Department of Minerals and Energy on the Gas Bill: briefing
NCOP Economic and Business Development
23 October 2001
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Economic affairs select Committee
23 October 2001
DEPARTMENT OF MINERALS AND ENERGY ON THE GAS BILL: BRIEFING
Chairperson: Mr M. Moosa (ANC)
Documents handed out:
Gas
Bill [B 18B 2001] (Department of Minerals and Energy)
Gas Bill: Comments on Submissions: Chapter One (Department of Minerals and Energy)
Gas Bill: Comments on Submissions: Chapter Two (Department of Minerals and
Energy)
Gas Bill: Comments on Submissions: Chapter Three (Department of Minerals and
Energy)
Gas Bill: Comments on Submissions: Chapter Four and Schedule One (Department of
Minerals and Energy)
SUMMARY
The Select Committee met for the presentation and discussion of the Gas
Bill. The representatives from the
Department of Minerals and Energy were Mr T. Surridge, Departmental Director of
Coal and Gas, and Mr A. Dykes, Departmental Consultant. Mr Surridge presented the Bill's background
and rationale, and he and his colleague took questions from Committee
members. The Committee agreed to
examine the Bill in more detail the following week.
MINUTES
The Chairperson briefed the Select Committee on the Gas Bill, saying that it
had been in Parliament for some time, and there had been a series of public
hearings. He reminded the Committee
that the Bill had been controversial when debated in the National Assembly. He then asked for the meeting to commence
with a presentation by the Department of Minerals and Energy and invited
members to interrupt the presentation at will with questions and comments on
specific issues. The Chairperson then
introduced Mr Surridge, Director of Coal and Gas for the Department, and
Mr Dykes, Departmental Consultant.
Presentation on the Gas Bill
Mr Surridge began by stating that he was presenting on behalf of Dr
Crompton, Chief Director of Hydro Carbons, Department of Minerals and
Energy. The Gas Bill had been under
consideration and construction since 1994.Â
He explained the overarching rationale of developing a bill to regulate
South Africa's natural gas industry and, accordingly, the specific make-up of
the Bill being tabled. Mr Surridge
remarked that the South African energy market was dominated by coal, with 75%
of the country's energy being coal-based.Â
The natural gas development in Mossel Bay, South Africa's largest
natural gas reserve, only comprised a small percentage of the national
figures. He emphasised that, according
to these numbers and in light of maintaining a long-term energy supply, it was
essential to look at diversifying South Africa's energy industry. He explained that existing gas
infrastructure was primarily in the northeast, in Gauteng Province. The industry was suggesting the development
of pipelines down from Maputo, Mozambique, and in the west, down from Kadu,
Namibia. These were only preliminary
proposals, but, if they were pursued, there would be no government regulation
in place.  Â
Mr Surridge explained that the Gas Bill was divided into four parts. He stated that the broad objective of the
Bill was to promote orderly, sustainable development in the gas industry. The Bill established a Natural Gas Regulator
for industry oversight. In addition,
the Bill designed a system for licensing energy industry actors, activities
(i.e. construction/conversion, operation, trading) and facilities, and defined
the exceptions to the rules. Mr
Surridge noted that the Department was still developing the part of the Bill
that dealt thoroughly with the rules and regulations. He then spoke briefly on Clause 36, regarding the Mozambique
Pipeline Agreement. According to this
Clause, the Gas Regulator was bound to the pipeline until ten years after gas
was first received from Mozambique. Mr
Surridge informed the Committee that the Department expected gas to be received
in 2004.Â
Mr Surridge said that his presentation had been only a quick run-through of the
Bill. He suggested that he could either
proceed to go through the Bill clause by clause, or the Committee could pose
specific questions.
Questions and Clarification
The Chairperson asked for clarification on the regulations.Â
Mr Surridge responded that distributors had to register; reticulators and
small-scale consumers in rural areas that were not on the national grid did
not.
The Chairperson asked him to explain his answer the other way around.
