OIL AND GAS

Wake up, South Africa

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Awareness is key for oil and gas players looking to tap into South Africa’s energy renaissance; the country must raise the profile of its oil and gas industry if the true potential of its massive reserves is to be realised, says Petroplan’s Jacques Rautenbach.


So the poll has been held, and the votes cast. On 7 May 2014, South Africa successfully held its first ‘born free’ election, with the result marking a fifth successive victory for the ruling African National Congress with upward of 60% of the vote.

Energy policy has been a hot button topic for the electorate during the campaign, and for good reason. The country is poised to be a hotbed of activity for the industry over the next half-decade. Offshore, vast tracts along the south and east coasts, as well as within the Orange River Basin, have been licensed for exploration by major players including Petro SA, Forest Oil, Tullow Oil and BHP Billiton.

Onshore, the nation is in prime position to reap the benefits of the global shale revolution, given that South Africa is ranked highly in terms of recoverable shale gas reserves—estimated at approximately 390 trillion cubic feet.

With numbers such as these, it is little wonder that many talk of South Africa becoming a net exporter of energy within the next decade. Few disagree that future prosperity and energy security hinge on exploiting these abundant natural resources, but with the election now over, the practical quandary of just how these lofty
ambitions can be met remains.

Rising costs, rolling blackouts

For most, rising fuel prices are a particular concern. Back in March, the cost of fuel went above R14 per litre for the first time in history. Import prices also hit record highs at the start of 2014, and remain far higher than they were just two years ago.

There is concern over our ability to maintain a stable supply of electricity. A vulnerable power supply means that for many, outages remain a reality.

‘Load shedding’, whereby areas are taken off the power grid on a rotating schedule in order to cope with an imbalance of supply and demand to prevent a total blackout, was first introduced in January 2008 and continued intermittently for several months. This resulted in serious disruption to both our economy and our everyday lives, with people temporarily unable to cook, travel safely, charge their phones, or use household appliances.

Since then, the fear of mass power cuts has remained and, in a case of unfortunate pre-election timing for the ANC, this fear was realised in late February with a resumption of rolling blackouts. In a nation blessed with plentiful natural resources such as fossil fuels and huge economic potential within reach, clearly this
situation is unacceptable.

Yet, natural resources are not worth much without human resources—an adequate supply of the skilled labour required to find, extract and process the reserves. We face a critical shortage of skilled labour in this area at present, let alone with regard to the additional workers who will be needed to support the planned
explosion of activity.

More than $1 billion is to be spent on exploration, with more than 10 companies having been granted exploration licences over the course of the last 18 months. ExxonMobil and Anadarko acquired deepwater rights on the East Coast and BHP Billiton, Cairn India and Sunbird Energy on the West Coast.

South Africa has also been estimated to have the fifth-largest shale gas reserves in the world, and activity in this sector is ramping up significantly after the government lifted its moratorium on shale development in 2012. There is also the planned Mthombo Crude Oil Refinery project, which will be located in the Coega Industrial Development Zone near Port Elizabeth in the Eastern Cape. Once complete, the refinery will process 400 000bpd of crude oil and will be the largest on
the continent.

Plenty of reserves, not enough experience

We are by no means an exception when it comes to having a limited pool of talent from which to draw. It is in part a symptom of a global skills shortage within oil and gas—an acute worldwide lack of staff with 10 to 15 years’ industry experience, thanks to a general freeze on recruitment during the 1980s oil glut.

However, we face an added shortage given our status as an emerging market for oil and gas which has not yet had the time to develop skills domestically. This is evidenced by the relative lack of specific oil and gas training programmes at university level. And while the industry certainly needs more highly skilled engineers, it also needs a lot more tool-pushers, welders and pipe fitters. So it is clear that a rethink of vocational training is necessary if we are to sustain our anticipated level of
development in oil and gas.

Idiosyncrasies in South African labour laws tend to exacerbate the issue. The Constitution affords unions a large degree of power, and industrial relations have historically been volatile and frayed. Again, we are by no means the exception in this respect. The oil and gas industry does not have a union of its own at present (though this is likely to change), but the diversity of its supply chain means it can easily be disrupted by industrial action elsewhere.

