasolburg88,000Total 493,000Source: Oil & Gas Journal, January 2017

Figure 7. South Africa's crude oil and condensate imports, by country of origin, 2016

Electricity

After experiencing chronic power shortages for several years, in 2016, South Africa had a power capacity surplus as a result of new capacity commissioned by both public and private sectors and of weaker electricity demand. South Africa intends to diversify its electricity generation portfolio to include cleaner-burning fuels such as natural gas and renewable energy.

South Africa’s electricity generation has declined overall from 2007 to 2016 by more than 4% as a result of economic weakness, downward pressures on commodity markets, inadequate fuel supply and capacity to meet demand, and rising electricity costs. Gross electricity generation was around 250 Terawatthours (TWh) in 2015 and 2016.[48]

Eskom supplies approximately 90% of South Africa’s electricity, and the remainder comes from independent power producers (IPPs) and imports.[49] South Africa is a member of the Southern African Power Pool (SAPP), which began in 1996 as the first formal international power pool in Africa, with a mission to provide reliable and economical electricity supply to consumers in SAPP-member countries. Eskom exports electricity to Lesotho, Namibia, Botswana, Zimbabwe, Mozambique, Swaziland, and Zambia, and it imports electricity from Lesotho, Mozambique, Zambia, and Zimbabwe.[50]

South Africa’s installed electricity capacity was about 53 gigawatts (GW) in September 2017, although total net maximum capacity (installed capacity minus the amount the power station uses to operate) is lower. Of this capacity, 76% of South Africa’s installed electricity capacity is coal-fired, 7% petroleum liquids- or natural gas-fired at open-cycle plants, 7% hydroelectric, 4% nuclear, and 6% from nonhydro renewable energy (Table 3).[51] South Africa plans to diversify its electricity generation mix to ensure greater energy security and reduce its environmental emissions.

South Africa has struggled with a constrained electricity system over the past decade because the margin between peak demand and available electricity supply was extremely narrow. Reserve margins were low because of aging coal-fired power plants, insufficient investment in power infrastructure, and mismanagement of the sector. Load shedding (scheduled power cuts) during peak demand periods occurred frequently between 2013 and 2015, and the lack of electricity security has negatively affected the country’s industries and economic growth. However, at close to 90%, South Africa still had one of the highest electrification rates in Africa as of 2016.[52] South Africa intends to provide electricity access to all households by 2030.[53]

In response to chronic power shortages and the need to ensure a more diverse fuel supply, South Africa began a procurement program in 2011 to purchase power from renewable sources and lower-emitting energy plants funded by IPPs. This program has added 5 GW of generation capacity to the grid, mostly from facilities fueled by wind, solar, and natural gas. South Africa’s capacity target from IPP procurement is 29 GW by 2025.[54]

In 2015, South Africa’s Department of Energy released a natural gas plan to develop the country’s natural gas infrastructure and to meet increasing demand with future LNG imports and indigenous production. Underlying the plan is the construction of 3.7 GW of new natural gas-fired capacity through the IPP program by 2025. Most of the capacity is expected to be sourced from LNG. The government expects to issue a request for proposal for companies to bid on development of LNG and associated natural gas-fired power plants by 2018.[55]

South Africa’s renewable energy industry is small, but the country has expanded its renewable electricity capacity through the IPP Procurement Program. IPPs added 3.3 GW of renewable capacity to the grid between 2011 and early 2017. Eskom also completed its new Ingula hydroelectric facility with 1.3 GW of capacity in 2017.[56] As part of its Integrated Energy Plan, South Africa aims to commission 17.8 GW of renewable energy capacity by 2030, in line with its overall goal to lower carbon emissions and to diversify the fuels portfolio for power generation.[57]

Eskom is also increasing its own production capacity by building more efficient coal-fired units and converting some diesel-fired power stations to more efficient natural gas-fired combined-cycle units. Eskom is developing the country’s first massive supercritical coal-fired power plants—Medupi and Kusile—with a combined installed capacity of nearly 10 GW from 12 units. The plants are coming online in stages. The Medupi plant has brought two units online, and the Kusile facility has brought one unit online (combined 2.4 GW of installed capacity) since 2015. The other units of these two plants are slated to be online by 2022. Although the government has discussed decommissioning several of its old coal-fired units as new plants come online, Eskom plans to study each facility to determine the best course of action.[58]

