ATC240209: Report of the Portfolio Committee on Mineral Resources and Energy on Study Tour to the United Kingdom from 09-14 July 2023, Dated 09 February 2024.

Mineral Resources and Energy

Report of the Portfolio Committee on Mineral Resources and Energy on Study Tour to the United Kingdom from 09-14 July 2023, Dated 09 February 2024.

The Portfolio Committee on Mineral Resources and Energy (hereinafter referred to as the Committee) having undertaken a study tour to the United Kingdom from 09-14 July 2023, reports as follows:

INTRODUCTION

The Portfolio Committee on Mineral Resources and Energy (hereafter, the Committee) conducted a study tour to the United Kingdom on issues related to the energy sector, particularly oil and gas industry.

The Committee was particularly interested in the United Kingdom (UK) because natural gas and oil constitute over 70% of the country’s total primary energy supply. The UK is amongst the top 25 in the world in terms of natural gas production. The country ranks 11th in terms of natural gas consumption and ranks 41st in terms of gas reserves in the world. In terms of oil production, it is ranked 19th. It has oil and gas legislated structure that is similar to what the South African Government is currently grappling with – particularly the upstream petroleum sector.

The Committee is currently dealing with the Upstream Petroleum Resources Development Bill [B13 – 2021]. There are many challenges in South Africa in promoting the development of oil and gas industry. The finalisation of this Bill is critical in enabling investment in the upstream petroleum industry. It was envisaged that lessons learnt on the oil and gas industries of the United Kingdom would enhance Parliament’s contributions in the development of the oil and gas industry in South Africa. It was further envisaged that the exchange of knowledge and experiences would also empower the Committee when processing the Upstream Petroleum Resources Development Bill. Additionally, the UK is regarded as a good example in terms of the Just Energy Transition. Thus, the delegation was interested on how UK was doing it, and how the UK strategy could be applied in South Africa, if necessary.

1.1 Objectives of the study tour visit

The following objectives were identified for the study tour to United Kingdom:

The main purpose of the study tour was to learn about energy policies governing the UK energy sector. Below are some of the areas the Committee explored.

Legislative Framework Governing the Energy Industry, with a particular emphasis on the Upstream Petroleum Industry.

Challenges the country face in promoting the Upstream Petroleum Industry, and how the challenges are addressed.

The role of the State in the Upstream Petroleum Industry.

How the UK Government is dealing with Just Energy Transition.

To engage with companies that are in the upstream petroleum industry including a State Company or how the State controls the Upstream Petroleum industry.
To enable the Committee to develop sound recommendations to Parliament in relation to its findings when dealing with the legislation (Upstream Petroleum Resources Development Bill) that is currently in front of it.

This was particularly pertinent for the Committee’s oversight over the Department of Mineral Resources and Energy.

1.2 Delegation

Members of the Portfolio Committee on Mineral Resources and Energy

Name of Member	Political Party
Mr S Luzipo	African National Congress (ANC)
Mr M Mahlaule	African National Congress (ANC)
Ms V T Malinga	African National Congress (ANC)
Mr K Mileham	Democratic Alliance (DA)
Mr V Zungula	African Transformation Movement (ATM)

The Committee was accompanied by the following support staff member:

Ms A Boss, Committee Secretary

The Committee met with the following delegation from United Kingdom:

H.E., Mr Kingsley Mammabolo: High Commissioner of the Republic of South Africa in UK.
Mr Solomzi Mhlana: 1st Secretary Political, South African High Commission to the rat Britain and Northern Ireland

UK Parliamentary Energy Security and Net Zero Committee

The Committee was accompanied by the following support staff members:

Mr Julian Mazowiecki, Committee Advisor

Offshore Energies UK (OEUK)

Mr David Whitehouse – Chief Executive Officer
Mr Keith Wise – Operations Manager
Ms Emily Taylor - NSTD Programme Manager and Acting Business Development lead

Centre for Energy Transition (University of Aberdeen)

Prof John Underhill: Director of the Centre for Energy Transition and Professor in Geoscience and Energy Transition

North Sea Transition Authority (NSTA)

Mr Alistair Macfarlane: Head of UK Carbon Transportation & Storage

Meeting with Denby Grange All party Parliamentary Group for South Africa

Lord Johnny Oates - Chairperson

Meeting with different stakeholders

2.1 Meeting with H.E., Mr K Mam Mmamabolo, High Commissioner of the Republic of South Africa in United Kingdom (UK)

The Committee held a meeting with the High Commissioner of the Republic of South Africa in the UK. The High Commissioner welcomed the delegation and indicated that the Committee visited UK during a difficult period as UK Parliament is usually on recess in July. He indicated that the High Commissioners office had completed a trip to Scotland and part of going there was to engage and see what they do with the Just Transition, which is, in the UK case oil and gas and in South Africa case is primarily coal. He indicated that the UK supported South Africa with an amount of 8 billion which was received from European and Americans to try and see the country moving quickly with Just Transition. He indicated that they were impressed with the manner UK is going about it, putting people around the table and appoint the central figure, (labour, union, business and the academia) and discuss the various stages of the Just Transition. He said in these discussions, stakeholders argue that one cannot just do away with fossil fuels, e.g coal industry, but one must look at various alternatives to ensure that the transition is just . i.e. South Africa projects a decline in coal as an energy source, whilst others who had followed the same path are reverting back to the same source. It was stated that South Africa cannot just disband coal, but show can indicate that they are transitioning from bad energy to good energy. The same is applicable in the case of the UK oil and gas industry. The High Commissioner appealed to Members of the Committee to take this message back to the Minister of Mineral Resources and Energy that there is aa lot that can be picked up in terms of lessons on the issues related to Minerals and Energy and Just Transition.

Additionally, the High Commissioner indicated that UK has a lot of interest in working with South Africa. They position South Africa as an ideal country to deal with issues of sources of energy. South Africa has the Indian ocean, sun, wind, so the country might have little competition with other countries like Namibia. SA as far as the UK is concerned is holding this potential, hence the interest by UK. The High Commissioner indicated that South Africa was supposed to reach an agreement (MOU) last time the President visited UK on critical minerals that has to do with just transition. The negotiators from the missions’ side pushed back the deal as they felt it should be for beneficiation and whether is adding the value and should be the win- win situation for both countries.