Mr Surridge reiterated that the only people required to register were those who
wished to transmit, store, distribute, or trade in natural gas. He added that the processes of liquefaction
and regasification also required registration.Â
The Chair asked which currently operating companies would need to register.
Mr Surridge said that Sasol and Petronet would need to register. He also noted
that registration requirements would apply to natural gas importers. He explained that, according to past laws,
local authorities regulated reticulators.Â
These laws typically affected only households, bakeries, and other small
businesses that relied on natural gas energy.Â
The Bill proposed by the Department focused solely on the transmission
of gas, defined as the movement of bulk gas from one place to another.Â
A Committee member asked Mr Surridge what he meant by saying that natural gas
was not commonly used, what the significance of that was and how long licenses
would last.
Mr Surridge responded that South Africa relied heavily on energy from coal and
the only significant natural gas trader was Mossel Bay. He noted that Sasol converted coal to
natural gas, but this was a different situation. He also noted that the Department was aware of potential oil and
natural gas fields offshore of the Western Cape, however these were not
proven. To put the size of the fields
in perspective for Committee members, he explained that the Mozambique field
that was attracting South African industry put out 120 million kilojoules per
year, equaling less than 4000 megawatts, only 2000 of which were usable. This amount was half the size of a major
power station. In answer to the
question on the duration of licenses, he responded that licenses would be current
for 25 years.
A member asked Mr Surridge to speak on methane gas.Â
Mr Theron (DP) asked Mr Surridge to expand the price capping mechanism.
The Chairperson asked whether it was practical to forge European partnerships
in natural gas trade, considering the plummeting value of the Rand.Â
It was asked what the lifespan of a pipeline was.
Mr Surridge responded that methane extraction was really a mining issue. He proceeded with the other questions by
saying that scientists should ascertain what the lifespan of a natural gas
field might be and, in turn, whether the field would be worth developing.Â
The Chairperson asked if, for example, the lifespan of a field was 25 years,
what would happen to the investment after that time expired.
Mr Surridge responded that, while the lifespan of a particular field might be
25 years, pipelines would last 50 to 60 years.Â
Because the infrastructure was expensive, it was expected that
infrastructure from one field would be transferred to another.
Mr Dykes interjected that pipelines could easily last 60 years, and it was
cost-efficient to transfer the infrastructure from one location to
another. Regarding prices, he
continued, there were two options: to follow a market pricing system or to cap
prices. The proposed Bill accommodated
both methods. Market prices would
reflect those of the six European partners mentioned in the Bill. Mr Dykes said that this was important
because it would be a healthy and competitive environment for the South African
industry. In turn, because of the
exchange rate, the “capping� method would rise quite a bit, depending on the
value of the Rand relative to other currencies. The “cap� would therefore also be dependent on the market price
of gas. He reminded the Committee that
the price cap would be the highest price that the producer could ask for.
The Chairperson said that he was concerned.Â
Why should Parliament support the exploration and utilisation of other
energy sources when South Africa had energy that could be priced outside the
international market?
Mr Dykes acknowledged that the Chairperson's suggestion would be good
government policy, however, he reiterated that oil would not compete with South
Africa's coal industry. Where it would
compete, moreover, would be in markets that were already linked to the US
Dollar.Â
Mr Surridge explained that, if South Africa were to discover oil, it would have
to be more than South Africa could consume.Â
Mr Setona (ANC) said that price capping had been an issue for South Africa
before. The point of closing the “top�
was for ensuring access to a product.Â
There was, in fact, a point to creating the cap. Regarding the use of outside pricing
mechanisms, the member commented that South Africa has had to use import-based
prices, and, if South Africa made better contributions to the market, it could
affect the consumer price on its own.Â
It was asked whether the domestic gas price would be the equivalent of the
export price.
Mr Surridge stated that South Africa was not likely to export gas. At most, gas was intended to supplement
South Africa's energy supply, not replace it.
