Security of Energy Supply: Department briefing

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.