Pressure builds in South Africa to find new gas fields

Jul 16, 2006 02:00 AM

It's crunch-time for Sipho Mkhize, chief executive of PetroSA. He has only three years in which to discover significant new gas reserves to feed the company's Gas-To-Liquid (GTL) fuel plant at Mossel Bay -- or he might have to close down the operation or make an expensive decision to change it to an oil refinery.
The GTL unit employs about 1,000 people and is important to the life of the town.

Three years sounds like a long time, but in the oil and gas business the lead times from proving reserves to the first gas being pumped can be well over five years. Mkhize, who is a former head of mining and minerals at another state-owned company, the Industrial Development Corporation, has headed PetroSA for three years. He sees the pressure as part of his job.
"I am very hopeful we can find gas in Southern Africa. The only thing that makes me lose sleep is whether we will find drill rigs," says Mkhize. There is an international shortage of rigs because companies are increasing their exploration in the wake of higher oil prices.

The R 480-mm south coast expansion, already under way, will provide PetroSA with enough gas to feed its GTL plant until 2013. And PetroSA is carrying out exploration work on a number of fields around South Africa. But the Ibhubesi field off the west coast of SA, in whose exploration PetroSA was involved, was disappointing, showing too few reserves.
To justify investment in a pipeline, gas finds usually have to offer reserves of about a tcf, which would allow the field, or a group of fields, to be active for about 20 years, Mkhize says. He says he is most confident about a successful find on an exploration project PetroSA has with BHP Billiton off the west coast.

Even though it is a government-owned company, PetroSA is under pressure to perform as a stand-alone business. Mkhize sees the company's gas-to-liquid technology as offering PetroSA a competitive edge and says the company would consider setting up another plant where there are "stranded" gas reserves. These are reserves not close to market and which cannot be economically transported.
The company also has a number of projects in its sights but conclusion of any deal could be some time away.

PetroSA is bidding, along with its GTL technology partners, Norway's Statoil, German engineering company Lurgi, and BHP Billiton, for a contract to build a GTL plant in Algeria. Details of the tender will be released in November.
Mkhize has said previously PetroSA is looking at developing a plant in Qatar, but that country's government has placed a moratorium on further GTL plants until at least the end of next year. The company is also looking at possible GTL developments in Egypt and Colombia. This is blue-sky stuff, though. And although PetroSA is confident that its low-temperature Fischer-Tropsch technology, used to turn gas to liquid fuel, will provide it with opportunities for growth, the technology has to be tested on a fully commercial basis.

Getting such complicated and new technology right is always difficult. Sasol is having teething problems at its massive GTL plant in Qatar. Sasol said, though, it was still on target to ship its first diesel in the third quarter. It would not give specifics but it said in June it expected to ship its first diesel at the beginning of August. It now looks as if this won't happen.
Robert Nohamba, the general manager of PetroSA's Mossel Bay refinery, says the company wants to have finished its low-temperature commercial testing by the end of this year. He is confident that testing on this scale will reduce problems in any larger-scale project.

PetroSA will announce its 2006 annual results in September and Mkhize says these should be better than last year's. This is expected to be the result of strong oil prices.
After the blackouts in the Western Cape this year, Eskom has installed three generators at PetroSA's Mossel Bay refinery. One of Eskom's planned gas-turbine power stations, which will buy its kerosene from PetroSA, is under construction next to the GTL plant. Mkhize says it is scheduled for completion in the first quarter of next year.

The power station will provide power to the PetroSA GTL plant, with the remainder being fed into the national grid.
Meanwhile, talks to avoid a pay dispute between unions and members of the National Petroleum Employers' Association (NPEA), of which PetroSA is a member, failed. The NPEA wants a meeting "in an attempt to reach a settlement".

Source: Sunday Times
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