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SOUTH AFRICAN OIL & GAS

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CHANGING THE SOUTH AFRICAN ENERGY GAME

On the brink of world class oil and gas discoveries South Africa is ready to join the global

top table, with a major role to be played by the South African Oil & Gas Alliance (SAOGA)

SOUTH AFRICAN OIL & GAS ALLIANCE

WRITTEN BY: JOHN O’HANLON

RESEARCH BY: JAMES BOYLE

It’s not all about cubic feet and billions of

dollars for Mthozami Xiphu, Executive

Director of SAOGA since he took over

leadership of the organisation from

Warwick Blyth in February this year.

Xiphu is a man who feels passionately

that developing the oil and gas resources,

onshore and offshore could radically change

the dynamics of South African society. The

country has achieved massive growth since

the cancer of apartheid was excised some

20 years ago: but it pains him to admit that

many citizens have yet to feel the full benefits

of that growth and of the democracy they

now enjoy. They expected better.

A big part of the solution, he believes, lies

in tackling unemployment, inequality and

deprivation, between them the main causes

of the petty crime and other social ills that

plague the poorest parts of the country.

“The resources we are sitting on are located

in some of the most economically depressed

parts of the country. By developing them and

growing businesses to support, supply and

provide services to the large investors we can

look to create a lot of employment, grow skills

and lift people out of the cycle of deprivation.

That is what excites me!”

Before moving to SAOGA Xiphu had racked

up seven years as CEO of the Petroleum

Agency of South Africa (PASA), which is the

licensing authority under the Department of

Mineral Resources. SAOGA has a similar goal

in the development of national assets to the

benefit of the people, and is also governed

by the Mineral and Petroleum Resources

Development Act of 2002, however as a

representative body for the upstream industry

SAOGA

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SAOGA

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oil rig in the bay of cape Town

one of SAOGA’s main aims

is to smooth the path for

participants seeking to come

into South Africa. One of

the principal changes we

may expect to see following

the appointment of the new

CEO is closer co-operation

between these two key bodies

in the twin tasks of winning

greater energy security for

the country and growing the

economy.

Having played a major role

in developing the sector over

the last decade, he is very

excited about the potential for

SAOGA at this particular time.

“Our member companies

tend to be in rig repairs, fabrication, pipelines

and all the supply and support services of

the upstream industry in South Africa.” The

organisation is not a parastatal in the mould of

PASA, he explains, because as well as receiving

funding from the Department of Trade and

Industry, the Western Cape government and

the City of Cape Town where it is based, it is

substantially funded by its members. “We are

a true public-private partnership!”

The reason for its location in this part of

South Africa is partly historic, partly because

this is where a cluster of upstream supplier

companies had developed in the province in

response to upstream growth in West Africa

and the establishment of domestic production

in Mossel Bay in the late 1980s. It is also home

to the port of Saldanha, where it is proposed

to establish an industrial development zone

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“IbhubeSI cOuld cOntAIn AnythInG

frOm 800 bIllIOn tO A trIllIOn cubIc

feet, And they ShOuld be prOducInG

wIthIn the next twO yeArS”

(IDZ). Today SAOGA has a national footprint

and focus although the Western Cape remains

the de facto centre of upstream supplier

activity in South Africa.

SAOGA has never been more relevant, he

says. “Over the last twelve months we have

seen immense growth in exploration activity

in South Africa. We have had no fewer

than seven seismic surveys right round our

coast. Those surveys will naturally lead to

exploration, depending on the outcomes of the

analysis, and of course the more exploration

the more the chances of discoveries leading

to production. We are excited about that.”

The mission of PASA was to get companies to

pick up licences off South African shores: now

that majors like ExxonMobil, Total, Shell and

Chevron together with a number of smaller

percent of its gas requirements, was floated

on a reserve of one tcf, the current offshore

reserves are significant.

However there are far more significant

gas reserves onshore, in the form of coal

bed methane, mainly in Mpumalanga and

Limpopo Provinces. These are located in

existing coal mining areas, and the PASA had

reported that there could be anything form

ten to 20 bcf to be extracted here.

players are joining indigenous players like

PetroSA and Sasol, the field is beginning to

get busy at last, he says.

Though the results of the seismic surveys

he referred to are not yet available, there

are encouraging results from surveys along

the west coast, notably the Orange Basin,

where a proven reserve of 201 billion cubic

feet (bcf) of gas has just been confirmed

by Sunbird in the Ibhubesi gas field, with

a probable 540 bcf recoverable in Phase 2.