Recent plant additions have resulted in a surplus power capacity in South Africa. Overall plant availability was back up to 77% from lows of about 70% in 2015. The government aims to improve plant maintenance and raise the electricity availability factor to 80% by 2020.[59]

Table 3. South Africa's power stations and installed capacity [1] (unit: megawatts)Coal-fired plants Hydroelectricity   Arnot2,352Conventional hydro stations   Camden1.561   Gariep360   Duvha3,600   Vanderkloof240   Grootvelei1,180Pumped storage schemes   Hendrina1,893   Drakensberg1,000   Kendal4,116   Palmiet400   Komati990  Ingula1,332   Kriel3,000Other hydropower stations   Lethabo3,708   Colley Wobbles42   Majuba4,110   Second Falls11   Matimba3,990   First Falls6   Matla3,600   Ncora2   Tutuka3,654Other renewable energy stations   Medupi (operational)1,588   Sere Wind Facility100   Kusile (operational)800     Gas/liquid turbine stationsNuclearAcacia171  Koeberg1,940Port Rex171  Ankerlig1,338  Gourikwa746  Independent Power Producers (IPPs) [2]5,027Total installed capacity (existing)53,028Eskom planned capacity additions (Medupi and Kusile)7,176[1] The table provides installed capacity, which is higher than the country's actual total net maximum capacity.[2] Capacity among IPP-owned power stations represents total installed capacity owned by independent companies. All other power plants in the table are owned by Eskom, South Africa's state-owned utility company.Source: Eskom Integrated Report, March 2017; Eskom media reports.

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The State of the Industry: Q2 2020 Financial Performance

It is, obviously, unsurprising that the recently released Q2 financials for the oil & gas supermajors contained distressed numbers as the first full quarter of Covid-19 impact washed over the entire industry. It is, however, surprising how the various behemoths of the energy world are choosing to respond to the new normal, and how past strategies have exposed either inherent strengths or weakness in their operational strategy.

Let’s begin with BP. With roots that stretch back to 1908 with the discovery of commercial oil in Persia, now Iran – BP arguably coined the phrase supermajor in the late 1990s, when acquisition of Amoco, Arco and Burmah Castrol married BP’s own substantial holdings in Europe and the Middle East to create a transatlantic oil and gas giant. It was a trend mirrored across the industry, with the Seven Sisters of the 1970s becoming ExxonMobil (Esso and Mobil), Chevron (Gulf Oil, Socal and Texaco) and modern day Royal Dutch Shell. Joining them were ConocoPhillips (Conoco and Phillips) and Total (Petrofina and Elf Aquitaine). As the world’s appetite for oil and gas increased at an accelerating pace, the supermajors became among the world’s largest and highest valued companies across the next two decades.

That is now poised for a major change. With fossil fuels waning in demand and renewables becoming more investable, BP is now declaring that it will no longer be a supermajor. CEO Bernard Looney made the announcement ahead of the release of the company’s Q2 financials, seeking to reinvent the firm as ‘integrated energy company’ rather than an ‘integrated oil company’. To make this change, Looney is looking to shrink BP’s oil and gas output by 40% through 2030 and invest heavily to become the world’s largest renewable energy businesses, putting climate change firmly on the agenda and getting ahead of the curve in meeting European directives for a low-carbon future. This was, perhaps, already on the cards. But the Covid-19 effect has hastened it. With a second quarter loss of US$6.7 billion, BP is choosing this time to rebrand itself for long-term transformation rather than maximise current shareholder value; indeed, it will slash dividends in half in order to invest cash for the future.

On the European side of the Atlantic, that trend is accelerating. Shell and Total are also aiming to be carbon neutral by 2050, alongside other European majors such as Eni and Equinor. That isn’t to say that oil or gas will no longer play a huge role in their operations – indeed Total and Eni in particular have made many recent and potentially lucrative finds in Egypt, South Africa and Suriname – just that oil and gas will become a smaller percentage of a diversified business. Both Shell and Total have also displayed how past strategic decisions have paid dividends in uncertain times. Both supermajors declared profits for the quarter, escaping the trend of underlying losses with net profits of US$638 million and US$126 million respectively when a deep red colour to the numbers was expected. The saving grace in a dramatic quarter was their trading activities, where the trading divisions of Shell and Total (as well as BP) took advantage of chaos in the market to deliver strong results. But even with this silver lining, Shell and Total are scaling back on dividends, as they join BP in a drive to diversify in the age of climate change, which has strong political backing in Europe where they are based.

