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Gas and coal rule.

As in Central Africa, diversification from oil into gas is also the biggest development in Southern Africa. Angolan oil and South African coal remain by far the biggest sources of export revenues but the region's relatively limited gas reserves are now being developed in a way that should encourage wider energy sector development within the Southern African Development Community (SADC).

Angola is set to become the region's first LNG producer, when the Angola LNG scheme comes on stream in 2012 with production capacity of 5.2m tonnes a year. The project is owned by Chevron (36.4%), Sonangol (22.8%), BP (13.6%), Eni (13.6%) and Total (13.6%). However, it is not impossibile that another LNG producer could emerge on the opposite side of the continent, namely in Mozambique.

South African synthetic fuels specialist Sasol already produces 120m gigajoules/year on the onshore Temane and Pande fields in the south of the country, mainly for export to South Africa via pipeline, and plans to increase output by 50% by 2012.

However, the oil and gas industry's view of Mozambique changed markedly last February when US firm Anadarko recorded the country's first deepwater gas find with the Windjammer 1 well in Area 1 of the Rovuma Basin in the far north of Mozambique, close to the border with Tanzania.

Anadarko operates the licence with 43% equity, with partners Mitsui E&P Mozambique Area 1 (23.5%), BPRL (Bharat PetroResources Ltd) Ventures Mozambique (11.75%), Videocon Mozambique Rovuma 1 (11.75%) and Cove Energy Mozambique Rovuma Offshore (10%). State oil and gas firm Empresa Nacional de Hidrocarbonetos (ENH) has the option to take 15% equity at a later stage. The consortium's second well, Ironclad 1, also discovered oil and gas in August and at least three more wells are planned.

John Craven, the chief executive of Cove, said: "We are very encouraged by the results of Ironclad. The pre-drilling objectives of this exploration well, of finding hydrocarbons in the Cretaceous fan system and encountering oil have both been met."

There is a long way to go before LNG production can be considered but in a statement, Cove argued: "The partners believe that there is potential to unlock the full value of the resources through the construction of an LNG terminal. We have not assigned any value to this plan and expect the principal source of revenue to be from output to the Mtwara power station in the short to medium term."

The Mtwara plant is located on the other side of the Rovuma, in Tanzania, where Cove also has interests. Interest in acreage on both sides of the border is increasing, as the possibility of coordinating Tanzanian and Mozambican gas reserves begins to grow.

Speaking in London at the first Mozambique Investment Conference, Mozambique's Minister of Mineral Resources, Esperanpa Bias, put the country's natural gas reserves at 14tcf and exploration efforts are growing across the country. It is hoped that some of Mozambique's growing gas riches can be used in power generation and state-owned power company Electricidade de Mocambique (EDM) already plans to develop a 1GW gas-fired power plant.

Australian firm Riversdale, which is a possible bid target for Rio Tinto, also plans a 500MW coal-fired power plant in Tete Province, in the far northwest of the country. A string of large coal mining projects are planned in Tete that could see Mozambique become a major player in the global coal market within a decade. Some output will be used domestically but the vast bulk will be exported, probably to customers in India, China and other Asian markets. The big challenge lies in developing sufficient rail, port and possibly barge capacity to transport all of the exports via the Indian Ocean ports of Beira and Nacala.

Botswana too could export coal via a new port in the far south of Mozambique, although at present it seems more likely that the rival Trans-Kalahari railway to the port of Walvis Bay in Namibia will be constructed to enable Botswana too to become a significant energy exporter.

While Mozambican coal will be exported overseas, much of the electricity from the country's planned new gas-fired, coal-fired and hydroelectric schemes will be marketed on the Southern African Power Pool (SAPP) in general and to South Africa in particular.

RELATED ARTICLE: Nuclear power

Pretoria looks again at nuclear

One energy option in South Africa that has received relatively little coverage is nuclear power. Power utility Eskom has operated two commercial reactors at the 1,930MW Koeberg plant for many years but has struggled to expand its nuclear operations because of a combination of cost and the difficulty of securing foreign investment. It generally takes at least a decade to bring a reactor on stream, while there are other, quicker alternatives if power supply problems are predicted.


However, South Africa's new draft energy plan calls for nuclear power to provide 12-14% of national power requirements by 2020, so it is clear that Pretoria is keen for new reactors to be developed. At the end of November, the chief executive of the state-owned Nuclear Energy Corporation, Rob Adam, said that the country may need to develop five reactors on the same scale as Koeberg by 2030, probably in Western and Eastern Cape provinces.