“Ibhubesi could contain anything from 800

billion to a trillion cubic feet, and they should

be producing within the next two years.”

When it is considered that the Mossel Bay

gas field, which feeds the Mossgas gas-to-

liquids project that has been producing for

20 years and supplies South Africa with five

Aerial view of cape Town’s waterfront

SAOGA

If that sounds exciting, well it is. But it is

nothing like as exciting as the prospect of

shale gas discoveries, and it is these that

Mthozami Xiphu thinks have the potential

to be a game changer for the South African

energy industry. At the moment, there is only a

preliminary assessment, albeit an authoritative

one. The United States Energy Information

Administration made a first pass estimate of

a technically recoverable resource of 485 tcf

of gas in the Karoo Basin. PASA evaluated

this assessment and concluded that, owing

to the limited amount of available data in the

area, it is impossible to quantify the resource

accurately, other than to say that it is potentially

very large. It wisely said that additional,

modern subsurface information should be

obtained through drilling or a geophysical

survey. However as Xiphu points out if Mossgas

is so important at one tcf, even if the Karoo

reserves amount to no more than 20 or 30 tcf

their significance would be massive. “If we get

a hundred or multiples of a hundred tcf we are

looking at a game changer for energy in South

Africa over the next ten years!”

Shale gas is certainly present in large

amounts, enough to elevate South Africa to

fifth in the world’s gas producing nations after

Mexico, Argentina, the USA and China. And

drilling has not even taken place yet though

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“If we Get A hundred tcf Of ShAle

GAS we Are lOOkInG At A GAme chAnGer

fOr enerGy In SOuth AfrIcA Over

the next ten yeArS!”

technical cooperation permits (TCPs) for

exploration have been obtained by a number

of companies such as Falcon Oil & Gas, Sunset

Energy, Shell, Anglo Coal and a joint venture

between Sasol, Chesapeake and Statoil. He

explains why. “The one method for extracting

shale gas at the moment is hydraulic fracturing

(fracking), and that method is controversial

all around the world. Our government has

been very cautions. Originally we at SAOGA

imposed a moratorium on exploration pending

the completion of the licensing round across

the Karoo, however the government then

followed it up and said everything should

be put on hold pending a study to advise on

a reasonably safe method of extraction that

would be environmentally robust.”

The southern Karoo where the shale gas is

lodged is a water stressed area, he adds, and the

farming community is worried over the water

issue given that fracking requires a lot of water.

And all stakeholders worry about the potential

for contamination of the water supply either

by escaping methane or by fracking chemicals.

“These are not insurmountable problems if you

have the proper regulatory and monitoring

systems, and this is what the government is

putting together at this time before it allows

companies to start drilling in the Karoo.”

The United States has achieved energy self

of some of its poorest communities as it

brings in investment and jobs, stimulating

the growth of mid-stream and down-stream

industries. And these would be skilled

jobs, with opportunities for much needed

training and development.

Xiphu’s vision for SAOGA is to make it a

truly national organisation. Though it already

has members from Gauteng to the Eastern

Cape and KwaZulu Natal, he would like to

see more participation from other provincial

governments. That may take a little time. In

the short term, he is throwing all his energies

into achieving the declaration of the Saldanha

IDZ and has been having meetings with key

organisations such as the Department of

Trade & Industry, Transnet and the National

Ports Authority to ensure that the declaration

happens before the end of July. Saldanha will

do for the oil and gas sector what Coega does

sufficiency through its shale gas, and South

Africa could do the same. Xiphu chaired the

working group that presented the report on

shale gas exploitation to the Department

of Mineral Resources in 2012. As part of

this he and his team visited Pennsylvania

and Texas, then recommended that further

specific studies should be carried out.

But he’d like to see this done as soon as

possible, and exploration to commence.

Not only would it be a massive boost to

the economy, it could transform the lives

for the automotive industry in South Africa or

Richards Bay for coal, he says, and he can’t

wait for it to happen.

