Southern Africa Energy and Power Sector Opportunities
Prepared by Doug Shuster
April 2009
Summary
Despite the global economic downturn and the recent fall in commodities prices, there are still good prospects for global technology and consulting companies in the Southern Africa region in key sectors such as energy and power. While South Africa is on the verge of a recession, there is still dynamic growth in the post conflict countries of Mozambique and Angola. And the region is relatively well insulated from the collapse of global financial markets. Critical to maintaining economic growth in the region is the need to overcome current and prospective shortfalls in electric power and delivery of refined fuels and natural gas for the region. Demand for imported goods and services in the sector is strong, driven by a number of developments where local capacity is weak or in short supply, including: a large build out of electric power generation, transmission, and distribution infrastructure; the introduction of major independent power producer (IPP) projects; the potential future expansion of nuclear power capacity in South Africa; new investments in oil and gas exploration, production, refining and delivery infrastructure; and a move to greener technologies and practices including clean coal, renewable energy, air pollution control, and carbon mitigation programs.
Significant risks need to be taken into consideration, including: exchange rate variability, low electricity tariffs, lack of a strong regulatory framework for IPPs, the prospect of a prolonged recession, political uncertainty due to upcoming elections in South Africa, and regional instability resulting from the Zimbabwe political/economic crisis. However, companies can hedge against these risks and secure market position by embracing long term strategies for the region that include partnering with established regional companies, particularly from South Africa, and addressing local participation requirements in order to qualify for government contracts.
Oil and Gas
Exploration and Production
Angola is the only country in the region that was well positioned to capitalize on the surge in world oil prices and recently overtook Nigeria as Africa’s largest producer of crude oil. With limited production in Mozambique largely dedicated to South Africa’s Sasol gas to liquids refinery and decreasing production yields in South Africa, the rest of the region remains a net importer of crude and refined fuels. South Africa has been searching for additional natural gas resources off the west coast for years to supply state owned PetroSA’s Mossel Bay gas to liquids plant, but no significant high yielding deposits have emerged. The geology is similar to the Kudu gas field in Namibia, where Tullow Oil has been struggling to monetize their gas find for years. Although hopes for major new finds have not yet been realized there are some good prospects for the near future. In northern Mozambique, Andarko, an American based oil company, is actively exploring for oil offshore in the north. Onshore and offshore drilling in the DRC may also yield significant finds.
Coal Bed Methane
Major exploration drilling activity in Botswana could yield one of the largest regional energy resources in the form of coal bed methane (CBM). CIC Energy, Kalahari Energy, and several other operators have collectively committed to invest over $100 million to prove out and monetize CBM resources. Originally developed in the United States, CBM exploration and production technology is entirely new to the region and will require a considerable amount of specialized global consulting expertise, goods and services. The monetization of this gas resource could include electric power, gas to liquids production, and export pipelines to South Africa. CBM production areas could also be enhanced by and serve as a sequestration host to CO2 emissions in the region.
Biofuels
Several countries in the region are actively exploring the potential for large scale biofuels production. In Mozambique, South Africa, and Zambia, biofuels production is currently modest, but their governments are promoting the sector to increase agricultural production and associated job creation. While maize as feedstock has stirred up debate over food security in South Africa, sugar cane, coconut oil, palm oil, and jatropha are all strong prospects for feedstock that circumvent this issue.
Refineries and Pipelines
Demand for refined fuels in the region is outstripping supply. This is driven by strong economic growth demand in South Africa, increased diesel demand for gas fired power plants, and spiked diesel use for industrial and domestic generators to meet the shortfall of supplied electricity. A recent report showed that in the absence of new pipelines by 2010, there would need to be one 40,000 liter petrol truck leaving South Africa's ports for inland areas every 5 minutes, clogging the nation’s highways. In response to this demand, South Africa’s state owned transportation company, Transnet, is building its first refined fuels pipeline in 40 years from Durban to Johannesburg. Privately owned Petroline is planning to deliver product through its pipeline from Maputo to Nelspruit by 2010. South Africa’s parastatal oil and gas company, PetroSA, has approval to build its first crude oil refinery, expected to produce about 200,000 barrels of fuel a day and come on stream in 2015. Namibia’s parastatal, Namcor, has begun planning for its first refining capacity, a medium sized oil refinery, Bechtel has begun construction of the first liquefied natural gas (LNG) train in Angola, and several refineries are reportedly under development in Mozambique.
Another new technology being assessed for use in the region is the conversion of stranded gas from regional oil fields to CNG and transported by ship to market. This, in addition to the CBM development in Botswana and the development of an LNG regasification plant in South Africa could mean the realization of the long awaited prospect of an expanded regional natural gas pipeline infrastructure. Given the relative lack of experience in these areas by local firms, global technology and consulting firms will be well positioned.
Doug Shuster is an International Trade Consultant with MFM Trade Promotion and MFM Trade Meetings. He recently served as Regional Manager for Business Development for the U.S. Trade and Development Agency in Johannesburg, South Africa.
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