It looks increasingly likely that foreign investors may develop any future reactors. Chris Forlee, the deputy director general of the Department of Public Enterprises says that the government will probably adapt nuclear industry regulations next year to allow private sector development. Areva of France and Westinghouse, now owned by Toshiba of Japan, both bid for a previous government contract to develop a reactor for Eskom, which was ultimately cancelled in 2008, and are likely to be the favourites in any new tender.

The key to Pretoria's change of heart in just two years appears to be its new willingness to reduce greenhouse gas emissions. The government seems to lack the stomach to impose restrictions on one of the main sources of global warming, methane from animal farming, but would countenance higher electricity prices in order to reduce power sector emissions.

Given that the country relies on coal to provide 90% of the generation mix, there are certainly plenty of emissions that could be reduced. Officials have suggested that they will reduce national emissions by 2025 at the same time as roughly doubling national generating capacity.

A revolution in South African attitudes to energy will be required to achieve this, with concerted drives towards renewables and nuclear energy likely to be the government's main weapons.

RELATED ARTICLE: The argument for coal

South Africa will produce some 40,000MW in new power between now and 2030,giving this country the electrical energy resource of around 80,000MW it will need for sustained economic growth. The accent is on green generation and an unexpectedly sooner rather than later reconsideration of nuclear as a principal means of electricity production. (See box page 46.)


The new thinking around South Africa's rejigged energy mix follows the energy sector's Integrated Resource Plan of 2010 - the energy department's Holy Grail document of how power will be generated over the next 20 years.

The initial document pegged coal's contribution at around 90% of the total. In a dramatic turnaround, this was cut to a declining contribution of 48% by 2026. South Africa is committed to a total output of 80,000MW. The burning question is how to get there.

And there are no ifs and buts about it, says Energy Minister Dipuo Peters. It simply has to be done if South Africa is to realise its true potential. The cost, with escalations and inflation, could well top one trillion rand ($144.6m).

As the plan stands now some 7,000MW will be renewable, but that could change, and probably will, as the IRP is revisited every two years via the multiyear price determination (MYPD).

This check and balance takes into account the industry's ever-shifting financial regime and allows adjustment accordingly. It also implies that the 20-year IRP is not altogether inflexible, allowing for innovation that might change the composition of the energy mix and costs.

In that process, it's a good bet that the megawatts in renewable energy assumed today will revise upwards as new technology impacts costs and efficacy in the next two decades. The proposed composition comprises 48% coal, 16% renewable energy, 14% nuclear, 9% peaking open-cycle gas turbine, 6% peaking pump storage, 5% mid-merit gas and 2% imported hydroelectricity. About 4500MW has been set aside for wind generation and 600MW for solar.

The government's long-awaited road map that prescribes South Africa's great trek to sustainable energy is not lacking in candour. "There is a serious risk of electricity shortfall over the next five or six years," warns the plan bluntly. "From 2011 to 2016, rolling blackouts are anticipated unless extraordinary steps are taken to accelerate the realisation of non-Eskom generation and energy efficient projects."

Gentler change needed

But not everyone's convinced that the switch from coal as a primary fuel source should be quite as radical.

In the view of Doug Kuni, managing director of the South African Independent Power Producers' Association (SAIPPA), the 16% renewables quota in the next 20 years is generous. "But we would have to test, in the South African context, how the renewables actually fit in to the system," he says, "and what support those renewables would need from, say, coal-fired stations.

Kuni says there's a lot of talk about the green economy and the kind of economy and employment opportunities it would create. "I think we need to press forward carefully on this," he cautions. "It is very difficult, in a short space of time, to suddenly change the energy intensity trajectory of the country."

South Africa must evaluate how it implements its carbon strategy, he says. "The carbon strategies of China and India suggest they will be building coal-burning power stations right into 2030. So the question for us is how do we phase out coal in that horizon? Is it not a better strategy - seeing that coal is a certain, plentiful and well understood primary fuel - to take advantage of the opportunities coal presents and stabilise the base load over the next 10 years, without affecting the environment?"

Tom Nevin
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Title Annotation:SOUTHERN AFRICA
Publication:African Business
Geographic Code:60AFR
Date:Jan 1, 2011
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