Another priority for SAOGA is skills

development, he continues. “We cannot

advertise South Africa as a hub for upstream

production industry in the continent if we don’t

have the relevant skills. We must encourage

skills development, interactive development,

intentional institutions and universities. And

we must work with the industry to ensure that

the people we train are able to get jobs, even

at the apprenticeship level if not at permanent

employment level, so that they immediately

get the experience. Then as exploration takes

off, discoveries are made around South Africa

and the industry grows and grows in South

Africa with discoveries around South Africa

we can poise ourselves to be a real hub for

the whole of southern Africa!”

established road, rail, sea and air routes make South Africa an ideal logistics base

SAOGA

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After all, South Africa has the deep water

ports, the ship repair and fabrication facilities

and the infrastructure that the industry needs.

It makes sense for a company operating off

Tanzania or Mozambique to repair its vessels

and FPSOs in nearby South Africa rather than

in Singapore or Aberdeen, he points out. It is

all there on their doorstep – the only thing that

needs building is the skills base specifically

related to the oil and gas industries. SAOGA pulls

together the training institutions across South

Africa and matches them up with its member

companies: “For example we are running a

programme right now for 20 students to be

trained on our west coast and we got Chevron

to give financial support to that venture. And

we place the trainees with our members so that

they get the hands-on experience to improve

their learning and output. Take welding. In

our industry that is a highly specialised skill –

run of the mill welders won’t do. We see it as

part of our remit to ensure that these high level

engineering skills are provided as well as just

the basic trade qualifications.”

South Africa is not really known yet for its

oil and gas industry but its advantages are

beginning to be realised. “We are not a Nigeria

at this stage but even before the shale gas

came on the scene we were already attracting

interest.” His enthusiasm is based on realism,

SAOGA

For more information about South African

oil and Gas Alliance visit:

www.saoga.org.za

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he insists. The industry has a great future and

SAOGA is one of the main driving forces.

What might slow things down? Well he is

lobbying for greater certainty and transparency

in legislation – this would really leverage the

advantage of the IDZs. “If you are having even

minor repairs done to high value equipment you

still have to put down large sums in security

even if you can claim it back later.” And some

proposed changes to the Minerals and Petroleum

Development Act worry him: it is important for

companies considering doing business in South

Africa to know precisely what the government’s

percentage carried interest in exploration and

production rights will amount to.

While Mthozami Xiphu is entirely behind the

principle that the country needs to retain a fair

share of the proceeds of its resources, especially

for the benefit of its previously disadvantaged

citizens, his members and potential members

have the right to know in advance exactly

what that share will be before they commit to

invest. This legal and fiscal certainty

will ensure South Africa’s attractiveness

as an investment destination.

“we cAnnOt AdvertISe SOuth AfrIcA

AS A hub fOr upStreAm prOductIOn

InduStry In the cOntInent If we dOn’t

hAve the relevAnt SkIllS”

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SUPERIOR AFRICAN OFFSHORE SERVICEGeneral Manager for Oil and Gas, Rob Gardner highlights the ways in which Sturrock-Grindrod Offshore is helping to cater for the needs of those investing in and capitalising on Africa’s vast oil and gas potential

STURROCK-GRINDROD OFFSHORE

WRITTEN BY: WILL DAYNES

RESEARCH BY: JAMES BOYLE

Until as recently as 2010 it

appeared that all southern

African countries had to offer

in terms of oil and gas were

scattered pockets of natural gas

off the coasts of South Africa and Mozambique.

The event that changed this perception was the

discovery of a potential 500 trillion cubic feet

of gas across South Africa and Mozambique, in

addition to an estimated eleven billion barrels

of oil in Namibia.

Founded in 1969 as both a shipping agency

and clearing and forwarding company,

Sturrock Shipping, was until its merger

with Grindrod, one of the largest, privately

owned shipping and logistics companies in

South and East Africa. Based in some of

Africa’s fastest developing nations, including

Ghana, Angola, Namibia, Kenya, Tanzania,

Mozambique and Madagascar, the company

specialises in providing a full supply-chain

service for the handling of sea transport and

the import and export of goods into and out

of sub-Saharan Africa.

“Since we spoke almost a year ago,” begins

General Manager for Oil and Gas, Rob Gardner,

“arguably the most significant development

on the oil and gas side of the business was

the bringing together of Sturrock Shipping

and Grindrod Ships Agencies, a business with

more than 100 years of operating within

southern Africa and a vast portfolio of assets

behind them, from their own fleet of vessels to

warehousing, terminals and container depots.”