The Committee engaged with the High Commissioner and raised the following issues:

The Chairperson of the Committee, Mr. Luzipo, outlined the purpose of the visit and the process the Committee undertook thus far in dealing with the Upstream Petroleum Resources Development Bill (the Bill) and indicated the visit will empower the Members when they are deliberating on the Bill that is currently in front of the Committee.
Members noted that there is a mention a lot of interaction and exploration between the mission and government around just transition and the mission will be learning from them. Members wanted to know what mechanisms that can be put in place to feed information to the Committee as there are bottle necks somewhere in the system that information is not coming to Parliament.
Members wanted to know their experience of UK in the licensing regime particularly to oil and gas petroleum and what can the Committee learn from UK in that regard. There has been a pushback regarding the oil majors, and they are not happy about numbers. For instance, the community came up with a different number of 50 % on the free carried interest and the Upstream Petroleum Resources Development Bill is proposing 20%.
Members wanted to know the impact of electricity prices on SA UK relations, in particular from the business and Foreign Direct Investment (FDI) perspective.
Members were happy with the visit by the office of the High Commission to Scotland because it laid a foundation in which when benchmarking, the Committee would already get a clear indication of what is going to be a fair benchmark that the Committee will come up with. They mentioned that SA cannot get rid of what it has in the country, referring to coal. There was an appreciation that there is a misplaced discussion back home that the country must move from coal to something else. Members felt that the discussion should be that SA should move from high carbon emission to low carbon emission because if that is not said the narrative that is going back saying SA must do away with coal is problematic.
Members encouraged the Commissioner to push whoever needs to be pushed on the MOU. It was stated that the way the media broadcasted the issue of R8 billion, it really caused an uproar in the country because it was portrayed that the country was selling the minerals for whatever they don’t know which are renewables. Additionally, it should be indicated that the country should invest in cleaner energy technologies to lessen carbon emission.
Members wanted to know to what extent Committees can utilize the Embassies or Mission’s in order to assist the legislative work.

The High Commissioner and the 1st Secretary Political responded as follows:

The reason for visiting Scotland, was to learn a model. The Scottish are not saying don’t do transition, they are saying do something about it and that is why it is called Just Transition. The fear of ghost cities that have been talked about and loss of jobs. What was seen in Scotland, was people coming to the same table, (unions, academia, business) and appoint a neutral person to assist in the transition debate, example was made of a person like Desmond Tutu. Every month they meet and discuss how far they have gone in terms of transition.
With regards to technology -, decarbonization, and so forth, the Commissioner said while coal is being used, there might be certain things that the country can do in terms of technology and to make sure that it does not become as harmful as it is now. But the question is what do you do to make sure that you also incorporate the issue of decarbonization? The High Commissioner indicated that they are doing something and slowly moving away from it. And eventually, when they have learned the new skills and technology, they will be quite able to say that the base of their electricity is no longer, it is disused. But we have transitioned from this to that. He further mentioned new things they are dealing with, like green hydrogen. They are still studying it and he was hopeful it will come to SA but warned the Committee that their processes are going to take time to unfold.

The High Commissioner agreed that in South Africa they have seen the insistence on the mix. And nobody is talking about the potential of nuclear power and that must be put in the mix. There is much potential, and the question must be, why are we not also pushing in this area to make sure that nuclear is part of the transition.
The High Commission office indicated that they decided to establish Centre for Future Energy because they want government, business, and academia to develop a best programme on how South Africa is going to transition to say and how they want to look like. They indicated when they started, they wanted the lead departments to lead on that discussion and academia and business to also be part of it and approached DMRE together with Department of Science and Technology (DSI) to lead at the level of government on how this transition is going to look like. In the UK they have a department called Business, Energy and Industrial Strategy (BEIS). So, it deals with transition, energy, minerals, oil and gas.
Secondly the academia, which are the best institutions in SA which can contribute towards the discussion’. At that time, they had an honour to be visited by the Chancellor of University of Pretoria who was keen to even host the Centre itself. And led a visit to Scotland to see how the Centre for Energy transition look like and also to look at Scotland and what is it that they developed, and they want South Africans to consider having something similar.
Mr Mhlana explained that in Scotland they've got what they call the North Sea Energy Transition. This is led by Scotland and the Scots are saying this is how they are going to deal with the transition. In the graph that they presented, they said they will continue to decarbonise and cut down on oil and gas exploration. However, the graph is showing that gas will still remain their energy mix for the coming minimum 50 years. So that goes with their funding.
With regards to Academia, which is University of Abeerdeen and University of Pretoria, the Mission indicated that they do not want to limit how many institutions of higher learning are part of the centre. They said that they want also the previous disadvantaged institutions to be part of that. Nelson Mandela University then came and hosted the Vice-Chancellor. So subsequently they had the MOU between the University of Pretoria and the University of Aberdeen. Nelson Mandela University was also going to be part of that.
In terms of business, Sasol volunteered to also be part of this sector, because they want to assist South African to develop its own best form solution on how this transition is going to be led.

