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Focus is on supporting exploration activities to accelerate discoveries

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SA Business Integrator spoke to Dr Phindile Masangane, Chief Executive Officer of Petroleum Agency SA, about the agency’s mandate and development plans.

Petroleum Agency SA promotes exploration for onshore and offshore oil and gas resources and their optimal development on behalf of government. Please give us some more details about the agency’s mandate.

PASA has three main functions: The first is to attract investment to South Africa’s oil and gas upstream industry, in other words, investment into exploration and production of oil and gas in South Africa. We have a team of geologists and geophysicists who interpret data gathered through past exploration activity to determine the viability of prospecting and use this to attract exploration companies to South Africa.

The second function is to regulate the upstream industry in terms of the Mineral and Petroleum Resources Development Act, its regulations and other applicable legislation.  The Agency has staff responsible for ensuring legal, technical and environmental compliance as organisations enter into contracts with the state to explore for oil and gas.

The third function is to act as the national archive for all data and information produced during oil and gas exploration and production in South Africa, and to curate and maintain this data for use and distribution.

Other functions include advising government on any issues pertinent to oil and gas as well as carrying out any special projects, as directed by government.

From the above, it is clear that the Agency is the regulator for South Africa’s oil and gas upstream industry. However, the Agency by no means sees its role as only reactive. On the contrary, it is one that is proactive, and the Agency’s purpose is to facilitate and regulate oil and gas exploration to achieve production of indigenous oil and gas.  This will ensure energy security and bolster economic growth and play a strong role in addressing the eradication of poverty on South Africa.

What are the Agency’s focus and development plans for 2021?

South Africa’s upstream oil and gas industry is still at its infancy in spite of the country having excellent petroleum resource prospectivity. In 2021, we want to focus on supporting our operators to accelerate their exploration activities so that we can have more discoveries. We will also be supporting Total and its JV partners to efficiently move to the next stage of their programme following the discoveries in Brulpadda and Luiperd. It is of paramount importance to the Agency that we move to the next era in terms of upstream oil and gas industry development.

Considering the environment, what issues are considered during the exploration processes?

The Agency has a role to ensure that exploration and production activities are carried out such that the environmental right entrenched in the Constitution of the Republic of South Africa is not violated, that is a right to a clean and healthy environment. Exploration activities such as seismic surveys and drilling of wells pose various potential impacts on the environment, ranging from water contamination, noise and air pollution, to loss of biodiversity.

The nature and significance of the potential impacts vary depending on the exploration method employed. Our experience, based on the environmental impact assessments undertaken at a project level, indicate that the majority of the potential environmental impacts range from very low to low significance with mitigation. So, before any right or permit is granted or refused, the applicant is required to apply for and obtain an Environmental Authorization (EA), which is an instrument used to ensure that any potential impacts are identified, their significance assessed, and mitigation measured.

Increases in oil prices can depress the supply of other goods because they increase the costs of producing them. Does this affect the GDP growth rate and economic performance of the oil and gas industry in South Africa?

Oil price increases have significant impacts on the economy’s level of real Gross Domestic Product (GDP) and economic performance in South Africa. As a net importer of oil, the country is highly vulnerable to oil price increases.

Higher oil prices translate into a higher import bill. Imports become more expensive, and exports less valuable and consequently real national income drops. Lower national income reduces demand for both imported and domestic commodities and investment, leading to a drop in GDP.

Different sectors are likely to be impacted differently depending on their dependence on oil and oil products. In the oil and gas sector, higher oil prices result in reduced aggregate demand for petroleum products. The reduction in aggregate demand induced by the oil price rise leads to a loss of output and consequently employment in the sector.

At a micro level, this translate into reduced profits and therefore capital returns in the sector, which will inevitably result in reduced business confidence and subsequently investment in the industry. These will ultimately reduce the sector’s economic performance and contribution to GDP.

For South Africa, the biggest driver of GDP is investment (capital formation) which is dependent on business confidence. Higher oil prices, reduce aggregate demand in the economy, drives down business confidence and investment which ultimately reduces economic performance of all sectors in the economy including the oil and gas sector.

To achieve sustainable and inclusive growth by 2030, South Africa needs to invest in a strong network of economic infrastructure designed to support the country’s medium- and long-term objectives. What is the Agency’s targeted development plan towards this goal?

The Agency is a regulator and does not undertake any infrastructure developments. Our role is to ensure that exploration and production petroleum companies are licensed efficiently to progress their investment projects.  The 2030 goal for the country’s energy mix is to have an additional 3 000MW gas-to-power and our role as the Agency is to enable the indigenous production of that gas.

For the future of the oil and gas industry in South Africa, what are the current challenges faced by the Agency and what processes are in place to overcome these?

Upstream oil and gas projects are capital intensive and have long lead times. Our biggest challenge (which is also an opportunity) is to make sure that we have regulatory alignment to ensure a sustainable development of oil and gas.

What projects are currently being explored and how will these be escalated during this year?

The Agency is concentrating on developing a gas market through the attraction of qualified and competent companies to explore for gas in South Africa, as well as the monitoring and regulation of their activities.  A major area of focus is the increasing inclusion of HDSA-owned entities in the upstream industry.  South Africa needs large discoveries of indigenous gas as well as fair access to opportunities and social license to develop a healthy gas market.

Total and its partners are currently assessing the recent deep-water gas condensate discoveries and the feasibility for development.  We are also expecting drilling in the short term in shallow water off the west coast and deep water off the east coast.

How consistent is the Agency with the government’s objectives?

Our corporate objectives flow from the medium-term strategic framework objectives of government and the policy positions as well as strategic objectives of the Department of Mineral Resources and Energy in particular.

In addition to the global economic uncertainty, the African continent is faced with a critical shortage of appropriate infrastructure. What infrastructure and technologies are in place to execute the Agency’s mandate?

As a regulator, the Agency should have the appropriate technology to efficiently execute its regulatory obligations. We are continuously modernizing and improving our technology to be able to operate in the digital environment that the rest of the world is in.

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