Security of Energy Supply: Department briefing
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Meeting report
MINERALS AND ENERGY PORTFOLIO COMMITTEE
07 June 2006
SECURITY OF ENERGY SUPPLY: DEPARTMENT BRIEFING
Chairperson: Mr E Mthethwa (ANC)
Documents handed out:
Security of
Energy Supply (Strategic Stocks and Imports)
SUMMARY
The Committee was briefed on security of energy supply in SA by the
Department of Minerals and Energy. Some of the challenges facing energy supply
were highlighted and an explanation of the current situation in SA was given.
Discussion ensued over the recent fuel supply crisis and the reasons why fuel
shortages were commonplace. Members expressed great concern over the safety in
using gas as an alternative energy source. It was felt that much more work had
to be done to make gas a safe alternative to electricity.
MINUTES
Department of Minerals and Energy (DME) presentation
The Department briefed the Committee on the security of energy supply in
SA. The delegation comprised of Mr M Mkhize (Director- Petroleum and Gas
Operations), Ms M Sephoti (Deputy-Director- Petroleum and Gas Operations) and
Mr T Zide (Deputy-Director -
Petroleum Policy).
Mr Mkhize initiated the briefing with an explanation of what constituted energy
security. The uninterrupted reliable availability at a point of need at an
affordable price in addition to it having to be sustainable, clean, safe and
usable was amongst the factors given to explain what constituted secure energy.
He noted that energy supply security should not be looked at in isolation.
Energy demand security was just as important when there was a need to balance
exploration, prospecting and production against refining and distribution
capacity. Mr Mkhize highlighted challenges affecting energy supply security.
Geopolitics, price volatility, energy poverty and skills shortages were amongst
the challenges mentioned. Notwithstanding this, the current worldwide oil
reserves were at 1.3 trillion barrels. He continued with an overall explanation
of the SA context from the lifting of United Nations (UN) oil sanctions in 1993
up until the current White Paper on Renewable Energy. Of note was the fact that
SA produced “small” quantities of oil and gas. Crude oil comprised the single
largest import item on SA‘s import account, a huge fifteen percent.
Mr Mkhize referred to the fuel supply crisis that plagued SA in December 2005
and noted that the Moerane Commission was tasked with investigating the reasons
that led to the crisis. Other proactive measures put in place by the Department
were the formation of a fuel supply strategic task team and the appointment of
consultants to review SA’s current strategic stocks policy. The current status
of biofuels and coal was also touched on.
Discussion
Ms N Mathibela (ANC) asked whether gas was safe. She was skeptical
about using gas due to its volatility.
Mr Mkhize said that the safety of gas was being explored. It was explained that
a pilot project was in place to shed light on issues of pricing and safety. He
emphasised that a holistic approach was needed to deal with the issue of gas.
Mr Zide said that the safety of gas was a very relative concept. He felt that
issues of costs far outweighed safety concerns. He stressed the need to inform
the public on the proper use of gas.
Adv H Schmidt (DA) said that he was amazed that the Moerane Commission was
given the task of looking into the issue of oil stocks. He disagreed with the
Department’s statement that SA produced a small amount of fuel. It was pointed
out that SA produced 40% of its own gas supplies. Adv Schmidt also asked why
shortages of fuel at certain petrol stations were still commonplace when it was
seemingly clear that Sasol was not lacking in refining capacity.
Mr Mkhize reacted that the Moerane Commission was investigating the reasons for
shortages in fuel stocks. Stocks of crude oil as well as finished products would
be checked on. He noted that current fuel shortages at service stations were
not shortages in the true sense. He explained that the reasons behind the
shortages were more of a commercial nature between wholesalers and retailers.
The issue was also one of profits. It was stated that even though the possible
regulation of the industry was on the table, it was not a cut and dried issue.
He pointed out that regulation would hamper managed liberalisation. It was
explained that the Department could not prescribe the management of the demand
side of the industry. SASOL had its own demand management strategy. The point
was made that more exploration and production of gas was needed.
