[NGW Magazine] Sasol keen on Mozambique pipeline

South African fuel and chemicals group Sasol has been in talks about a possible mega pipeline project in Mozambique, to pipe gas from the prolific Rovuma basin in the north of the country. 

This was revealed in an interview with NGW by joint CEO Stephen Cornell, on the fringes of a Johannesburg presentation of the company’s annual results.

“We are interested in gas in Rovuma, in the sense of how we can economically bring Rovuma gas to the south of Mozambique and also all the way into South Africa,” he said.

He said that the conversations which Sasol is having are in their very early stages and they consider the feasibility of Sasol becoming “a large off-taker” of gas.

He said Sasol has had discussions with SA energy minister Jeff Radebe about the project, and the Sasol executive said his group is interested, although any pipeline would need to be “of sufficient size.”

Cornell suggested that such a project would be likely to involve players from both the public and the private sectors. “This could be the next big effort in front of us,” he said. 

“The concept of a long-distance pipeline between Mozambique and SA has been talked about for quite a time,” said Standard Bank oil and gas expert Paul Eardley-Taylor.

“However, were it to happen with the gas owned by the government of Mozambique, it would not start operating until around seven or eight years after first LNG production.

“Why? In the Rovuma Basin, royalties are 2% of gas produced and significant profit petroleum (which can be taken in kind) is only realised after cost gas is materially amortised. 

“We believe that Mozambique, like Norway or Indonesia, has a big opportunity for small-scale LNG from Rovuma. This is likely to happen substantially quicker than any long-distance pipeline.” 

Radebe has expressed his own interest in the mega pipeline project, and discussed it with his counterparts from Mozambique.

Cornell said Sasol is also doing some additional exploration in the south of Mozambique, both onshore and offshore, “on other parcels we have been granted licence to.”

The offshore exploration is in partnership with Italy’s Eni, while Sasol itself is leading the onshore exploration.

Meanwhile, the drilling of a series of development wells in the south of Mozambique is continuing.

Under the so-called production-sharing agreement (PSA) Sasol announced that Phase 1 and Phase 2 drilling activities in the Inhambane province has concluded. In total, 11 wells have been drilled, comprising seven oil wells and four gas wells.

Gas now the focus

Cornell explained that the project is shifting focus from an oil and gas venture to an almost entirely gas-driven one.

“Oil volumes were at the very low end of estimates. So now we are not going to have to build any above-ground facilities for oil. At the processing plant we can process all of the gas and any oil that comes along with it. We are shifting our focus from oil and gas, to gas.”

Of the gas, he said: “Data from the two Temane Phase 1 gas producer wells confirm sufficient gas resources to cover a gas-to-power plant in Mozambique, known as Central Termica de Temane (CTT).

“The timing to drill additional producer wells follows the timing on CTT, and we are in discussions with Electricidade de Mocambique (the gas off-taker) on this. 

“The Phase 2 appraisal drilling results indicate gas volumes to be at the lower end of our initial estimates, and we are assessing commercial options for this gas. The corresponding field development plan will follow commercial definition.

“Focused efforts are underway to assess the range of options and possibilities to sustainably secure and source gas feedstock from Mozambique.” 

In summary, he said Sasol plans to “explore, develop and produce gas in Southern Africa. Mozambique remains a long-term strategic partner to develop and produce gas-to-market. Further and focused exploration is prioritised in the near term.

“A gas to power plant has been prioritised. Its optimal size and capital development is to be determined.”

There is a massive concern in SA about investor uncertainty, driven by confusion over an updated mining charter and fears about land expropriation without compensation. 

“In order to meet the desired objective, more certainty, the higher probability for investment, we are working very closely with new (Ramaphosa) administration. We are very positive about the progress they are making. We look forward to continuing working with them,” said Cornell.

He expressed concern about a new carbon tax, which is due to be implemented in SA from next year, suggesting “ it puts SA at a competitive disadvantage in terms of the industry we are in, and probably many others, in comparison with global competition. As an emerging economy it puts us a bit on the back foot.”

He suggested it will be difficult for South Africa to reduce its dependence on coal and high carbon sources of energy, although more gas will help if it replaces coal.