On the other side of the pond, the mood surrounding climate change is decidedly different. ExxonMobil and Chevron aren’t exactly ignoring a low-carbon future but they aren’t exactly embracing it wholeheartedly either. Instead, both supermajors look to be focusing on maximising shareholder value by focusing on producing oil as profitably as possible. It explains why Chevron moved to acquire Noble Energy recently after failing to buy Anadarko last year, and why ExxonMobil is still gung-ho over American shale and its new found black gold assets in Guyana. The Permian remains on their focus; with economic pressure on, there are rich pickings in the shale patch that could turn American shale from a patchwork of ragtag independent drillers to big boy-dominated. In the short-term, that promises quick returns after the panic – especially with ExxonMobil and Chevron declaring net losses of US$1.08 billion and US$8.3 billion for Q2, respectively – but the underlying assumption to that is that the energy industry will recover and continue as it is for the foreseeable future, rather than the major upheaval predicted by their European counterparts.

For shareholders, and the companies themselves, the expectation is what the future will hold once the worse is over. That Q2 2020 financials dismal performance was never in doubt. What is more revealing is where the supermajors will go from here. Will BP’s attempt to end the supermajor era pay off? Or will American optimism return us back to business as usual? It’s two different visions of the future that will either way spell a sea change for the industry.

Market Outlook:

  • Crude price trading range: Brent – US$43-45/b, WTI – US$40-42/b
  • Global crude oil price benchmarks moved higher after a devastating blast in Lebanon that levelled a significant amount of Beirut’s port facilities
  • However, the market is also cautious as OPEC+ begins to wind its supply cuts down to a new level of 7.7 mmb/d with concerns that demand recovery is slower-than expected
  • OPEC’s Gulf nations – Saudi Arabia, Kuwait and the UAE – also ended voluntary cuts made in June, but are looking to force Iraq to 100% compliance in August and September as the latest data continues to show it lagging behind commitments

End of Article 

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August, 07 2020
Suriname’s Mega Discovery

It was just over five years ago that ExxonMobil discovered first oil in Guyana, transforming the sleepy South American country into the world’s upstream hotspot in just half a decade. The strike rate there has been amazing – 18 discoveries out of 20 well campaigns, and more seem to coming as new discovery efforts get underway. This made Guyana the envy of its neighbours. And why not? The Guyanese economy is projected to grow at 86% y-o-y in 2020, despite the Covid-19 pandemic, as first commercial oil from the Liza field hit the market.

Just over the Guyana border, Suriname, a former Dutch colony had all the more reason to be envious. Unlike Guyana, Suriname has an established upstream industry. Managed by the state oil firm Staastsolie, the volumes are paltry: the onshore Calcutta and Tamabredjo field collectively produce at a current rate of 17,000 b/d. Guyana’s Liza field alone is 15 times larger than Suriname’s total crude output. But the Guyanese miracle always did herald some hope that some of that golden dust could blow Suriname’s way, not least because the giant offshore discoveries in the Staebroek block were just across the maritime border.

In January 2020, this bet proved right. US independent Apache announced it had made a ‘significant oil discovery’ at the Maka-Central 1 well, the first suggestion that the Cretaceous oil formation in Guyana extended southeast to Suriname. Two more discoveries were announced by Apache in quick succession, Sapakara West and, just this week, Kwaskwasi. All three are located in the 1.4 million acre offshore Block 58, which was originally held entirely by Apache before French supermajor Total bought into a 50% stake just before the Maka Central discovery was announced. Three discoveries in six month is quite a payoff, especially with the Kwaskwasi-1 well delivering the highest net pay and confirming a ‘world-class hydrocarbon resource’. More importantly, initial findings suggest that Kwaskwasi holds oil with API gravities in the 34-43 degree range, the sort of light oil that is perfect for petrochemicals and higher-grade fuels.

With Total scheduled to take over operatorship of the block after a fourth drilling campaign, the partners are eager to extend their streak. The Sam Croft drillship is scheduled to head to Keskesi, the fourth scheduled prospect in Block 58, after operations at Kwaskwasi-1 have concluded, and an additional exploration campaign is already in the plans for 2021.