Mr C Molefe (ANC) was not comfortable with the response that the fuel sector
was in the hands of the industry. He asked why it was necessary for the
Minister to approach the industry for information about the reasons for recent
fuel crisis. Mr Molefe commented that perhaps the industry required more
legislation to allow for proper control.
Mr Mkhize reacted that the Department could not function within a vacuum. It
was required to co-operate with stakeholders within the industry in order for
it to comply with its mandate.
Prof I Mohamed (ANC) asked why SA had not looked at the possibility of using
smokeless coal. It was already used in the UK in the 1960’s. He was also
concerned about the long-term use of gas equipment and how reliable it was.
Mr Zide stated that if gas equipment had not been used for long periods of time
it needed to be serviced. This was purely a precautionary safety measure.
Ms Sephoti added that gas was just as safe as electricity. If used in a proper
manner it should be safe. She said that if electricity was not used properly it
could also be dangerous.
Mr Mkhize stated that the White Paper called for an energy mix within
households.
Mr C Kekana (ANC) referred to the Department’s statement that coal mining was
only feasible because of the revenue generated through exports. Without exports
coal mining would not be profitable. He noted that the coal mining industry was
being earmarked for Black Economic Empowerment (BEE) but felt that it would not
be viable as the exporting option would not be available. It would thus be
extremely difficult for BEE partnerships to make profits given that they would
only supply local markets.
Mr Mkhize said that the platform for BEE participation was in place. He
conceded that without exports revenues on local coal sales would not generate
sufficient profits.
Mr Kekana reiterated previously raised concerns over the safety of gas. It was
felt that the Department was defensive on the issue. He wanted assurances from
the Department that gas was fairly safe. Mr Kekana said that electricity was
fairly safe as it came with safety trip switches. He asked what was being done
to make gas fairly safe.
Prof Mohamed stated that the issue of smokeless coal had not been adequately
addressed. He asked why SA had not considered its use. He also remained
unconvinced about the use of gas and the safety of its equipment. He felt that
measures needed to be put in place to check on the safety of equipment.
Mr Mkhize explained that the UK was bound by the constraints of the Kyoto
Protocol and was thus forced to use smokeless coal. SA on the other hand was
not bound by similar obligations and thus had some leeway on deciding on
converting to smokeless coal. The Department did not at present consider
smokeless coal to be a priority issue. It was nonetheless looking into reducing
the emissions of burning coal.
Mr G Morgan (DA) was concerned about the high selling price of gas. He
mentioned that Eskom was trying to convince the public in the Western Cape to
use gas but asked if it was financially viable given the expensive nature of
gas. He also asked what the Department could possibly do about the exorbitant
prices that retailers were charging for gas given that the gas industry was
unregulated.
Mr Molefe asked how the challenges faced in the industry affected SA’s supply
to neighboring states. He also asked what lessons had been learnt from the
recent shortages that had been experienced in the industry. It was furthermore
asked whether it would be safe to assume that mechanisms would be put in place
once the investigation of the Moerane Commission was complete.
Mr Mkhize said that supply issues were constantly a discussion point with
neighboring states. He emphasised that there was no moratorium imposed on
exports to neighboring states.
Ms Sephoti said that SA’s import and export policy was currently under review
and that it would be open for comment within the next month.
Ms Mathibela disagreed with the comparison between gas and electricity. She
felt that gas by its very nature was explosive and dangerous.
Mr Mkhize noted the concern of Members over the safety of gas. He was confident
that the probability of accidents with gas was low. He felt that the issue
could not be fully addressed in the present meeting. Mr Mkhize was convinced
that the results of the pilot project would shed light on the matter.
The Chair commented that it seemed that many of the issues discussed were works
in progress. He emphasised that much work needed to be done on the safety of
gas and the possibility of safety mechanisms for it. The Chair also said that
pricing was a complex issue and that the argument of regulation versus
deregulation continues.
The meeting was adjourned.
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