The lowest temperature I have ever experienced was -24°C. This was according to the car I was driving in northern Sweden, just shy of the Arctic Circle, on a blindingly beautiful January morning.
But that’s nothing like the cold the oil and gas industry is feeling in SA right now. Last week Business Day reported that unless some kind of intervention was made within four months, heavy users of liquefied natural gas (LNG) would hit a “day zero” scenario.
Appropriating the City of Cape Town’s branding of its 2017 water crisis may seem dramatic, but to cut out the big words, according to the Industrial Gas Users Association of Southern Africa (IGUA-SA), the country will run out of industrial gas supplies in 2026. This spells potential catastrophe for the likes of Consol Glass, Illovo, Nampak, Mondi and ArcelorMittal, it says.
The source of the issue is Sasol’s announcement last year that it would cease the supply of gas via the Rompco pipeline in June 2026. But some of us have longer memories than that. In fact, the oil and gas industry in SA is collapsing under the weight of its own inertia and decades of regulatory dithering. It is a story of regulatory slapgatheid, associated corporate comfort and neglect, and a change in global mores.
The heavy users of gas have themselves been clear that they have been warning government about this for six years. I have some sympathy for IGUA-SA executive director Jaco Human when he sounds like he’s panicking. “We have four months to switch on the landing lights on the development of gas infrastructure to substitute the shortfall of supply from 2026 onwards,” he said at a conference hosted by EE Publishers.
But it’s hard to have any sympathy when he says “we need government to play a role in this”. Back in 2010 the then department of energy wrote in a “strategic plan”, still available on its website, that “our country faces significant liquid fuel supply infrastructure constraints. Our inland infrastructure can no longer meet the demand.” This sounded very bad.
Certainty
“During the course of the 2010/11 financial year the department will be drafting an Integrated Energy Planning Strategy that is expected to outline the requisite processes, systems and structures that will lead to the development of the envisaged comprehensive Integrated Energy Plan (IEP).
“We are determined to consign to the past experiences such as blackouts, brownouts as well as fuel supply shortages. The IEP is being driven in the main by the reality that energy is the engine of our economy, therefore we need certainty with regard to intervention to meet future energy needs.”
But it was a simpler time. The IEP came out of the 2008 Energy Act, and good faith work began on real energy planning. But then came Jacob Zuma and the suppuration of everything he touched. The section of the act (section six) that requires that the annual publishing of an IEP be mandated in law was passed at gunpoint (civil society had run out of patience) only last year.
An IEP will therefore only be required in law in April 2025, a full 15 years after the department itself highlighted an existential liquid energy crisis. Well, you might say, that’s standard fare from a SA government. But it is reasonable to ask what the private sector has been doing about it, other than whingeing.
SA’s refineries were built in the 1950s and 1960s to serve the nationalist ideal of self-sufficiency. For more than 70 years they have continued to refine fuels and other products that are now so absurdly outdated that car companies cannot import modern engines. Our diesel is so filthy that car manufacturers sometimes have to remove particulate filters from exhaust systems so they don’t clog up.
No strategy
The refineries are a real mess. Engen’s Durban refinery was closed by a fire. The Milnerton Astron refinery was closed by a “catastrophic incident”. The gas-to-liquids refinery in Mossel Bay is mothballed due to a lack of gas. The energy department wants a sanctioned Russian bank to fund the vast cost of restarting it, which does at least have the interesting honour of being an incredibly stupid way to do an incredibly stupid thing.
Human says the heavy gas users have been warning government about the gas cliff for six years. In that time the EU’s carbon border adjustment mechanism has become a legislative spearhead of a broader global move to incorporate environmental requirements into investment portfolios, management remuneration and manufacturing. Waiting for The Man to bring some gas was never a strategy.
The oil and gas industry had become so denuded and so comfortable that it failed to develop a competent infrastructure of support, of lobbyists and communicators. It was so comfortable that now, faced with a crisis, it is reduced to begging for help.
At the heart of the issue is the demand gap between what the heavy users require — 40 petajoules (PJ) a year — and the demand required to sustain new import infrastructure from Mozambique (100PJ).
The department’s big idea for this was to spend more than a quarter-of-a-trillion rand on a 20-year deal for Karpowership’s floating gas generators. That was the “anchor tenant” the industry needed. But, of course, it fell apart because the Karpower process was bungled by all involved.
Too many people wanted to eat altogether too much. It was corrupt and, when they realised that they needed to do some PR and lobbying, the buffoons they rolled out made it hard to hear the message through the laughter.
Blame time
A vibrant, healthy and dynamic industry does not behave like this. The executive director of the SA Oil & Gas Alliance, Adrian Strydom, is an academic who ran open learning at the University of Cape Town. With all due respect, is he the streetfighter to lead this existential battle? How is it possible that the Upstream Petroleum Resources Development Bill has been hanging around for two years?
In any case, the time for blame has arrived. In the absence of an IEP, which we needed 15 years ago, and with no clear direction from the state, industries should have long hence looked up from their slide decks to see what’s happening.
With all due acknowledgment of the appalling dereliction of duty by the state and its lack of interest in anything other than its own access to power and patronage, if your business is involved in exports and wants to raise capital from global markets, and if it wants to attract international shareholders, then planning to wait for the SA oil and gas industry to shake off its cronyist torpor was a grave dereliction of duty to shareholders.
The real long-term play is to close the refineries, import the fuels and move away from the carbon-rich energy sources that before long will make local companies not just uncompetitive, but uninvestible. If you’re 15 years behind the curve already and still think an SA energy minister is going to save you, you haven’t been paying attention.
• Parker is Business Day editor-in-chief.
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