The Mission realised that if SA had to close down, or if there was an attempt to close down the coal plants, that there were going to have a huge unemployment problem. In an event that South Africa does close its coal power stations, one need an upskilling of workers. So, what the Centre is going to do, amongst other things, is an upskilling of ordinary workers in an event that they lose their jobs. So that's how the Centre is going to look like. That's the first component of how they have organized themselves as High Commission. They have commissioned 12 relations between SA and UK.
The second one was the issue of the MOU, which the High Commissioner alluded to. In preparation for the State visit, which took place in November 2022, there were two outcomes that the High Commission wanted to be reflected on the visit. The first one was that the middle place that they want to manifest themselves in. At the centre of it, minerals are critical so that's why the Mission then said, South Africa and the UK need to have a critical mineral partnership. At the centre of transition, one cannot avoid minerals. The second one was the SA-UK Hydrogen Partnership. Because Europe, and UK in particular, they are developing the hydrogen economy. And what made things easy for them was that DSI was leading the discussion around the production of the hydrogen value strategy. So, it made the lives much easier, in terms of how they can match the hydrogen value, which incorporates the area of Mogalakwena, KwaZulu Natal (KZN) and parts of Gauteng, with what is happening in the UK. In the UK, there is an area called the T side valley, which is similar to the hydrogen value of South Africa. And these two, are going to drive the SA-UK Hydrogen Partnership. But at the centre of this, because there are three types of hydrogen, which are green, blue, and grey. And part of the grey to produce it, you need to have it in South Africa. So, at most, the Mission is able to drive the idea that South Africa should be the centre for the sourcing of critical minerals that will be required for the gas transition, energy transition, including the hydrogen economy. The last one, which is the most important one, to say how South Africa can better co-ordinate the relations with the UK. There was discussion that the SA-UK should have bilateral forum. Business even other stakeholders, including academia, civil society, and all that come together and discuss these matters.
Mr Mhlana suggested that Members of Parliament attend the SA-UK bilateral relations forum which will be hosted in South Africa. The last and the most important one, was that this was the Mission drive to push SA as source of critical minerals, engage DMRE to develop a country strategy for critical minerals as UK has one. It will guide how you interact with UK and the rest of the world in terms of minerals. Now, it was good that DMRE responded to the call and said , the Mission needed to consider the draft strategy of critical minerals. Mr Mhlana indicated that the minister of Mineral Resources and Energy has announced that critical minerals strategy will be adopted and launched at the margins of Africa critical minerals summit that will be hosted by Minister of DMRE in October 2023. And the reason why the mission wanted to influence how their relations with UK ought to look like was because they wanted to change some of the things that had been happening in the past, including the issue of the inability thereof to actually talk to the police on how they feel about the issue of beneficiation. Because he knows it's a very thorny issue, and their colleagues were not brave enough to raise. So, the word that was used, and it's the word that they also use, is value-add. They said to them, they want to have a trial on how this value-add between the UK and South Africa ought to look like. And they said, how do they want it to look like? And he said, no, let's do value-add into the car manufacturing industry. You have expertise in the car manufacturing industry. The only thing that republic of South Africa wants is the refining capacity to refine the minerals so that they put value-add into the car manufacturing industry. “We then said, the surplus of the minerals that we are going to produce, they can then be sent to the UK as part of your value-add into your car manufacturing industry that is on the decline”. So based on that, they are able to understand what SA mean by value add.
The Mission told UK that the Council for Geoscience (CGS) will be completing a study of whether or not lithium is found in South Africa. Because based on their observations two years ago was that the pegmatite belt that comes from the Democratic Republic of Congo (DRC), there is no way that it stops in Northern Cape, it will pass Namibia and go all the way to the Northern Cape. So they were happy the study was finalised and do hope that the Council for Geoscience was going to publish it, that South Africa has lithium reserves. A question was then asked, if you have manganese and lithium, why is it that you cannot do value-add in the electric car battery component? And that's how they were able to talk to the base to say this was the type of relationship that they want to have with UK.

Meeting with UK Parliamentary Energy Security and Net Zero Committee

The members of the UK Parliamentary Energy Security and Net Zero Committee welcomed Members of the Portfolio Committee on Mineral Resources and Energy. The Chairperson of the Energy Security and Net Zero tendered apology as he was busy in the constituency. The Chairperson of the Portfolio Committee on Mineral Resources and Energy outlined the purpose of the visit and also appreciated the fact that the Committee have been given an opportunity to interact with their counterparts just to solicit more information. He said, energy was not just a small package. It involves the complex nature of the mineral industry as well as the energy space, which, amongst other things, is constituted by three or two areas of responsibility. The first one, which is electricity. The other one, which is the petroleum. The Chairperson further explained the process the Committee went thus far in processing the legislation that is in front of it. Furthermore, they looked at the issue of just energy transition also in the context of bringing in alternative sources of energy in order to augment the agenda of developmental objectives, and not necessarily to take completely lead off of the other. The Energy Security and Net Zero Committee scrutinises the policy, spending and administration of the Department for Energy Security and Net Zero and its public bodies, including Ofgem and the Committee on Climate Change.

The Committee engaged with the Energy Security and Net Zero Committee, and these are some of the issues that were highlighted:

The Committee took the commitment to deliver net zero emissions very seriously. As members of this committee from all sides of the political arena, the UK was the first major economy to put in their commitment to deliver net zero. In all of their discussions and about how do they deliver energy security, they also think about how they do that in a way that is going to help them deliver that net zero commitment.
The North Sea has a really important place to play in that transition to net zero. Wind energy is now the cheapest form of electricity in the United Kingdom. Using renewables to generate electricity is vital because of the energy security, but it is also vital because of the price. The North Sea also plays a really important part in carbon capture.
The ability to use oil and gas fields to put carbon under the North Sea will be an important part of the carbon capture strategy. The North Sea itself as an oil and gas field is declining in terms of the amount it can generate.
Members of the Energy Security and net Zero agreed that they want to make sure that does not compromise the journey towards net zero. It is an enabler of being long term uses for certain kinds of gas because they will have to try and get gas. The difficult question is how to do that with carbon capture. They are getting gold out anywhere in Europe. They have limited gold out in America at large scale. Some projects are very close to gold out. They still get out in work at that scale and that provides a challenge for lots of technologies. Hydrogen is another technology that they see close to their fingertips potentially being rolled out. Using gas as a transition process.
They use gas to create hydrogen but again it has not yet been rolled out in any major economy. In the mass storage which is what they talked about before or even mass energy use for transportation. There are lots of options and technologies that they are looking at. None of them yet have provided the silver bullet to get to where they need to get to.
There is the unpredictable difference between the party's policies, not just in the committee, about how quickly do you stop bringing on new oil or gas. Labour party would not agree any new whenever they get in. They would not agree immediately any new agreements. Whereas the Conservative party policies that you can agree with are just reducing numbers for that transition. Now to some extent that is arguing over their appearance. They are trying to get to the same point. But there is a benefit about how quickly you can rip out oil and gas from the economy and still survive. Because to bring people along on this journey, which is already difficult, someone had to make sure people's lives don't go up when they don't freeze in winter. And that is a difficult challenge when they haven't yet at scale got any of the technologies that they need.
The challenge has been in South Africa, because your reliance on coal is much greater than our reliance. But the one thing that this committee will look at is their last major coal-powered fire station was converted into biomass. Tracts of which now burns huge amounts of wood. Huge amounts of wood almost the size of the UK's protected forest every year. It burns at tracts imported from around the world. And actually, that has ended up being a scandal as it is starting to unravel. So, a conversion from coal into something worth potentially much better has ended up leading them down a track that actually now they are going to have to really radically look at and see what the alternatives are to that.
The Portfolio Committee on Mineral Resources and Energy Committee indicated that their two biggest priorities are employment and poverty alleviation. SA has the highest unemployment in the world. And won't have a growing economy without a secure supply of energy, and in particular a secure supply of electricity. As rightfully identified, currently SA are 70-something percent coal-powered, although that is changing quite rapidly. And it has been seen over the last couple of months how the uptake in rooftop solar has alleviated some of the demand pressure. There's an enormous impact on economic development and investment in South Africa. SA has seen a spike in electricity demand.
Members wanted to know more about how does UK handle the regulation of the energy sector, and in particular oil and gas sector. What is government's role in that? The second was, the hydraulic fracturing that UK had moved past fracking, and there's a moratorium on fracking, in the UK.
They wanted to know what led to that moratorium and what the current situation was in that regard.
This energy transition, getting from where SA is now to where they used to be, how do you implement that? Acknowledging that SA is not in the same position as Uk, don't use the same vehicles, we're a hugely impoverished society, and coal mining and coal generation of electricity faces enormous role in offsetting some of that. How does SA get from that to an energy security without leaving people behind along the way?
Members of the Net zero Committee responded on the three points as follows, one day they thought that the United Kingdom will generate all the electricity it needs without burning a single piece of coal. They were basically using gas and nuclear for base load capacity. Because in all energy systems, when everybody wants to turn the lights on, you need to be able to provide it. They have a lot of wind power, it is now very cheap, and when the wind is blowing, it generates a lot of electricity. The trouble is when the wind doesn't blow, you need base load capacity. Well, they can’t create hydrogen when the grid can't cope with the demand. Because that's the other thing about their wind turbines. The companies are paying sometimes to turn them off, because the grid can't cope with the demand. And obviously they are playing to their natural advantages, there's a lot of wind around the United Kingdom. So that is gradually coming along, both domestically, you'll see solar farms, they're not huge, but there are some in Britain, and obviously countries that have got a lot of sunshine, not a lot of snowing, you've got great potential there, in those circumstances.
The regulation of oil and gas, basically when the gas model was discovered, the government said, this belongs to the ground, to get a licence from government to bring it out. That is the basis in the legislation of how it works. The government then issues a licence for people to exploit the oil and gas. The Committee were just being told there was a debate, globally, about should UK be issuing more gas and oil exploration licences, because the United Nations Secretary General of the International Climate Change Body has very clearly said there is absolutely no place, no role, given what's happened to temperatures globally, to issuing more licences, because it just adds to the problem that they were trying to solve.
In responding to a third point about jobs and unemployment, there was an opportunity there, because in their place, 23 million homes in Britain have gas boilers that are used to heat the bath and cook. Eventually, the natural gas will no longer come down those pipes. So that 23 million homes in Britain are going to be more expensive than a gas boiler. Is it going to be hydrogen? What's the price going to be? Can they produce enough of it to pump it down the gas network that supplies it?
Members indicated that they have a problem at the moment in reconnecting all of the new renewable energy generations to the grid. So, it's a killing system, and they had an explosion in offshore wind power. Because the government said, if you can do this, you'll get money for doing it, the original feed-in tariffs. It was a brilliant policy, and you look at the amount of offshore wind that they are producing now. New schemes are in preparation. These people know this is the future. But there are not enough pipes, wires, to connect it to the land, and then enough pipelines to bring it to where it's required. So, you take something like Scotland, enormous potential and production currently. But they're going to have to build more pipelines to come down and to stop between the diffused grids.
So, like all energy generation infrastructure projects, you have an argument. But the question is, are those turbines going to be made in Britain? Are the heat pumps going to be made in Britain? Is the technologies to water and renewable electricity into hydrogen, is that going to be made in Britain? And the challenge for all of them and looking at what America has done for the infrastructure. America has been criticised right all the years for not taking climate change seriously. Well, Joe Biden has turned up and said, right, we're going to give you fantastic tax incentives. And they're sucking in technology, money, interest, and investment. And Europe responded by saying, first of all, this seems a bit unfair. And then they realised, well, they were copying the Americans, or they were, you know, without over us in these circumstances. One other example of really good regulation is motor vehicles.
And there are those who say, one of the ways to deal with peak demand illegally is if people have got cars that are electric parked outside their houses, well, take the electricity from the battery, and use it to run your cooker and your TV in the evening, and then charge it. And this is what the future looks like. In some societies, not in others, because it's a big stage of development, they’re going to need all the technology that they can, but focusing on the potential for jobs and industrialisation in the new sectors is,
What the UK has proved is that you can radically reduce your emissions whilst also growing the economy. So since 1990, so that period of just over 30 years, we have halved our emissions, 49% reduction in emissions, and the economy has grown by 75%. If you've looked at 2010, there's a rather simple sort of story. Emissions way down. The key part of cutting the emissions was certainly their need to use coal anyway. And by investing in renewables, the cost of that renewable energy has come down and down as technology has improved. It has not all been government investment. It's been about unlocking private sector investment by having sensible levels of government policy that allow investors to feel confident to invest in those renewable technologies.
In the UK, most of renewables are from wind. In South Africa, most of the year, you have very reliable solar. So, making sure that you've got the right grid infrastructure, and that might be local grids versus national grids. Making sure that you've got the right planning regulations. Members indicated that theirs still aren't perfect but indicated that there’s still a way to go in some of the South African planning regulations to enable the confidence in solar panels on the road to get the electricity that they need for the rest of the year, or solar panels for their manufacturing capability. They have done that without the need to use the fossil fuels so much. The other risk of the fossil in the line of petroleum, oil, or gas is you end up exposed to global crisis, and highly significant crisis. And what we've seen with Russian Ukraine, the impact of the Russian war in Ukraine has driven up gas and other prices across the world that have left consumers in the UK fairly exposed to hikes in gas and oil.
One of the reasons why they want to have more oil and renewables is that they not so exposed to global gas and oil. If you wanted a lot more gas prices in South Africa, you can't guarantee that that oil and gas is going to come into South African demand, and they're going to be sold on the global market. I mean, maybe you can get oil, but you're not going to get potential risks of changes in the oil and fuel prices.
The commitment to net zero, or 24 billion pounds of investment into the UK in 2021 alone, has worth 840,000 jobs, So it's a creative job, so it might be a bit more difficult to do it when you have the same challenge.

