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“ Imperatives for the SA Oil & Gas Sectors in 2012 ”

“ Imperatives for the SA Oil & Gas Sectors in 2012 ”. Africa Economic Forecast 2012 Workshop “Future Scenarios for Africa in 2012” 29 February & 1 March 2012 The Hilton Hotel, SANDTON. AGENDA . Background of Oil in RSA Background of Gas in RSA Imperatives for Oil Imperatives for Gas

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“ Imperatives for the SA Oil & Gas Sectors in 2012 ”

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  1. “Imperatives for the SA Oil & Gas Sectors in 2012” Africa Economic Forecast 2012 Workshop “Future Scenarios for Africa in 2012” 29 February & 1 March 2012 The Hilton Hotel, SANDTON

  2. AGENDA • Background of Oil in RSA • Background of Gas in RSA • Imperatives for Oil • Imperatives for Gas • Conclusion

  3. Background of Oil in RSA • What has changed in the last 20 years? • Refining Infrastructure: Definitely Supply & Demand Profile. Pending Clean Fuels 2 introduction will require about R40 Bncapex. • Pipelines Infrastructure: Definitely Congestion & Age. Problems with Tariff Rate. • Distribution & Logistics: Definitely Required (a move from Road to Rail). Hopefully NMPP will relieve road haulage but may lead to idle capacity.

  4. Background of Oil in RSA • What has changed in the last 20 years? • Rail Infrastructure: Only 25% of inland demand is railed. Turnaround time is 14 days instead of global benchmark of 4 days. “Catch 22” for Transnet - NMPP vs. RTCs! • Ports Infrastructure: Definitely Congestion & Age. More Space Required vs. Idled Abundance. Import storage inadequate. Containers prioritized over imports ‘cause the former is more profitable. Existing oil storage infrastructure is part of refineries’ normal business.

  5. Background of Oil in RSA…continued • Service Stations: Definitely Surplus Owing To ‘MPAR’ & ‘Benchmarking’ which guarantees ROI and unintended proliferation. • New (BEE) players: Definitely Politically Required to address historical imbalances but financial viability is challenge given the overtrading. • Legislation and Regulations: Extremely Complex- Regulation Margin Model overlaying the historic ‘Guardian Knot’ regulations. Some of the ‘regs’ are archaic in the light of developments in EFTPOS. • Profitability of the Industry: Compares well with global refining regions save for the last 3 years. • Freight Shipping: ‘Backwardation’ makes freight scarce & expensive, plus lack of Scale Economies plus the East Africa Piracy Effect plus being far from trading regions.

  6. Background of Gas in RSA What has changed in the last 20 years? • I.t.o. E&P, the ‘big elephant’ find has remained illusive in and around the shores of RSA. • However, there is a possibility of huge Shale Gas discovery in the Karoo basin. • Existing West and South Coast fields are fast declining. However, PetroSA has invested US$1 Bn for further exploration in 2011. • Slow development of Kudu & Ibhubezi Gas find has stalled potential growth in the Northern & Western Cape corridor. • Discovery of huge Gas find in neighbouring Mozambique has revived gas development in RSA. • Botswana is estimated to have huge potential of Coal Bed Methane but no immediate ‘anchor customer’ insight. ROMPCO PTY LTD • Involves full value-chain: • Production • Processing • Transmission • Distribution • Marketing • Commissioned in April 2010

  7. Imperatives for Oil In addition to Project Mthombo, the US$10 Bn Project Mafutha (80,000 b/d synfuels plant) takes us to 2030 The Diesel S&D Scenario 2008 - 2030 US$ 10 Bn Project Mthombo (400,000 b/d) takes us to 2027 Current Supply Status – if no construction of new plants Demand Side Assumptions (SACU) The Petrol S&D Scenario 2008 - 2030 Long Term Demand Growth Outlook - RSA Petrol: 1% & Middle Distillate: 3% (Diesel: 4.7% - Jet: 5% - IP: (3.5%) “Security of Demand” > “Security of Supply” Source: Engen Corporate Division

  8. Imperatives for Oil…continued “Triple whammy – given the rising demand plus CF2 Capex required” Estimated Refinery Throughput Rates Estimated Refinery Yields (2010) • Profitability of industry Impacted negatively since 2009 due ‘Dark Era Of Refining’ globally and unscheduled outages. • Future investment delayed due to uncertainty in introduction of clean fuels specifications plus pending Carbon Tax. • Shortages of products due unscheduled s outages during 2010/11. • Sixty-nine percent of refining capacity is safe whilst 31% remains at risk of a permanent shutdown. Source: PFC Energy

  9. Imperatives for Oil…continued RSA PIPELINE PROFILE • TPL has 3000 km of Pipeline. • Pipes 450 Mn cum of Natural Gas annually. • Moves 17 Bnlts of Crude Oil & Finished Products annually. • Inland market is 12 Bnlts p.a. but DJP could only 4.5 Bnlts p.a. • A R23.4 Bn NMPP is expected to reduce road freight by 5% - end 2013. • A 16-inch, 380-km & 3.5 Bnlts/ yr Maputo-Kendal Petroline pipeline was approved by NERSA but construction has stalled. • Nersa also approved the Secunda/ Natref Integration Project. The project will see the transfer of distillates blending components over a 10-inch diameter, 145-km pipeline from Secunda to Sasolburg. The multiproduct pipeline, which will be executed in two phases, will have a maximum design volume throughput of 270 m3/h. About R5.9 Bn was invested in tankage construction by pvtoilcoys between 2006 & 2011

  10. Imperatives for Oil…continued Unsustainable operations with damaging effect on road networks. 90% of RSA freight is via Sanral road networks

  11. Imperatives for Oil…continued COMPLEXITY: The unintended consequences of Project 141 (Regulatory Accounting) The irony: the complex regulations are delivering globally competitive margins @ globally competitive prices COMPLEXITY: Overlap between Regulatory agencies and legislation.

  12. Imperatives for Gas • South Africa’s 2030 IRP (Integrated Resource Plan) only envisages 2,400MW of CCGT generated power out of the 42,600 MW expected to be generated by 2030. • “The national conversation around energy issues in South Africa envisage everything conceivable energy source but natural gas. As I write, the roll out for installation of renewable energy plants has kicked in; there is a vibrant discussion of the possilbility of scaling up nuclear power generation in the country, even if there are more skeptics than optimists; and the place of coal in the country’s energy future is assured. But no one, is really discussing gas.” ToyinAkinosho • The ESMP (Energy Security Master Plan of 2007) makes no mention of natural gas or even unconventional gas. RSA must wake up to the realities of Natural & Unconventional Gas

  13. Conclusions “There are no easy answers. Each option has significant disadvantages, risks and advantages. To make a decision, it is necessary to assume where refining margins will be in 15 years. Refining margins are quite low and are likely to remain so for at least another decade, given surplus in refined product (globally)”. NPC

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