JOHANNESBURG, 22 November 2017: With the latest iteration of South
Africa’s Mineral and Petroleum Resources Development Act expected to be
completed by the end of 2017 and the Integrated Energy Resource Plan
nearing completion, South Africa is set to leverage its largely
unexplored and underdeveloped oil and gas sector to re-ignite growth
able to drive broad and inclusive participation across the entire
economy.
“Draft policy analysis, especially how government intends to
structure hydro-carbons investment to support transformation, holds the
potential to successfully unlock growth while deepening participation
across the entire economy,” says Khwezi Tiya, Head, Oil and Gas South
Africa, for Standard Bank.
The depth and cost of both off-shore and on-shore hydro-carbon
exploration in South Africa means that it is expensive to undertake.
Since, historically, few exploration wells have been dug in South
Africa. The country, “remains relatively under-explored, exhibiting much
more closely the characteristics of a frontier hydro-carbons market,”
says Mr Tiya.
To date, potential investors have only commissioned more easily and
cheaply produced seismic tests, avoiding investment in much more
conclusive – and costly - drill data from exploration wells. That said,
the seismic data that South Africa has assembled to date points to vast
potential, especially in the Outeniqua Basin in the South East Cape and
shale in the Karoo. Both the eastern and western seaboards also present
large hydro-carbons potential which is potentially relevant across the
country. This has important implications for broad economic inclusion,
especially amongst the historically disadvantaged, communities and
regions currently excluded from meaningful economic participation.
“For investors to invest properly in more expensive drill
exploration, however, they require policy certainty. Encouragingly, the
impending finalisation of the Mineral and Petroleum Resources
Development Act looks set to provide exactly this kind of certainty,”
says Mr Tiya.
In anticipation of the passing of the amended act, and given the
scale and complexity of the investment required, corporate activity is
already seeing the ‘farming in’ of both local and global capital and
resources in anticipation of what is likely to be a game-changing moment
in the history of South African development.
The sense of expectation is palpable in the industry.
“Although South Africa is still at least three years away from the
start of even the initial build, global majors such as ExxonMobil,
Statoil of Norway, ENI of Italy and Total for example have already
entered into partnerships to explore and develop South Africa’s oil and
gas potential,” says Mr Tiya.
While the Mineral and Petroleum Resources Development Act could not
come at a better time for South Africa’s low growth economy, it also
demonstrates just how important policy is in creating the conditions for
the kind of growth that will also drive socio-economic transformation.
“Since the historic exclusion of the majority of South Africa’s
people from the formal economy has weakened the ability of many South
Africans to benefit from growth, getting more South Africans invested
and employed in the country’s emerging hydro-carbons sector is a
critical and non-negotiable element of growth,” says Mr Tiya. Making
inclusive growth a key element of policy will allow the investment that
South Africa’s hydro-carbons industry is likely to attract, “to reverse
the current low growth and investment cycle resulting from high
concentration and no confidence - by including a broad swathe of the
South African population in meaningful economic participation,” he
adds.
The logic is unassailable.
South Africa’s refined petroleum needs are currently being met by a
combination of limited domestic refining capacity complemented by
imports. South African policy makers are yet to decide whether to
support the expansion of the domestic refining industry - or look to
longer-term supply and offtake agreements with global centres of
refining excellence, in the Gulf, India and South East Asia for example.
Whether developing a domestic refining and distribution network, or
enabling the global sales and export of bulk hydrocarbons and re-import
and distribution of refined product, “the state is well-positioned to
empower black industrialists to participate in partnership with
international investors in whatever infrastructure build and facilities
operation that the development of this industry will require,” explains
Mr Tiya.
For the time being, “we are projecting more than ZAR4 billion of
investment in the development of storage facilities over the next four
years, which are likely to be black-led projects with international
partnerships,” says Mr Tiya. In time, complemented by hydro-carbons
extraction, refining or export and re-import, the state’s capacity to
drive growth in a way that includes previously economically excluded
South Africans in the country’s hydrocarbons industry is vast.
Oil and gas drilling, production, storage, distribution and retail,
for example, solve a number of growth and social development issues.
- More than just security of supply, investment in storage facilities provides banks and other supplier industries in South Africa a viable new destination for capital and investment, with the potential to put South Africa’s ZAR 1.3 trillion corporate cash pile to work.
- Global-scale investment across downstream and upstream will bring new skills, require new capacities and technologies, will create new secondary and service industries and will bring new infrastructure investment into the value chain. This has a huge potential for mix of skilled - and especially unskilled - job creation across the country.
- The scale and diversity of the infrastructure, supplier and services demanded by hydro-carbons creates opportunity for a very broad range of investment. Beyond initial investment capital, “storage assets are popular with private equity investors, for example, as they generate income consistently over time. They are very long-lived assets,” explains Mr Tiya.
- The development of a hydro-carbons industry is so broad, costly and complex that it, inevitably, requires a lot of partnerships. This has huge implications for new combinations of capital, skills, investment and technology to increase, and revitalise, South Africa’s struggling industrial economy. Drilling platforms, port facilities, storage units - or refining capabilities, pipelines and retail, financing, supplier and support systems – draw in skills and create relevance and opportunity for almost all sectors and segments of the economy.
The convergence of growth and transformation represented in drafts of
the Mineral and Petroleum Resources Development Act seen to date
recognises the potential that South Africa’s hydro-carbons sector holds
to develop a more sustainable economy.
“The act might just be the key for South Africa to begin unlocking
growth in other sectors, driving economic transformation and inclusion
through sustainable local and global investment that drives long-term
job-creating growth across skills sets, includes multiple sectors, and
is spread widely across the country,” says Mr Tiya.
STANDARD BANK
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