Meeting with Offshore Energies UK (OEUK)

The Committee held a meeting with the Offshore Energies UK and the following transpired:

Mr Keith Wise made presentation and explained that they have over 200,000 people a year employed within the industry, and more, and they're all quite good paying jobs relative to other engineering, other science. So, they are providing energy, will be doing cleaner in the future, He acknowledged that SA has got a natural resource in oil and gas, it's going to help the country, it's going to help things, you know, so that's the thing that we try and get across to the people, sometimes as a mature base. He said in terms of oil and gas, they’re in the decline, you're on the up, we're in the decline, we've had our big reserves.

Keith talked about the regulation hierarchy, how they as a sector operate with government, and then he spoke about the nursery transition deal, which is that industry government partnership, Offshore Energies UK were Oil and Gas UK, and up until two years ago they changed their name. That was very deliberate, because they realised market intelligence, so what's coming, what do they predict that the investments are going to be, what do they think the energies are going to look like in 5, 10, 15 years. They tried and used a lot of the data to predict the market for investment, and what's going to be happening. In that as well, their production has been difficult. Covid stopped everything. Lockdown happened, and everything slowed down. So, they have to be a bit more aware of how they stop producing in terms of natural decline, where naturally these oil and gas rigs and wells will naturally slow down stock, versus the social licence to operate conversation of how they replace that, where does the energy come from. So, it's a real blend of energy they talk about now. They are going to be importing some of their country needs. Reference was made on the graph where one can see the red line on the bottom that shows the gap of what they need versus what they need to import. So, it would never be able to fulfil the UK's needs with what we have naturally, but we can certainly do a lot of it.

That was going to increase, the import gap will increase over time. Keith indicated that Investment was a very difficult thing to talk about in this sector because there's a perception that this sector is a wealthy one, that it's full of lots of money, very expensive, high reward industry. But that's simply not true because all the profits that are being made are being reinvested back into changing into renewable things, changing into wind, into hydrogen. It was true that there were big profits, but they're being reinvested because of the North Sea Transition Deal, because they have set an expectation that this industry will change, and it will transition over. It has been shown some of the numbers there. £117 billion worth of hydrocarbons last year. It's a lot of money, a lot of big numbers coming into this. And we are making a difference to get to net zero. Their emissions are coming down. They have targets that the North Sea Transition Deal sets on the sector to have 25% emissions reduced by 2025, 50% by 2030, and then net zero by 2050. At the time of reporting, the number was 22% reduction in emissions, which has been achieved through efficiencies. They have been looking at how they operate as a sector, company level, so they've made it more efficient for them to do their business. And also, natural declines. Some of these wells have naturally stopped producing, which means the emissions come down anyway. So, wind or carbon storage. And making sure that gap is filled and we help bridge that.

The coal industry in UK just overnight disappeared because the government just stopped it because it was a dirty sector. They are refusing to make the coal industry happen again with oil and gas. We're helping the jobs, the communities, the people. I mean, this city alone is full of people who work here. OEUK represent the good portion of the UK. There's not much in the top north-west of Scotland because there's not much there. It's just trees and mountains. Keith explained on why they changed and what the challenges have been. For example, they had an energy profits levy, the windfall tax. So, government decided in the time of the energy crisis and the times of the energy security crisis with what was going on with Russia and Ukraine, that impacted them a lot. The government decided to put a tax on how much oil companies could profit which was 75%. These companies felt that was unfair and do not want to use their 25% that they’ve got left to reinvest in renewables. They wanted to know where are the incentive and why do they make it a practice for them to reinvest on that.

Members were very interested in the legal issues, changes in the law-enforcement devices. Keith responded that the licensing regime in the UK is supposed to have a high cadence, so basically, it's a thing called an innovative license that allows people to come in, it can be oil and gas operators, or it can be one person, you can decide to go and look at data. The UK, basically, because it's mature, it's very data-rich, and a lot of it is public. So, then people are encouraged to go away and let them work on somebody else's old data and then see if they can make an opportunity. So, the idea being they have an innovative license that is supposed to be almost like a yearly cadence of, we are going to go and look at that, so then you can apply for that license, you can win it, if your circumstances are good. There's a point scheme to actually win it, so basically, you'll have more opportunities, or they've missed that opportunity. So that's the way licensing is supposed to work. So, the high cadence, what we see is most of, being a mature basis, most of their licensing and exploration is tied close to existing infrastructure. Because it costs millions and millions of dollars to put a new installation in, however, if you can tie it back to an existing installation, that's beneficial. So, most of their exploration is tied to infrastructure-led, so there's some infrastructure in there. A person will have a lot of frontier exploration, where basically somebody's taking more of a gamble, more of a chance on something out there that's frontier, and they get big rewards. So, Norway has a licensing regime that flips, so one year they'll do frontier licensing, and then the next year they'll do infrastructure led. So that's the way Norway does it. So, around the year, sort of style, Denmark cancelled licensing. So that they said no more licensing, but they issued for exploration. However, they have a caveat in there, saying, however, they are doing many rounds, so there's a specific need for an energy security reason, or a specific need. An operator has their field, they look to something nearby, and they want to do the evaluation, and they can apply individually. Denmark has effectively an open-door policy.

The Netherlands, basically you take ownership, and you can apply for something, but there's no end date to when you can use it back. But you have to meet certain obligations to keep it. So that's, so around the basin it's slightly different. Exploration gets a lot of negative attention. You can see the green lobby focus on exploration and continue. As a result of that, it created a bit of a stop to how do they go about exploration because everybody's, okay, to get a typical project over the line in the UK from exploration to actual production is about eight years. If it's close to existing infrastructure, if it's isolated, you're talking 10 to 15 years. So, investors want to know that their investment is secure. They don't want to go and invest in it, and then there's a change in government, and the next government says, okay, well, you're not allowed to go to South Africa to get better returns, better secure investment, and things like that as well.