Overcoming hiring restrictions

While the skills shortage in the oil and gas industry is a global concern, the biggest difficulties faced in South Africa stem from the restrictions our firms face on hiring from abroad. The Black Economic Empowerment Act places strict quotas on companies, requiring them to hire from the domestic talent pool, specifically from groups considered to be disadvantaged in terms of ethnicity or gender. Even where a role is ultimately filled by, say, a Western expat, the business must ensure it has advertised locally and that no local candidates are
suitable for the role in question.

This is a problem for our oil and gas industry for two reasons. Firstly, we have a modest population (around 53 million) relative to our physical size, and the scope of the exploration and development planned. Secondly, much of this future development lies in deepwater drilling, in conditions similar to offshore fields in the North Sea in Europe and in North America and Canada specifically. Much of the necessary technical skills and expertise we need will ideally have to be imported from these regions. Knowledge transfer, ideally, should be a priority.

Fortunately, there are certain projects in our industry where expats can be recruited, provided that a local recruitment drive has been conducted first. So while black empowerment policies are being implemented and more previously disadvantaged nationals are being recruited into roles, if expats have the necessary skills, they can be used. In addition, there is more training being provided in-country, so this will be less of an issue in the future. For now however, this should be regarded as more of a five-year strategy for the country and our firms, rather than a short-term fix for our oil and gas industry.

The recently passed Mineral and Petroleum Resources Development Amendment Bill is a further consideration. While the intention behind the law—to ensure the benefits of development filter through to the population at large—is noble and admirable, there is a danger that it will hamper foreign investment in our oil and gas industry at what is a critical juncture. In doing so, it may only end up hurting the prospects of the very citizens it is designed to protect.

Nevertheless, the Bill hasn’t yet been signed off, and since it gives the state an automatic 20% stake in new oil and gas exploration and production ventures, as well as the right to acquire an unspecified additional share at an ‘agreed price’, it could be a good bill for South
Africa’s nationals.

Finding a way forward

The challenges faced by South Africa’s oil and gas industry will need to be addressed if the country is to have any realistic hope of fulfilling its ambitions. There is no magic bullet, but reform of labour laws aside, there are various things the government and industry can do (and are doing) to mitigate the problem.

The first is to encourage more sideways hiring from sectors containing similar or related skills. As a nation, we are uniquely positioned to pursue this option thanks to our established, large and prosperous mining sector, which has plenty of overlap with oil and gas in terms of roles (e.g. heavy equipment specialists, hydraulic specialists). This means there are many candidates out there who can make the jump across with relatively minimal training (e.g. an intensive three-month programme as opposed to a two-year one).

A potential barrier, however, is that the oil and gas industry is not very well known in South Africa, so it is important that we look to build awareness of the opportunities on offer. Sideways hiring is happening elsewhere, and we have seen it happen already in South Africa, so the more awareness increases, the more sideways recruiting will happen—particularly as education and training picks up.

At Petroplan, we are seeing a gradual transfer of talent from the mining and engineering industries, and we continue to encourage candidates to consider roles in oil and gas based on skills we identify as being transferable.

The second way in which we can address the skills shortage is to focus on improving and expanding training opportunities, both at entry level and to ‘fast-track’ the development of existing junior workers. Progress has already been made on this front: the government has made training a tax-deductible expense, and major companies are now recruiting 100-200 graduates a year. Students are once again being encouraged to pursue trade skills, and several of our universities are in talks with the UK’s Robert Gordon University with regards developing an oil and gas programme.

Furthermore, the South African Oil & Gas Alliance (SAOGA) is working closely with businesses, schools, universities and government to encourage training through its Skills Programme Office. This encompasses a variety of initiatives such as providing stipends to students training as welders, riggers, pipefitters and other high-demand trade skills. It is also subsidising courses for those current employed in the industry, and working with colleges and authorities to bring local qualification standards in line with global
industry standards.

In addition, SAOGA is working to develop a ‘training cluster’ in Cape Town, with a proposed Oil & Gas Academy intended to provide a comprehensive package of training options.

These are all positive steps, but will take time to come into effect. In the meantime, oil and gas players looking to take advantage of South Africa’s renaissance will need to lean more heavily than usual on third-party workforce specialists able to draw on their global network of industry contacts, while similarly demonstrating a firm understanding of the local culture and labour market.

 

 

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