An interview with Petroleum Agency South Africa CEO, Mthozami R. Xiphu

The petroleum industry is one of the few sectors that has been unaffected by the recession, as consumers rely so heavily on petroleum for their everyday commute to work and back. Shipping is no different, and there would be no industry without the continual supply of fuel – recession or not.

The role of the Petroleum Agency SA (PASA) is to ensure we have a sustainable supply of fuel as scientists search out new areas for consumption.

Designated in terms of the Mineral and Petroleum Resources Development Act, PASA promotes exploration for onshore and offshore oil and gas resources, and the optimal development thereof on behalf of the government.

The agency regulates exploration and production activities, and acts as the custodian of the national petroleum exploration and production database.

Though, of late, there has been much controversy surrounding the proposed hydraulic fracturing for gas in the sensitive Karoo Basin, and it is the job of PASA – led by learned chief executive officer Mthozami R. Xiphu – to decide the viability and environmental sustainability of such an operation, which could change the face of the South African economy, not having to rely on exports for unstable countries.

There is increased lobbying in the area with locals raising concern over the long-term ramifications of the proposal, as large companies such as Shell queue up for exploration rights – to have pole position if the area is ever opened up for business.

Xiphu has the unenviable task of weighing up the environmental costs versus profit for South Africa.

I caught up with him at PASA’s lavish office in Cape Town, for an insider look at the workings of the agency, and an intriguing chat about the sensitive Karoo Basin debate and the viability of offshore exploration.

What background do you have in business?

I have a legal background in freight and law, but I have also worked with the Department of Minerals and Energy. So that’s the angle from which I come into this industry. I was director of legal services at the Department of Minerals and Energy at the time.

I’m not a geologist, or any other geoscientist.

Is PASA stuck in the middle between the private sector and what the government desires?

We are solely independent as a parastatal, but at the end of the day, we have to advise the minister (of Mineral Resources), but we work with the industry and work in terms of international standards.

But the other side of (being a) parastatal is that we are a state institution and look out for the interest of the government.

What have been some of the trials and challenges during your tenure as CEO at the agency?

The biggest challenge that I thought we would have, is promoting a country that is not known to be well-endowed with oil and gas. My personal challenge was to catch up as quickly as possible with the very basics of what the agency – from a scientific and geoscientific perspective – has to do.

We were not in Angola or Nigeria, and we have to attract companies to come invest in South Africa, which is a challenge.

How we meet the challenge is with the scientists we have.

It would be resource evaluation (at the forefront) here, and looking at the prospectivity of the country and selling that, saying: “There is prospectivity. Do come and invest.”

That’s our mandate on the one hand; on the other hand, we have to say: “As you invest and as you operate, you must operate responsibly in terms of a number of things – responsibly in terms of the laws of the country, in terms of the desires of the country.”

There is promotion of the historically disadvantaged to get them to see how far they can be brought on board, both from the mineral perspective and even in this industry; of course, the biggest one is black economic empowerment.

Responsibility to the environment is vital, too; you must, whatever you do, be sensitive to it and put out programmes beforehand that will ensure there is minimal environmental impact. Even after that impact, that you assure us with guarantees that in the event of any degradation, there will be sufficient resources.

So we will want those guarantees up front, and before there is any closure, we must be sure that there has been rehabilitation of the environment. Of course, that will differ from onshore to offshore but, certainly, those are the challenges that this organisation must see to.

Because, as people would put it, how do you attract people and desire to have them successful and yet be the policeman at the same time?

How do we rate internationally in terms of environmental awareness in this sector?

I think we rate very highly. If I can look at one aspect of that: many countries out there will not even require your environmental management plans up front before the licence has been granted.

South Africa is quite sensitive about that.

We will not grant you a licence; in fact, that may very well be the deciding factor, if you do not meet our environmental management standards. That is the end of your application. We are quite strict on that, and I think we rate among the highest.

What is your take on the controversy surrounding the Karoo Basin?

The story behind that is an environmental issue. The fears that people have, are that hydraulic fracturing involves a loss of water. The people out in the Karoo are saying, “Where are you going to get the water from? Are you going to exhaust the little water that we have?”

Their latest question is, “Even if you do bring the water, what’s going to happen to the little water reservoirs we have, the underground water? Are you going to contaminate those?”

Those are the basic questions because South Africa has zero history of a project of this size, with hydraulic fracturing – this is a fairly new technology from the United States.