Mr Dykes explained that gas was moved in two ways: by pipeline and by
ship. Both methods were too expensive
for the South African industry.Â
The same member apologized for misunderstanding but asked the presenters to
return to the issue of domestic versus export pricing.
The Chairperson explained the situation for the member. He used an analogy, pretending export gas
was doughnuts. He then repeated his own
question to the presenters of why South Africa was capping the price of gas in
European terms? Why was the cap not
linked to a market value pricing system?
Mr Surridge said that if South Africa was able to produce its own oil, the
scenario would be completely different.Â
However, as it was, the country did not have proven reserves of the
natural resource.
Mr Dykes added that gas-on-gas competition required pipelines to be
linked. This was possible for the
United Kingdom, for example, but not for South Africa.
A member asked for someone to explain the difference between LPG and natural
gas.Â
Mr Dykes responded that LPG was another gas, propane. Natural gas could not be converted to a liquid form like LPG;
therefore, one would not necessarily be able to sell natural gas if it were
priced higher than LPG.
The Chairperson asked for the Committee to move on. He asked what the implications of the Gas Bill would be for the
electricity industry, Eskom in particular, and what the possibilities were that
South Africa would be able to shift substantial energy consumption to gas.
Mr Surridge answered that the last few years had witnessed vibrant developments
in the natural gas industry. He thought
that gas would supplement other energy sources in the country. He explained that Eskom had some of the
least expensive electricity in the world because it had excess capacity. As its excess capacity ran out, electricity
prices would naturally rise. The Department
predicted this to happen later this decade, in 2007-08. The Eskom plant, in turn, would expire and
have to be replaced in 2020. At that
point, the industry would take a nosedive.Â
Mr Surridge stated that there was no clear-cut answer to the dilemma. However, although it might compliment the
uses of petrol or heavy fuel, gas alone could not replace coal. He added that people would shift to gas
where it offered unique environmental benefits. There were “niche areas� that gas could penetrate. Also, there was the possibility that new
industries could develop because of the option to utilise natural gas.Â
The Chairperson interjected that Sasol should note and act on the fact that
pricing was not the only issue at stake.Â
Key players in the industry should also be aware of the criteria for
sustainable development. He then asked
the presenters to speak on nuclear energy.
Mr Surridge informed the Committee that South Africa would not see another
Pebble Bay Modular Reactor (PBMR).Â
While the country took pride in its only nuclear power plant, it would
not see another one like it for some time.Â
He explained that it would be ten more years before PBMR was even
certified to run. He reminded the
Committee that, according to the Kyoto Protocol, South Africa was not under
obligation to cut down on greenhouse gas emissions. In addition, the price of carbon had gone down. This was a result of both the United States
pulling out of the Protocol and the recent introduction of a less expensive
carbon cleaning mechanism.
Mr Dykes explained that having gas on the market would not cause a decline in
the coal industry, though it may cut growth.Â
He reiterated that natural gas had multiple uses and unique qualities
such as clean emissions which coal did not.Â
He asked the members to compare South Africa's natural gas use to
overseas consumption which hovered between twenty and twenty-two percent. In some areas of South Africa, he noted, it
was already expensive to purchase coal.Â
He stated strongly that he felt there was a great future for natural gas
in South Africa.
Mr Setona said that, returning to the issue of price, it was actually quite
complicated. If members did not address
it properly they might end up having the wrong argument. Mr Setona said with feeling that South
Africans wasted electricity because they had too much, and that was an
important issue to think about. Playing
devil's advocate, he stated that it also did not make sense to workers who were
not hired because an employer said “Not now, later.� Coal miners would inevitably lose jobs. It was essential to look at it from this angle, and to
simultaneously be able to anticipate the future. In this case, when coal finished, then what? At the end of the day, South Africa should
be able to say what the best option was for everyone.
The Chairperson stated that the Committee needed to examine the Bill
thoroughly, and they would set up a meeting for early the next week, on Tuesday
30 October or Wednesday 31 October. The
meeting was adjourned.      Â
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