Keith said part of their challenge that they have in the UK is reminding the government that these investors are the same investors that can invest in the Middle East, can invest in, well, if they can, independent regimes, et cetera, but can invest in South Africa, can invest in Namibia, the big finds of Namibia, things like that. They have a choice, just as they all have a choice. It's a global industry, so he said they have to strike the balance of creating seismic data. Maybe you have to draw exploration laws and obligations there. So that was there and always has been and has been a lever for the government to put pressure on operators. They’ve given them a license, but one need to fullfill his or her obligations as a license holder. There's a second portion to that that's been introduced two or three years ago. They have to do it within a net zero context, so as to put pressure on operators. Not all operators are the same. Some of them are very good in terms of cleaning up their act, but you may have an asset in the North Sea or an oil and gas platform that's been there for 40 years. Maybe they have a very old engine for 2025. People were very sceptical of these targets, saying, they’re very hard by indicating how can you reduce 25%? With industries, they’re probably going to finish by 2025, under that. They’ll probably achieve that goal in 2024, which is amazing for an industries group. But they’ll probably doing all the quick wins. They'll have certain assets that are really polluting and probably drop off, but then there's also the good companies that are coming in and making big investments, doing all the quick wins. The harder part is getting to the 2030. You've got an amazing situation, in the sense that you've got growth.

How industry should comply with Agri-Farmers Regulation. They have over 45 industry guidelines that helps industry get through and navigate the landscape. And what they also involve is they also involve external stakeholders. They involve the government in how they think they should comply with their rule so that the onus is on everybody to do it. Ninety-five percent of the time, they have followed the guidelines. And then within certain caveats, depending on what the complexity was they find these are used globally and these are free to their members. There are other, so Petrobras, your Brazilian counterparts, download something, or they're working on something, we'll maybe let them take the lead on it. And then they will give input to their guidance as well. He indicated that they get a lot of interaction, mainly because they have 400 members. So, 80 supply chain, 80 operators, 400 supply chain organizations. So, they want to make sure that this is fit for purpose, to make sure their business continues to grow. So basically, one of the most important ones is well life cycles, integrity of wells. If one think of the Macondo rig incident, this is the guidelines to see how the UK will comply with well integrity. The Petroleum Act has now become the Energy Infrastructure Act 2015, and now it's going to go through another update. It's going to be another energy bill coming out of Parliament. The principal objective is to decommission so they can be used as future stores. That was going to be a big burden on industry because it's an extra cost. And that well was not an appropriate store. Then they went out to their membership and said, how do the define which well should or shouldn't be, and how do they go about that? And so, the first part of any regime of how to actually write that down and document, how do you define what should be done, what shouldn't be done, and how do you approach that? They came up with the guidance, the guidelines, and they haven't actually got guidance in place. So, it helps them, but it also helps the industry to minimise their costs, because it's part of the government's responsibility to make sure what they do in regulation doesn't increase costs for industry so much that they actually leave and go to somewhere else, or they decide not to invest in that. So, they have to get the balance right.

The idea being that there are live documents, so the previous documents on issue 4, and every 3 years they do a major overhaul. Every 5 years they try to do a complete rewrite to make sure they’ve got the latest technology and things like that as well. The Transition Authority have released some licensing opportunities for this. They expecting to create 10 gigawatts of hydrogen produced through their floating wind efforts.

One of the things that Keith really like about the deal, was that in the people and skills section, not only are they trying to map out where the people are going to be and what skills they're going to have and where they need to be, OEUK was also committed.

Members engaged OEUK and raised the following issues:

Members wanted to know how much the investment in wind is going to be as mentioned was made on 200 million for the coming years.
If OEUK were to compare with oil and gas, obviously there's going to be research that will determine how much of the resource is there, et cetera. How do OEUK intend to mitigate that issue? Because it's what South Africa is faced with, because of the tons of coal.
And with these renewable ideas coming, it's as if renewables are the best thing. They haven’t been tested. In South Africa, they said they want just energy transition, which in your terminology is net zero. But the just energy transition, it's a mix of energies. And South Africa belief is that the base load should be coal. Because the investors cannot determine for countries to do away with their resource, the resource that they have been using for quite a long time to sustain themselves.
At the same time, it is believed that one need to refine how one uses oil and gas into mitigating the emissions. It's also why the South African countries should be seized with, to put more effort in the use of cleaner technologies to cap emissions.
Members wanted to know what the people were doing before to transition. There is a different scenario when it comes to South Africa. Combine one process, existing solely because it's a coal process, and there's an unfair pressure to move from your base load is gas, which you are probably having in your country, and nuclear.
There was a feeling that UK was not in a hurry to transition from gas, which is their natural resource. And South Africa seem to be rushed to transition from coal to other things. It looked like UK was in the same situation as SA when it comes to transition.
Members wanted to know how they balance the environmental issues and development issues.
Members felt that when OEUK said oil and gas, they are looking at oil and gas as another alternative, not something that they need to move away from.

Meeting with Centre for Energy Transition (University of Aberdeen)

5.1 The Energy Journey: Oil and Gas and Beyond

The Committee visited University of Aberdeen in Scotland and engaged with Prof John Underhill who is the director of the Centre for energy transition and also a Professor in geoscience and Energy transition. The University was founded in 1495 and is the 5th oldest university in the English-speaking world. The University has 3600 staff members and 14 000 students from over 130 countries.

Professor Underhill presented the energy journey in oil and gas by show of research and innovation to accelerate the Energy Transition. He indicated that Abeerdeen University is world leader in oil and gas and one of the few universities left in UK that has such subsurface skills.

With regards to legal and regulatory of oil and gas, Professor indicated that a depth and breath of expertise allows broad coverage of issues which are:

International (e.g role of maritime boundaries and joint development)
State-Investor
relations (e.g relational arrangement; dispute resolution)
Regulatory (e.g competing models for health, safety and environmental)
Contractual (e.g. risk allocation issues specific to hydrocarbons)
Societal (e.g. impact and benefit agreements)

Forward -looking approach, identifying emerging issues related to energy transition were identified as follows:

Property and liability dimensions of CCUS.
Multidemensional legal implications of methane hydrates
Planning and property dimensions of overlapping offshore energy developments
Safety and environmental implications of renewable energy sources
Legal and regulatory aspects of geothermal energy in offshore and onshore
Legal dimension of a just transition which is industry and community.
Economics of repurposing oil and gas assets for CO2 capture and storage and for development of hydrogen.

