Energy Security Masterplan

1
Energy Security Masterplan Phase 1

• Parliament Portfolio Committee Presentation
• 18 June 2008

2
Introduction - Energy Masterplan

• Developing an integrated energy Masterplan in 2
  phases (electricity and liquid fuels)
• Some issues in liquid fuels sector could not wait
• Phase 1
• Energy Security framework
• Energy planning approach
• Liquid fuels short to medium plan
• Phase 2
• Presented in October 2007

3
Introduction Masterplan (Phase 1)

• In the short-term
• the Master Plan focuses on developing supply
  chain solutions to South Africas liquid fuels
  supply challenges, management of liquid fuels
  demand and emergency response tactics.
• In the medium to long-term
• the approach is broader and begins to integrate
  supply, demand, macroeconomics, geopolitics and
  climate change

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Introduction Masterplan (Phase 1)

• The Masterplan seeks to allow for the making of
  well-informed choices in respect of energy
  supply, energy carriers, demand sector
  strategies, as well as energy transformation
  approaches, cognisant of the need to minimise
  negative impacts on the environment and the
  economy

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Presentation Outline

• Energy security framework
• Energy planning approach
• Liquid fuels industry short to medium plan
• Review of key findings
• Proposed interventions
• Special considerations

6
Energy Security
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Energy Security - definition

• Energy security means ensuring that diverse
  energy resources, in sustainable quantities and
  at affordable prices, are available to the South
  African economy in support of economic growth and
  poverty alleviation, taking into account
  environment management requirements and
  interactions among economic sectors.

8
GDP loss due to fuel supply interruptions

• Based on 2005 terms, South Africa would lose R925
  million per day if there is no fuel

9
Electricity supply options

• Whilst dealing with growth in electricity demand,
  we need to also worry about replacing existing
  capacity

10
Economy drives Energy (Oil)
1st Oil crisis, OPEC
Kuwait war
2nd Oil crisis
Asian crisis
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World Oil Reserves
Thousand Million barrels
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Liquid fuels supply issues
End of oil will demand a change in how we deal
with transport
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RSA primary energy supply
Supply
Transform
Transport
End Use
Oil Refineries
Rail Road Pipeline
Liquid Fuels
Oil
Natural Gas
PetroSA
Gas
Pipeline
Sasol
Export
Road/Rail
Washing
Coal
Coal
Eskom and Others
Electricity
Transmission Wires
Hydro
Koeberg
Nuclear
Biomass
Wood
Person/Road
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World projected energy use by fuel type(1980 -
2030)
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World Liquids Production
Source eia March 2007
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World Liquids ProductionUnconventional Liquids
Source eia, March 2007
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Comparative light, heavy and bitumen crude oil
price
Light crude oil price quoted in media (West Texas
Intermediate)
Heavy crude oil price at Hardisty
Estimated bitumen price netback
Source eia, March 2007
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Energy Security Framework

• Energy security is not only about security of
  supply

Local production
Foreign relations
Reserve margins
Climate change (mitigation adaptation)
Energy infrastructure planning
Energy security
Standards specifications
Demand management
Diversity of supply
Macro-economic framework
Import Export policies
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Energy modelling planning
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The proposed energy modelling planning
approaches

• Provision of high-quality, energy information, in
  a manner that promotes sound policymaking,
  efficient markets and public understanding, to
• Cabinet
• National, provincial local governments
• Markets
• the public
• Meeting of this challenge requires
• Adoption of transparent approach, methodology and
  presentation of results
• Avoidance of developing or advocating positions

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Integrated Energy Planning and Modelling

• Provision of high-quality, unbiased energy
  information, in manner that promotes sound
  policymaking, efficient markets and public
  understanding, to
• Cabinet
• National, provincial local governments
• Markets
• the public

Requires
Requires
Planning An integrated planning approach is to
ensure that all the constituting elements are
addressed in a coordinated manner
Modelling An integrated energy modeling
capability which would be instrumental in the
development of energy plans and evaluation of
options that are proposed by policy-makers
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Integrated Energy Planning and Modelling

