Johannesburg - Listed oil and gas company SacOil announced this week that it had signed a co-operation agreement with various firms for the construction of a $6 billion (R94bn) 2 600km pipeline to transport natural gas from Mozambique’s Rovuma Basin to Gauteng.
The lure of long-term cash flow attracted SacOil to Mozambique’s growing gas market. Chief executive Thabo Kgogo said yesterday: “We saw an opportunity to develop gas infrastructure. Without infrastructure, the gas is just sitting there.”
Read: SacOil looks at Mozambique, Egypt
Other signatories to the agreement are Mozambique’s national oil and gas company, Empresa Nacional de Hidrocarbonetos; a Mozambique private sector consortium, Profin Consulting Sociedade Anónima; and Chinese pipeline construction company China Petroleum Pipeline Bureau.
Johan Muller, a programme manager at Frost & Sullivan, said yesterday that the gas market in South Africa, Mozambique and other African countries was rapidly opening up to the introduction of independent power producers (IPPs).
He said although Mozambique had substantial gas reserves, the current deflated gas price, and global energy landscape, was counting against the projects coming online faster, coupled with a lack of policy ensuring investor confidence.
“However, we are seeing projects progress in the absence of an IPP office and also with (Mozambique power utility Electricidade de Moçambique) being faced with liquidity and solvency problems. The first large-scale 175 megawatts gas-fired power plant, Central Termica Ressano Garcia, was inaugurated in 2014 to be fuelled by natural gas produced in the Pande fields.
If the local Mozambican market demands it, then it is expected that gas projects will be used to supplement the traditional hydropower stations,” Muller said.
SacOil is looking for opportunities in the South African downstream sector, as it searches for stable and sustainable sources of revenue.
The downstream activities refer to sale and distribution of natural gas and products derived from crude oil.
“The focus is on South Africa. As you know, independent oil companies dominate the South African downstream market. We have begun discussions with some of them,” Kgogo said.
Major oil companies Engen, Caltex, BP, Shell and Total dominate the South African fuel retail market.
In what could be the start of a trend, Chevron Corporation in January announced plans to sell 75 percent of its South Africa business, which owns a network of Caltex service stations and a 110 000 barrels-a-day refinery in Cape Town. “It is something we would look at. But their process is still in early stages,” Kgogo said.
Sniffing around
SacOil’s sniffing around for downstream assets stems from the company’s pragmatic approach, which is underpinned by a desire to add cash generating assets to its stable, even if these are in low-margin environments such as fuel retail. “At least with downstream assets you have cash flow and stability,” Kgogo said.
In 2014 SacOil, which is listed on the JSE and AIM in London, changed its focus from the expensive and long-term exploration to income-generating production.
SacOil shares were unchanged at 30c on the JSE.
BUSINESS REPORT