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Upstream
Global trends indicate a shift away from oil usage, with primary energy production experiencing a shift in demand towards cleaner sources of energy production such as gas and renewables. However, with increasing populations and the need for industrial growth in the short-to-medium term, oil demand is expected to continue growing until 2035, whereafter a slow decline will be seen. Although there have been findings off of the South African coastline, natural reserves are still very nascent with limited production levels. SA NPC will have to ensure that maximum value is extracted from the interest it holds in Blocks off the Southern African coast while positioning itself to capitalise on the shifting demand towards more renewable-based energy sources.
Midstream
With the ever-growing demand for natural gas, South Africa is set to experience a gas deficit in the coming years. Despite significant gas developments off the coast of Southern Africa, supply constraints continue to prohibit South Africa’s access to natural gas.
The ROMPCO pipeline is currently the only operational transnational gas pipeline, with its reach furthered through support from the Lily pipeline. Although additional gas transmission infrastructure in South Africa exists, it will be insufficient to cater to the increasing demand for the product. Historically, iGas has been a successful yet inactive custodian of South Africa’s gas infrastructure. In the wake of the increase in local demand for natural gas, there is a need for SA NPC to become an active participant in gas infrastructure.
Refined Product
Since 2009, South Africa has experienced an 11% year on year growth in imports of fuel relative to local market production. This increase has been driven by a shortage of local refinery capacity and the simultaneous increase in demand for refined product.
Refining capacity in South Africa shows no signs of attracting investment, with IOCs pulling out of manufacturing capacity, and many small to mid-scale refineries being converted to storage units. SA NPC will need to ensure sufficient access to refined product, and in doing so, fulfil its mandate of providing energy security to South Africa.
Downstream
The potential for organic growth in the downstream segment is constrained by stagnant growth in consumption and a relatively penetrated market. In refining potential, a global trend of small to mid-size refineries shutting down or being converted to storage is observed, driven by market disruptions and growing competition. This trend can be further observed at PetroSA, with PetroSA’s refinery not being viable under current conditions. In ensuring adequate supply within the downstream segment, SA NPC will need to consolidate current positions and repurpose assets to ensure commerciality.
Electricity generation
Global trends indicate a shift in consumption patterns with increased demand for renewable sources of energy generation. The IRP has made provision for an increase in renewable energy generation with further potential to repurpose open cycle gas turbine plants at Eskom.
Gas will not only be needed for electricity generation but also for industrial development. At present, there is an inability to meet the electricity demand, resulting in the potential to depress South Africa’s economic growth in the future.
The evolution of renewable technology has resulted in a 70% decline in REIPPP tariffs and has attracted over R200bn to date and continues to be a growth area. Although SA NPC has no current presence in electricity generation, pivoting into this area is a natural progression for NOCs globally.
By considering macroeconomic trends and evaluating SA NPC’s strategic objectives, SA NPC evaluated multiple opportunities along the value chain. Four strategic plays were selected to ensure successful outcomes, as depicted in Figure 7 below.