• Separation of modeling, planning and coordination
• Decentralised planning by various entities
• Coordination and integration of such planning
  done centrally

Coordination
Integrated Energy Planning
Policy
Other
Options
,
Factors
Strategies
Unbiased
-
Modelling
Modelling Agency
Government
Depts
,
Entity
1
Entity
2
Entity
...
Entity
3
Entity
...
Entity n
SOEs
Individual Policies
,
Strategies
,
Plans
,
Infrastructure
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The modelling process

• Collect, compile and publish reliable energy
  data, information and analyses
• Produce short and medium-term energy projections
• Analyse impact of proposed energy programs and
  policies
• Prepare reports on energy issues and legislation
  for Cabinet
• Prepare special analyses on energy issues and
  legislation for the Minister
• Prepare special analysis for policy making
  departments

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Energy Modelling System (NIEMS)
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Energy Planning and Modelling Process
Annual Forecasts
Modelling
Scenarios/ Options
Policy Decisions
Political Other Factors
Political Other Factors
Integrated Plan
Individual Sectoral Plans
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Modelling vs Planning
Modelling
Planning

• Should be descriptive and policy-neutral (i.e.
  avoid policy advocacy)
• Modeling should, as a basis for the development
  of energy plans, be undertaken in such a way as
  to use
• prevailing policy,
• legislative arrangements,
• proven or almost proven technology or industry
  structural conditions

• Is essentially prescriptive, and not
  policy-neutral.
• Involves deliberate policy choices, which may go
  beyond empirical evidence
• Should be about handling of sometimes conflicting
  objectives

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Refining
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Refining Competition for Available Flows
FSU
North America
Europe
Pacific Asia
Middle East
Africa
Latin America
Inter Regional Flows Only Not Intra Regional Flows
MT in 2004
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Key refining issues

• South Africa has run out of refining capacity

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Refinery Capacity - Long term supply solutions
Analysis
Graphs

• In order to meet demand a new 85000 BPCD CTL
  plant is needed every 3-4 years
• If we relied on a 200000 BPCD crude refineries,
  two refineries can be absorbed.
• Prior to investments in new capacity, significant
  imports are expected

The impact of new CTL plants on Imports - 100
utilization on Day 1
Key Issues

• High imports are still periodically required if
  one assumes start-up coincides with 100
  utilisation
• Refinery economics improve with high initial
  utilisation
• Government might have to incentive CTL/GTL to
  minimise Balance of Payment concerns

Source FSSTT study (November 2006)
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Ports
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Ports issues

• Initial analysis indicated problems at the ports,
  but further indicates
• inadequate interconnections between industry
  facilities and berths
• In adequate discharge and loading rates in the
  system
• Discharge and loading rates much lower than those
  of vessels and berth loading arms
• Not all oil companies have access to all berths
• Berth 9 only - Sasol and Total
• Berth 7 and 8 - Shell, BP and Engen
• Management of unplanned incidents
• Significant volumes when ship cargo is offspec
• Limited ability to move product out of Durban

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Ports issues

• Ports have adequate capacity until 2025

Berth Capacity at 1500 m3/hr Ship Dependant
Discharge Rate 9 ships per week
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Ports proposed interventions

• Oil vessels should be afforded as high a priority
  as container vessels
• The use of the back of port tanks for anything
  other than offloading and loading need to be
  prohibited
• Back of the port should be operated by an
  independent player
• TNPA has to address concerns raised by industry
  participants with respect to the current lease
  agreement held by the various oil companies
• DME to provide regulatory certainty

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Fuel Storage
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Storage issues

• Inability of most storage facilities to receive
  the large pipeline parcels
• New pipeline capacity expected to exacerbate the
  situation
• Further depot capacity required for
• Strategic stock (60 days crude and products)
• Commercial stock (28 days)
• Most airports operating at maximum five days
  stockholding versus 30 days global best practise
• Fuel stock holding for Eskom OCGTs
• Diesel fuel demand can increase six fold from 5
  load factor to 30 load factor

