Interest grows in gas-fired power — PwC
Latest industry survey shows that nascent African energy boom is fragile, writes Charlotte Mathews
THE Department of Energy’s request for information about potential bidders for independent gas-fired power producers, which closed on July 20, attracted considerable interest, with about 200 submissions, PwC partner Chris Bredenhann says.
Energy Minister Tina JoematPettersson said in April that her department would launch several procurement initiatives including about 3,126MW of gas-fired power to tackle SA’s energy shortage. SA has no big gas-fired power stations.
Mr Bredenhann says government’s road map for the gas sector, the gas utilisation master plan, is understood to be complete, although it has not been released.
The master plan is needed to provide direction on the infrastructure for natural gas and gas to power.
Asked yesterday whether government’s determination to procure 9,600MW of nuclear power was crowding out gas, Mr Bredenhann said nuclear energy was much longer term, as was shale gas, with a timeline of 10 years to delivery, compared with 24-36 months for gas-fired power.
He was presenting PwC’s fifth annual Africa oil and gas review, From Fragile to Agile. It canvassed the views of 53 oil and gas companies operating in Africa in all sectors from upstream to downstream and services.
Several African countries have offered new exploration blocks to bidders recently. Mozambique, which recently closed a round of bids, managed to attract interest from major companies, including Shell, ExxonMobil and Sasol.
The survey showed the top three challenges identified by companies were the same as in last year’s survey: uncertain regulatory frameworks, poor infrastructure and corruption.
The insistence by governments on local content and taxation regimes has become more relevant, probably because more projects have moved from exploration to production, PwC senior manager Derek Boulware says. This also explains why other issues such as oil prices, currency volatility and community activity have become more prominent.
Africa has been on the brink of a boom in oil and gas for many years, Mr Bredenhann says, but after the downturn in prices over the past year, the situation has become more fragile. Oil companies have to find strategies to survive because oil at $120 a barrel was unlikely in the near future.
A Brent crude price of $50-$80 a barrel by next year was forecast by 93% of respondents.
Companies working in SA are less concerned about price than regulations, Mr Bredenhann says.
PwC expects revisions to the Mineral and Petroleum Resources Development Act to be released by the end of this year. It seems the oil and gas industry is not going to have separate legislation at this stage, as other key challenges are being addressed in the current revisions.
There is a danger that the government is moving too quickly to capture too much rent from the oil and gas industry, which will deter investment. Normally in a frontier area where few reserves are proved and a lot of investment is needed, the emphasis of policy has to be on encouraging investment rather than emphasising maximum local content and beneficiation, Mr Boulware says.
Oil and gas industry representatives who engaged with the government through Project Phakisa are expressing optimism about a more favourable outcome in the next draft of the Mineral and Petroleum Resources Development Act, Mr Boulware says.
PwC found that very few companies are considering mergers or acquisitions, despite strained balance sheets. Over two-thirds of companies say they had not been a target in the past year and almost 80% say they are not planning to target other companies. Among those companies that do intend to seek acquisitions or mergers, the main motivation will be opportunities to invest in distressed assets or inorganic growth.
Downstream and services companies say that their top priority in the next three years is improving efficiencies. They are aiming to extend the life of their assets through upgrades and maintenance.
Only 41% of exploration and production companies say they will be investing in drilling or exploration programmes, down from 70% in last year’s survey.
But they are still keen to secure more acreage through bidding rounds, farm-ins and acquisitions as they see growth opportunities in Africa.