Total and Apache aren’t the only ones playing in Surinamese waters, though they are the first to hit the payday. Most of the country’s offshore blocks have been apportioned, snapped up by ExxonMobil, Kosmos, Petronas, Tullow and Equinor, and all are hoping to be the next to announce a find. ExxonMobil, with Equinor and Hess Energy, have a good position in Block 59, just next to the Caieteur block in Guyana, while Kosmos is hunting in Block 42, right next to the Canje block in Guyana. However, it is Malaysia’s Petronas that is the next likely candidate. Present in Suriname since 2016, when it drilled the exploratory Roselle-1 well in Block 52, Petronas also has interests in Block 48 and Block 53, and recently completed a farm-out sale with ExxonMobil for 50% of Block 52. Its drilling campaign for the Sloanea-1 well is scheduled to begin in Q4 2020, and will be keenly watched by all in Suriname.

Unlike Guyana that had no state oil company, Suriname has existing national oil infrastructure. Staatsolie currently controls onshore and shallow water areas in the country. However, all wells drill in offshore Block A, B, C and D have turned out dry so far. That leaves Staatsolie in a situation: its own areas are not prolific as discoveries by Total, Apache, Petronas et al. For now, Staatsolie is looking to gain rights to 10-20% of any oil discovery within Suriname, but the framework for this is weak and it must navigate carefully to not antagonise the oil majors that are powering the discoveries in its waters. It will do well to avoid the confrontational attitude that is jeopardising LNG development in Papua New Guinea with ExxonMobil and Total, but Staatsolie does have a claim to Suriname’s oil riches for itself.

For now, it is exhilarating to observe the progress in this previously quiet corner of South America. It is the closest thing to frontier oil exploration in the 21st century, with each new discovery generating more and more excitement. Who would have thought there was so much oil left undiscovered? Guyana has shot into the spotlight, Suriname is starting its own ascent and… who knows… could French Guiana be next?

End of Article 

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August, 01 2020
2019 U.S. coal production falls to its lowest level since 1978

U.S. total annual coal production

Source: U.S. Energy Information Administration, Annual Coal Report

In 2019, U.S. coal production totaled 706 million short tons (MMst), a 7% decrease from the 756 MMst mined in 2018. Last year’s production was the lowest amount of coal produced in the United States since 1978, when a coal miners’ strike halted most of the country’s coal production from December 1977 to March 1978. Weekly coal production estimates from the U.S. Energy Information Administration (EIA) show the United States is on pace for an even larger decline in 2020, falling to production levels comparable with those in the 1960s.

2019 annual coal production by state

2019 annual coal production, top 10 coal-producing states


Source: U.S. Energy Information Administration, Annual Coal Report

Wyoming produces more coal than any other state, representing 39% of U.S. coal production in 2019, at 277 MMst, which is 9% lower than its coal production in 2018. Coal production in West Virginia, the state with the second-highest coal output, fell by a relatively smaller 2% in 2019. West Virginia is a primary producer of metallurgical coal, which saw sustained demand for exports in 2019. Coal production recently stopped in two states, Kansas in 2017 and Arkansas in 2018. Arizona stopped producing coal in the fall of 2019 when the coal-fired Navajo Generating Station and adjacent Kayenta coal mine that supplied it both closed.

EIA estimates weekly coal production using coal railcar loadings. In 2020, weekly coal railcar loadings have been trending much lower than 2019 levels, and most recent year-to-date coal railcar loadings were down 27% compared with 2019.

U.S. weekly railcar loadings

Source: U.S. Energy Information Administration, Weekly Coal Production

The decline of U.S. coal production so far in 2020 reflects less demand for coal internationally and less generation from U.S. coal-fired power plants. U.S. coal exports through May 2020 are 29% lower than during the first five months of 2019. U.S. coal-fired generation fell to a 42-year low in 2019, decreasing nearly 16% from the previous year, and has fallen another 34% through May 2020.

Estimated U.S. coal production through mid-July 2020 is 27% lower than the average annual 2019 output, and EIA expects these reductions in production to persist during the remainder of the year. In the latest Short-Term Energy Outlook (STEO), EIA forecasts a 29% decline in U.S. coal production in 2020.

EIA forecasts that U.S. coal production will increase by 7% in 2021, when rising natural gas prices may cause some coal-fired electric power plants to become more economical to dispatch. Much of EIA’s projected recovery in coal production is in the western United States.

Principal contributor: Rosalyn Berry

July, 29 2020