Professor Underhill indicated that the University is the world-leading research in the economics of petroleum including design of contracts between oil companies and host government. This is by design of royalty, tax, production-sharing terms, design of oil and gas security of supply provisions, design of environmental policies for oil and gas transition. It was reported that Professor Kemp was appointed Official Historian for North Sea Oil and Gas and published two volumes on that subject. With regards to environment on oil and gas, the current work includes marine biology, ecotoxicology, environmental analysis, pollutant fate and risk assessment.

With regards to education and skills on oil and gas and beyond, Professor indicated there’s a number of undergraduate programmes that have been designed to reflect the needs of the upstream and downstream sectors. The University has further developed an extensive portfolio of taught postgraduate master’s programme informed by close engagement with industry, government and other stakeholders. Online short courses are also available to gain the expertise to tackle the legal issues involved in decommissioning oil and gas installations, develop the specialist skills needed to compare globally within oil and gas law, advance engineering career with specialist online training in the design and operation of offshore pipelines and develop the specialist needed to succeed as a reservoir engineer,

5.2 Energy Transition

Professor Underhill gave a presentation on the Energy transition. The energy transition represents one of the major global challenges. Energy is a good that can enable growth; without it, many daily functions are not possible. Energy allows for industrial growth, entrepreneurial activity and other public goods to be offered such as health and education. The current global dependency on fossil fuels and the urgent need to reduce the greenhouse gas emissions their use leads to research and training in the Centre for Energy Transition (CET) addresses key challenges facing the Energy Transition as they seek to reduce emissions and enable global, national and regional Net Zero targets to be met. The CET combines critical research with industry-leading training to address all aspects of the energy trilemma, namely energy security, affordability, and environmental sustainability.

Professor indicated that fossil fuels account to 82% of primary Energy Consumption. The following countries China, United states, European Union, India, Russian Federation, Indonesia, Brazil, Japan, Canada and Mexico are the top 10 sources of global emissions. Uk contributes less than 2% of global emissions. The UN sustainability goals are im to end World poverty, protect the planet and ensure prosperity for all. This is underpinned by translation of energy from current reliance on coal, oil and gas to renewable sources.

Professor Underhill gave a UK picture back in 1970s indicated that there was a little indigenous oil production. Gas discoveries were made in SNS and WoS, but were not considered of as much value as oil. UK was dependant on oil imports especially from Middle East which shows the importance of coal mining in the UK. In 1972 there was a coal mine strike and between 1973-1974 the oil crisis emerged. The balance of payments deficit and UK had to go to IMF for bail out. That was the birth of North Sea and UKCS. Geoscience and Engineering was seen as the key science and technologies and practitioner were highly regarded. Numerous discoveries were made, and production climbed and UK became independent on oil and gas.

Professor Underhill indicated that U76tt6K energy mix will need to be transformed. 75% of UK’s primary energy needs are met by fossil fuels. Over 40% of UK’s annual electricity demand is generated using fossil fuels. Solar and Wind are intermittent, and it means cannot rely as source of energy. With regards to UK domestic oil and gas, the size of discoveries became smaller and smaller. UK relies on other countries on oil that are carbon and currently importing oil and gas is needed in UK.

Two old coal-fired plants have begun generating again as the UK expects to see its coldest night of the year so far. Coal-fired plants stoked up in the winter and then again in past few days to keep the aircon going. Around three quarters of UKs total energy is derived from oil and gas. 41% of UKs annual electricity generated by gas. 23 Mn homes rely on gas supplies for domestic heating and cooking. 31 Mn vehicles currently rely on petrol or diesel. The revenue is more than 1bn pounds and supports 196 000 jobs

The Energy transition is one of the key societal challenges, with implications on global, national and local level. There’s a need to decarbonise and reduce emissions at a pace that ensures security of energy supply and alleviates fuel poverty. The move away from fossil fuel dependence is a transition and not cliff edge and there remains a role for oil and gas in the interim. Given Aberdeen’s place as the UK’s oil capital, a lot of jobs and services dependence meaning there must also be a focus on people when making the transition.

The following factors has been regarded as the energy transition themes:

The challenge to decarbonise and reduce greenhouse gas emissions:
Deploying renewable (Offshore wind, geothermal hydrogen, CCUS) Technologies (e.g.to extend the life of mature basins like the North Sea);
Energy security and the role of oil and Gas in the Net Zero World;
Offshore Urban Planning and Regulation;
A just Transition for all.

Professor Underhill indicated that Centre for Energy Transition will only fullfill its potential if it can draw upon strengths in the schools, identify synergies and common interest and add value where overlaps exist or can be recognised.

With regards to funding and training support, Professor indicated that £4Mn has been received from the University’s Development Trust Funding for Early Career Research (ECR) posts and PhDs. The University has raised scholarships for a suite of training programmes (undergraduate courses, taught masters, doctoral degrees) including substantive awards from Shell and Total. An amount of £600k has been received for refurbishment and repurposing of room 118-122.

5.3 Conclusion

In conclusion, Professor indicate that Energy transition is a key Global, National and Regional Challenge. He said Aberdeen University is committed to play its part in supporting the AGCC, industry, academic, Government partners and wider community of stakeholder. The has been numerous initiatives that already exist like (NDR, NESA , Geonet Zero CDT, Just transition Lab etc) and there’s been aspiration to deliver others using the £4mn of Development Fund. The Centre is open to partnership, collaboration and co-design of training and research initiatives.

The Committee engaged with Professor and raised the following issues:

The Committee wanted more information on how UK license and structure tax regime for oil and gas industry.
Members noted that tax burden (i.e 75%) has led to led to lack of appetite to investment with reference to Shell, BP and Exxon mobile.
Members noted that in 2019 there’s been moratorium on fracking in UK whereas SA is looking at fracking as source of energy.
Members wanted to know the required storage capacity for oil and gas.
The Committee noted that UK is also experiencing the grid challenges.
Members noted that there’s been too much pressure to close coal power station not coal mines.