What the bringing together of these two

entities has done is not only create a much

stronger and more diverse ships agency

operation, but also provided the company checking reinery

SturrOck-GrIndrOd OffShOre

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“we Are reAffIrmInG OurSelveS AS A

truly AfrIcAn cOmpAny thAt pOSSeSSeS the

AbIlIty tO Offer fIrSt wOrld ServIceS And

expertISe wherever It IS reQuIred”

formally known as Sturrock Shipping with

an injection of capital, infrastructure access

and a plethora of diverse service offerings

and know-how.

“Today,” Gardner continues, “we boast a

presence in eleven African countries which,

if you look at most of the other large branded

ship’s agencies, gives us an unrivalled sub-

Saharan footprint. By employing local

people in these countries and combining

markets, Sturrock-Grindrod

Offshore also has the

unique ability to offer

several different types of

service that few, if any, of

its competitors can match.

These include the ability

to service and replace life

rafts on vessels in remote

African ports as part of its

role as exclusive agents for the company

Survi-Tech and to handle the supply and

transportation of pyrotechnics, something

which can be a technically challenging

and time consuming task for a customer.

“I think it is fair to say,” Gardner states,

“that the favourable nature of Southern

Africa’s exploration laws today, particularly

their hands-on skill and local expertise

with the more specialised international

shipping and offshore expertise that the

group offers, we are reaffirming ourselves

as a truly African company that possesses

the ability to offer first world services and

expertise wherever it is required.”

In addition to actually being able to

boast that it has a physical presence on the

ground in some of Africa’s most important

SturrOck-GrIndrOd OffShOre

compared to those of a decade

or so ago, has contributed

significantly to more and

more businesses looking

to our shores to explore for

oil and gas, specifically in

places like Namibia, Kenya,

Madagascar, Mozambique

and Madagascar where

drilling is currently on-going.

Couple that with the improved technology

and the ability to explore at greater depths

and you can see the great level of potential

that we have here.”

In addition to this potential there is also

the tremendous physical infrastructure that

the country has, and will have, at its disposal.

At Saldanha Bay, for example, a huge amount

11

African countries in

which Sturrock-Grindrod

is present

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overseeing workVessel support Maputo port aerial

“we lOOk At AfrIcA And Our GOAl

IS tO be the recOGnISed cOmpAny here

when It cOmeS tO OIl And GAS

relAted ServIceS”

of funding has been allocated to develop

what will be an exclusive oil and gas facility,

one where the deep water draft is capable

of accommodating the next generation of

rig ships, as well as shallower facilities for

traditional jack up rigs.

This type of infrastructure investment

also bodes well for the country’s long term

future in other areas linked to the oil and gas

sector. “With the work that we have on-going

expertise down here in South Africa,” Gardner

highlights, “we realised the need to expand

some 15 years ago and whilst we already

have an extensive and well-established sub-

Sahara African footprint in place, our goal is

to cover as much of Africa as possible. While

Africa remains a predominantly commodity

based economy, the signs are that this could

be changing thanks to the well-publicised oil

and gas finds in countries like Mozambique.”

It is obvious that Sturrock-Grindrod

Offshore shares the view that Africa is a

hugely dynamic area, yet more importantly

it is clear that the company believes itself

to be well positioned to grow with it in the

years to come.

“If you look at the management structure

of Sturrock-Grindrod,” Gardner concludes,

in places like Saldanha Bay,” Gardner says, “it

also provides the opportunity for companies

like ours to take on greater amounts of ships

agency work in the fields of ship repairs,

maintenance and the repatriation of crews

and auxiliary vessels related to the industry.”

As optimistic as the future appears for

South Africa, Sturrock-Grindrod Offshore is

equally as keen to prosper in markets further

afield. “While we have all this know-how and

“you will see it is a young, highly driven

team. We look at Africa and we believe we

know this market and our goal is to be the

recognised company here when it comes to

oil and gas related services. What we want is

for companies coming into the market to say

to themselves that, if they want to prosper,

they need to be talking to us, because we

are the guys who have people on the ground,

the agency crews, the logistical staff, and

the supply chain staff. These are all highly

qualified, dedicated people and it is they who

help keep us at the top of our game.”

rob Gardner, General Manager for oil and Gas

oil rig

SturrOck-GrIndrOd OffShOre

For more information about

Sturrock-Grindrod offshore visit:

www.sturrockgrindrod.com

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produced by:

contAct

James Boyle

call +44 0203 4399 358

Email jboyle@bus-ex.com

Marcus Lewis

call +44 0203 4399 361

Email mlewis@bus-ex.com

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