At the moment, some of the people are saying: “Well, there are quite a few counties and states in the United States that have put a moratorium on hydraulic fracturing, so why don’t we do the same?”

Of course, there are many states that are producing as you speak, otherwise the US would not be as it is without gas.

The other bit of it is the moratorium that the Minister (of Mineral Resources Susan Shabangu) has put out and which came at a time when some of these groups, including the Democratic Alliance as a political party, said there should a moratorium on hydraulic fracturing periods until there is absolute certainty about the danger it poses and the
mitigation measures.

Of course, the moratorium that has been put out has nothing to do with stopping hydraulic fracturing per se. It has everything to do with ensuring there is proper governance of the applications process, given the number of applications and the number of expressions of interest we have received for that area. That’s what, generally, licensing by indication around the world is used for.

Is it a viable project?

Yes, in my opinion, based on the potential and estimates that you do hear about. My opinion would also be formed by the fact that we have companies such as Shell interested – your big companies.

There is possibly a good cost benefit outcome to it, in the sense that we have to look at the cost in environment. It is our responsibility as the regulator, and we have to balance that in our recommendations to the minister with the benefits for the country which may come out of this.

At the moment, we rely on coal; gas would cut down significantly our carbon footprints, and any local input will make us less dependent on the importation of fuel from the Middle East.

There needs to be a good balance. It’s not good when we ignore the cost and you just look at the benefits, but neither is it good to just look at all the negatives and the cost without considering the benefits. A good, sober cost analysis has to be applied.

That’s where we stand because we have responsibilities on our side.

How much land would be affected?

Well, the southern Karoo Basin probably covers some 200 000 square kilometres, and just the application by Shell is in the region of about 90 000. So we are looking at over 200 000 square kilometres.

Of course, the geoscientists will be looking where exactly the areas are. They will have to zero in and identify; they start off with a huge TCP (technical co-operation permit) area and study it.

This is also good for us – just the data that comes out on the area is good enough. We need that: we need to know our country, the geophysics of our country.

So yes, it’s a big, very big area, but what will be granted will not necessarily be what they are looking for.

So you have a really fine balancing act then?

Precisely.

How would you rate the success of Mossgas over the years?

It has been sustaining itself up to now, but we know that those are not huge fields that are going to take us very far into the future. They are in decline at the moment.

So we are really looking into the West Coast, into the onshore, to give us that gap and the oil that will take over from the Mossgas field.

Has the recession affected the amount of petrol being consumed?

Well, in South Africa, people are using the same amounts as before. From our perspective, we have not seen any impact.

We did not have fewer applications because of the recession. We had much interest, which has continued.

Would you ever look at other forms of energy, besides oil and gas?

The country is doing that as I speak. Our responsibility is oil and gas. The government certainly has a number of experiments as we speak, within energy and other resources, but that’s not within our mandate area as the Petroleum Agency.

How sustainable is offshore exploration?

Offshore has quite high carbon emission. Gas is a green thing, it really does have much less carbon emission in comparison to other kinds of fuel, but it’s considered a very useful resource.

Wind and solar are not reliable, you can’t run your panel 24/7 – but gas is very reliable. You turn it on, you turn it off.

For South Africa, the excitement lies in that we think we’re coming in to test quite a few bigger resources than we’ve ever tested before. International companies have interest in us, in a time of recession.

What challenges face the industry going forward?

The biggest challenge is the environment, issues around environmental management – it’s the environmental awareness. There is growing environmental awareness internationally, including South Africa.

We come from a background where there has been very little regulation; from asbestos, to all the ills that we’ve gone through. Internationally now, there is much, much more environmental preservation consciousness.

That (lobby) is growing in South Africa. There’s an article, I think in the Cape Times, about the lobby growing in the Karoo against hydraulic fracturing. I think it’s all part of the general environmental awareness you find right around the world.

Now, the challenge that the industry faces is, firstly: to ensure it is not reckless with producing and exploration, which has happened in the past; and secondly: to assure us as regulators and people out there that it will, in fact, be responsible.

It’s not about perception, it’s about whether it can really find ways of ensuring we don’t have acid water and all kinds of water contamination because it’s something we care about.

In fact, the department is worried right now in Gauteng, about the contamination of water. So that’s the challenge the industry faces: the perception, and ensuring there is no contamination. Of course, there may be costs connected to that.

That’s what (the industry) must face to ensure it leaves a healthy footprint.

Gregory Simpson