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Proposed storage facility interventions

• Enforce the stock holding by all customer groups
• Ensure that consumers pay for the stock holding
  costs
• Include unregulated commercial consumers
• Correct past inequities
• Complete review of petroleum pricing framework
• Limit cross subsidisation all customer groups to
  pay for their own insurance

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Inland supply
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Inland supply short term pipeline issues
Pipeline capacity
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Inland supply (road rail)
Graphs
Analysis

• At present 25 of the non-pipeline product
  moved inland is by rail
• Only 30 of deliveries are for coast to inland
• Unless inland rail transport is increased, more
  than 10 road tankers per hour will have to leave
  Durban for inland in 2010

4.5 growth and excludes jet by rail to ORTIA
Source FSSTT study (November 2006)
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Inland supply real rail issues
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Inland supply real rail issues
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Inland supply - Proposed rail interventions

• Operational improvements to alleviate potential
  congestion along the supply chain, through
• Consolidation of the route tankers and route
  substitution
• Switching to block trains/ block loads thus
  exiting inefficient routes
• Turnaround time improved from 14 days to 4 days
• Re-allocation of capacity to the Durban-Gauteng
  corridor
• Additional costs to be borne by Oil industry
• Investments in rail sidings
• Weekend and overtime work

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Inland supply beyond 2010

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Inland supply beyond 2010

• The approval of the NMPP is the most critical
  project for the liquid fuels industry
• Some changes required to Petronets design
• Cannot leave the approval process to external
  processes

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Pipeline sizes costs
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Current state of affairs

• Current growth in demand for petroleum products
  used for electricity generation is unsustainable
• Potential diesel shortages

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Inland supply proposed pipeline intervention

• Expedite approval and implementation of the NMPP
• Implement split tariff approach
• Direct usage tariff levied on all users
• Initial reserve capacity financed through
  security of supply levy on all product
• Raise required state equity participation through
  dedicated levy

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Summary of recommendations of phase 1 Masterplan

• Manufacturing of petroleum products
• Recommend promotion of local production of
  petroleum products
• Recommend that at least 30 of products be
  manufactured from indigenous raw materials
• Climate change be considered an important
  component of integrated energy planning
• Will require data collection and climate change
  monitoring
• Alignment of our fuels specification and other
  standards (including housing and building
  standards) to global standards

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Summary of recommendations of phase 1 Masterplan

• 30 of all crude consumed in South Africa be
  procured through PetroSA
• Policy of limited imports of petroleum products
  be re-endorsed
• Energy efficiency be strongly promoted in all
  energy consuming sectors of the economy
• The energy demand management approach should
  include appropriate selection of energy carriers
• Demand management requires appropriate demand
  sectors strategies, starting from the industrial
  strategy through to appropriate transport
  strategies
• Level of coordinated infrastructure investments
  planning

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Summary of recommendations of phase 1 Masterplan

• Keep certain levels of strategic stocks
• Airlines to be forced to keep certain stocks
• Eskom to keep stocks for OCGTs
• Approve Petronets new Multi Product Pipeline
  project
• In the short term, rail should be operated in
  block train format, so as to improve rail turn
  around times
• Also prioritise Durban to Gauteng route

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Summary of recommendations of phase 1 Masterplan

• The management of the back-of-the-port
  operations should be run by an independent
  operator
• Most importantly, South Africa must build
• an ability to develop properly thought-out energy
  plans
• a tool to evaluate proposed energy related
  policies

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Overall Project Status

• Consultants appointed to manage overall
  implementation of programme in September 2007
• Initial briefing meeting with oil industry
  executives in December 2007
• Governance structure formalised
• Project kick-off workshop in December 2007
• Key deliverables identified
• Task teams for each stream identified
• High-level steering committee in March 2008
• Accession to PDR
• Follow up project workshop in March 2008
• Task teams for each workstream formalised
• Task-team project meeting currently in progress
• Detailed implementation schedule from each task
  team due end May 2008
• Ongoing implementation and monitoring

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I Thank You