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West Coast cooking with gas

Prospects for the Ibhubesi Gas Project (IGP) received a fillip after a term sheet agreement with power utility Eskom was secured last month. The IGP is South Africa’s largest undeveloped gas field, located 380km north of Cape Town in Block 2A (a production right that covers a sprawling 5,000km2.)

The IGP – owned 76% by Australian oil and gas specialist Sunbird Energy and 24% by parastatal PetroSA (24%) – is situated in the offshore Orange Basin, approximately 70km off the coast in water depths of 250m.

The term sheet agreement involves the supply of gas from the Ibhubesi Gas Field to the Ankerlig Power Station, situated 40km north of Cape Town. At this stage the agreement is non-binding, but the development does underline the promise of the IGP as a commercial gas producer. The agreement would provide for the supply of 30 billion cubic feet (Bcf) of gas per year to Eskom for a period that could stretch for up to 15 years.

PetroSA Group CEO Nosizwe Nokwe-Macamo said the parastatal was committed to ensuring it played a critical role in seeking solutions to the power challenges that face its sister company, Eskom. Sunbird chairman Chairman, Kerwin Rana said the signing of the term sheet with Eskom was a significant advancement in the commercialisation of the IGP.

“It will have an extremely positive developmental impact while providing a tremendous opportunity for major value growth for all stakeholders including Sunbird shareholders.”

He stressed that the delivery of gas from South Africa’s largest proven gas field provides for a secure, cleaner and significantly lower cost fuel to Ankerlig while assisting in the development of the Orange Basin and the creation of a new industry and much needed jobs. Rana added that the commercialisation of IGP would provide a critical foundation project for the development of an integrated gas economy on the West Coast of South Africa. He reckoned this could feature offshore petroleum exploration and development, upstream/offshore domestic oil and gas production as well as midstream pipeline infrastructure.

Rana said the was also the possibility for the ‘gasification’ of onshore power generation and industry, diesel replacement in existing power stations and more gas fired Independent Power Plants (IPPs.) He argued that the development of the IGP spoke directly to South Africa’s energy “War Room” priorities of bringing energy security and reducing costs through the Five-Point Plan being overseen by Deputy President Cyril Ramaphosa.

“It also supports the Presidential initiative termed Operation Phakisa, which has been established to unlock the economic potential of South Africa’s oceans, with a particular focus on oil and gas development.”

A spokesman for Sunbird reckoned the signing of the term sheet created major value growth opportunities for all stakeholders including Sunbird shareholders (which include significant empowerment investors.) The spokesman added that the supply of Ibhubesi gas to Ankerlig would allow Eskom to realise significant fuel cost savings, while also providing a new and cleaner burning energy supply to South Africa. He said Sunbird had spent more than R1.2bn on the IGP on exploration and appraisals since 2000.

Importantly, the successful development of the IGP would not only see the replacement of diesel as the current feed stock at the Ankerlig Power Station, but perhaps also the development of a 500MW IPP. Either initiative should help to assist a straining Eskom to meet the country’s growing energy needs and bolster energy security.

But there are other benefits from the IGP that could greatly benefit the Western Cape economy – especially since the project is recognised as Strategic Infrastructure Project (SIP5) under the Presidential Infrastructure Coordination Commission. More specifically, though, the IGP will establish the first critical pipeline infrastructure in the Orange Basin, provide significant revenue to the government in the form of royalties, corporate and payroll taxes and create substantial direct and indirect job creation during the construction and production phases.

Of course, there are also balance of trade benefits from the replacement of imported diesel (tagged to the dollar and the crude oil price) with a domestic gas source as well as a marked reduction in greenhouse gas and CO₂ emissions.

The next step for IGP is for Sunbird to progress the non-binding term sheet to a fully termed and binding agreement.

In the interim Sunbird also needs to complete further technical studies to support the subsurface and engineering aspects, and – perhaps more critically – deliver a robust funding plan for project development through strategic investment, partnering and/or project financing.

The spokesman said all necessary environmental permitting approvals were well matured and due for completion by the third quarter of this year.

“Success in all of these endeavours, as per the current project schedule, would anticipate first gas out of the IGP and into the Ankerlig Power Station in 2018.”

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