2 March 2016

South Africa: SacOil One Step Closer to Gas Pipeline From Mozambique to Gauteng

SacOil has signed a cooperation agreement that will result in the construction of an estimated $6bn, 2 600km, large-diameter pipeline to transport natural gas from Mozambique's Rovuma Basin to Gauteng.

Part of the consortium entering the deal with SacOil is the China Petroleum Pipeline Bureau, a Chinese and international pipeline construction company.

SacOil is a South African based independent African oil and gas company, dual-listed on the JSE and AIM, with business operations in Egypt, the DRC, Malawi and Botswana.

The signing of the deal is seen as a major milestone and is in line with SacOil's strategy to become a leading pan African oil and gas company engaged in upstream, midstream and downstream activities.

SacOil CEO Thabo Kgogo told Fin24 on Wednesday that the idea is to investigate building the pipeline from northern Mozambique to Gauteng to supply the market along the route, both in Mozambique and SA.

He said the way the consortium is structured, is first to start with a feasibility study. If the project turns out to be bankable, it will be taken further from a financing point of view.

"For these kinds of studies it typically takes about 18 months until a final investment decision is made. Construction would then take up to three years after that," said Kgogo.

"We think that if we can have gas flow by 2020 it would be great."

In his view the benefit of the project for SA would be to enhance the government's promotion of an energy mix of gas, coal and nuclear. On top of that, gas-to-power is "easier, quicker and cheaper to implement", according to Kgogo and will help with SA's energy shortage.

"Don't forget gas is much cleaner than coal and government is trying to promote cleaner energy. So, from an environmental point of view, gas is also a big plus for the country," he said.

"The project will be dealing with solving the energy crisis and if there is an over-supply of energy, industries can grow and stimulate economic growth."

According to Kgogo, SacOil spoke to a number of companies before deciding to go with China Petroleum Pipeline (CPP). Some of the main reasons include CPP having built a similar pipeline in Tanzania and the fact that it has been in business for more than 40 years as well as having experience in raising funds among banks.

SacOil has also signed a joint development agreement with the Public Investment Corporation (PIC) in 2014, but Kgogo said the PIC will only get involved after the study phase has been completed.

"I am very optimistic. There is a shortage of energy in the SADC region, as well as in Africa in general. Furthermore, one of the reasons for the strain on economic growth is the shortage of electricity and thirdly, we are dealing here with a source of clean energy," said Kgogo.

"I think petro chemical plants could even be constructed in Mozambique with satellite ones in SA and the rest of the SADC. This would promote regional integration. We are hungry for gas, so this is about putting the infrastructure where the market is and I believe the market is here in SA and the SADC."

Source: Fin24

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