Meeting with North Sea Transition Authority (NSTA)

Mr Aliaster Macfarlane explained the role of NSTA and said that they regulate and influence the oil, gas and carbon storage industries. They help drive North Sea energy transition, realising the significant potential of the UK Continental Shelf as acritical energy and carbon abatement resource. They hold industry to account on halving upstream emissions by 2030.The NSTA takes a lifecycle approach to net zero regulation and a range of regulatory levers. This ensures the net zero is considered at every stage of the development of a field. NTSA analysis shows that the UKCS can make a major contribution to net zero. Oil and gas infrastructure and capabilities can be leverage for CCs, offshore wind deployment and hydrogen transport and storage. They are one of the arms that executes the government's policy in a lot of areas, around net zero, around carbon tax and sewage and oil and gas. Mr Aliaster clarified that they are handling carbon capture and storage, only to offshore and also handles gas storage for the UK as well, so they are dealing with all licences of oil and gas and not an exporter of oil and gas.

UK demand for oil and gas exceeds production from the UK continental Shelf. NTSA analysis shows this will be the case in 2050. Gas from UKCS meets 40% of the UK total gas demand and on average has less than half the carbon footprint of imported LNG. He indicated declining production from the UKCS will continue to contribute to the UK’s energy security.

The role and powers of NTSA on energy transition, was outlined in the Infrastructure Act 2015, the Energy Case Strategy and the central obligations. There are obligations on people to collaborate, so collaboration slows things down, makes things a little bit more complicated, and also made things harder to execute and more expensive. So NTSA pushed collaboration quite hard, they have put in the money to collaborate on decommissioning. He said the way the tax systems has been set up by UK government, they've got to be able to offset the decommissioning, they mustn't get taxed when they still don't spend any carbon.

The UK's got a voluntary agreement between industry and government, called the North Sea Transition Deal, which has a number of stepped reductions in it, and tariff points they need to meet targets. And part of that was to help NSTA to monitor and don’t manage it as such as a voluntary arrangement, but to keep an eye on it. If they feel that activities aren't matching the top, then they going to be knocking on the door and saying, they need to do more on that. The North Sea transition deal commits industry to reduce emissions 10% by 2025, 25% by 2027 and 50% by 2030. Early progress has been made but bold measures were needed to surpass the 2030 target. Emissions from upstream oil and gas operations equated to 4% of UK total. Power generations accounts to 70% of upstream emissions and therefore power electrification is crucial.

The Committee engaged NSTA and raised the following issues:

Members wanted to know who regulates the onshore infrastructure? The refining capacity, the storage, the pipelines, the terminals. NSTA responded that anything that's connected to hydrocarbons, they through that door and they do it. So, they also look after terminals but their actual emissions and stuff like that is local planning for it. Onshore, they regulate oil and gas as well, and they do storage.
With regards to storing hydrogen in their existing storage, Mr Alister responded that hydrogen is quite a tricky gas at the best of times and is a great concern. There's a lot of studies going on what can be done, particularly some of the risks of combustion and transportation. And how it behaves in the reservoir, the leakage concern's going to be different. Just because it held methane doesn't mean it's going to be able to hold hydrogen.
In responding to a question of compliance and monitoring, Mr Alister indicated that they do on-site monitoring inspections, because they’ve got a legislative responsibility. They ask for independent validations as well. Currently, the projects that are mature are not talking about much offshore infrastructure.
With regards to how long does it take to issue storage payments and how do they transport, NSTA indicated most of the rail and rail-to-transport is through pipelines. And they are projecting at a large scale of 4 or 5 million tons per annum.

Meeting with Denby Grange All party Parliamentary Group

The High Commissioner introduced the Chairperson of Denby Grange All party Parliamentary Group for South Africa, Load Oakes and explained that they are a very powerful group in Parliament that depend on lobbying and add a voice in Parliament on anything about
investment and trade. Because it is important for them to be able to have people of Parliament there who can speak on their behalf.

Johhny Oakes indicated that in terms of the transition, one thing that UK really got wrong was not getting the industrial base right. So, UK did not benefit in the sense of, they are one of the world leaders in wind generation, but they are not one of the world leaders in the manufacture of turbines and all the stuff that goes with it. In fact, it's German companies and other companies which had really benefited. Part of energy transition has got to be seeing benefits in those areas, because Aberdeen was a city that became the oil capital of the UK and very dependent on that. And in order to persuade people to stop burning these fossil fuels, one got to persuade them that there are jobs, there's employment, that they get the benefit from. Lord Oakes indicated that he is always conscious in the discussions around coal and he is not hostile to coal He knows what fuelled the UK, and the people who worked in those conditions helped power their industrial development.

The Committee engage with Lord Oakes and raised the following issues:

Members noted that Denby Grange All party Parliamentary Group was doing a lot of good work. However, this group is not exposing itself to what it does. It would be beneficial for the Committee expose itself to all of the committees or to the national parliament in its entirety.
The trip has given some insights into other aspects beyond what the Committee was looking to. The starting point of just energy transition has to be how long does it take and how does South Africa get from where it is now to where it wants to be?
South Africa single biggest problem as a country is that it has the highest unemployment rate in the world, which is about 35% and highest in the world because the economy is stagnant. South Africa economy is stagnant because it does not have security of electricity supply.

Observations

Having conducted the study tour, the Committee made the following observations

The Committee observed that energy transition does not mean that countries must do away with the abundant resources they have.
South Africa is not the only country that experiencing the grid capacity issues, UK has also the problem with grid.
In order to achieve its net zero targets, the UK prioritised gas generation ahead of coal plants. Significant progress is being made towards achieving these targets.
The Mission need DMRE on board to take South Africa to greater heights, to discover its manufacturing potential and its refining capacity.
There is an appetite for investment in South Africa, but investors get discouraged by the licensing backlog and end up going to invest in other countries.

Recommendations

The Committee of Mineral Resources and Energy recommends the following:

The department of Mineral Resources and Energy and the High Commission of South Africa in UK should improve on their communication strategy.
Just Energy transition should happen gradually not just in an instant to ensure that the as much as SA wants to do away with fossil fuels, South Africa needs to Invest in carbon capture storage than to do away with coal which is a base load currently.
The South African government should consider funding on cleaner coal technologies especially the carbon capture storage programme.
Reconvene a follow up meeting through virtual platform with the stakeholders the Committee met in UK together with relevant entities of the department of Mineral Resources and Energy i.e PASA and CGS.

10. Conclusion

The Committee thanked all the stakeholders for engaging with the delegation and sharing of information. The Committee also thanked the South African Embassy for ensuring that the study tour of the Committee was a success.

Report to be considered.

Documents