1. Energy Security Masterplan – Phase 1 Parliament Portfolio Committee Presentation 18 June 2008

2. 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. 3 Introduction – Masterplan (Phase 1) In the short-term –the Master Plan focuses on developing supply chain solutions to South Africa’s 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

4. 4 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

5. 5 Presentation Outline Energy security framework Energy planning approach Liquid fuels industry short to medium plan –Review of key findings –Proposed interventions Special considerations

6. 6 Energy Security

7. 7 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. 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. 9 Whilst dealing with growth in electricity demand, we need to also worry about replacing existing capacity Electricity supply options

10. 10 Economy “drives” Energy (Oil) 1 st Oil crisis, OPEC 2nd Oil crisis Asian crisis Kuwait war

11. 11 World Oil Reserves Thousand Million barrels

12. 12 Liquid fuels supply issues End of oil will demand a change in how we deal with transport

13. 13 Supply TransformTransportEnd Use Oil Natural Gas Coal Gas Electricity Eskom and Others Coal PetroSA Export Sasol Road/Rail Pipeline Oil Refineries Rail Road Pipeline Liquid Fuels Biomass Wood Person/Road Hydro Nuclear Transmission Wires “Washing” Koeberg RSA primary energy supply

14. 14 Oil Natural Gas Coal 33% 27% 9% Renewables Nuclear 26% 5% Share of World Total History Projections 38% 24% 8% 6% World projected energy use by fuel type (1980 - 2030)

15. 15 World Liquids Production Source: eia March 2007

16. 16 World Liquids Production Unconventional Liquids Source: eia, March 2007

17. 17 Estimated bitumen price netback Light crude oil price quoted in media (West Texas Intermediate) Heavy crude oil price at Hardisty Comparative light, heavy and bitumen crude oil price Source: eia, March 2007

18. 18 Energy Security Framework Energy security is not only about security of supply Energy infrastructure planning Energy security Macro- economic framework Climate change (mitigation & adaptation) Demand management Standards & specifications Local production Reserve margins Diversity of supply Import & Export policies Foreign relations

19. 19 Energy modelling & planning

20. 20 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

21. 21 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 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 Requires

22. 22 Integrated Energy Planning and Modelling Separation of modeling, planning and coordination Decentralised planning by various entities Coordination and integration of such planning done centrally Entity1 2...Entity3 Coordination Entity...Entity n Integrated Energy Planning Policy Options, Strategies Other Factors Unbiased- Modelling GovernmentDepts, SOEs Modelling Agency Individual Policies,Strategies,Plans,Infrastructure

23. 23 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

24. 24 Energy Modelling System (NIEMS)

25. 25 Modelling Scenarios/ Options Policy Decisions Political & Other Factors Integrated Plan Individual Sectoral Plans Energy Planning and Modelling Process Annual Forecasts Political & Other Factors

26. 26 Modelling vs 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 ModellingPlanning

27. 27 Refining

28. 28 Refining Competition for Available Flows Africa FSU North America Latin America Europe Middle East Pacific Asia MT in 2004 RSA Isolated from available flows Petrol 6 19 4 4 25 3 3 Diesel & Jet South Africa is a PRICE TAKER – our level of oil trade is far too small to influence global or regional Crude or Product prices Inter Regional Flows Only Not Intra Regional Flows

29. 29 Key refining issues South Africa has run out of refining capacity

30. 30 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 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 Analysis Graphs Refinery Capacity - Long term supply solutions The impact of new CTL plants on Imports - 100% utilization on Day 1 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 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 Key Issues Source: FSSTT study (November 2006)

31. 31 Ports

32. 32 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 Ports issues

33. 33 Ports issues Ports have adequate capacity until 2025 Berth Capacity at 1500 m3/hr [Ship Dependant] Discharge Rate ~ 9 ships per week

34. 34 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

35. 35 Fuel Storage

36. 36 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 OCGT’s –Diesel fuel demand can increase six fold from 5% load factor to 30% load factor

37. 37 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

38. 38 Inland supply

39. 39 Inland supply – short term pipeline issues Pipeline capacity

40. 40 Analysis Graphs * 4.5% growth and excludes jet by rail to ORTIA 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 Source: FSSTT study (November 2006) Inland supply (road & rail)

41. 41 Inland supply – real rail issues

42. 42 Inland supply – real rail issues

43. 43 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

44. 44 Inland supply – beyond 2010

45. 45 Inland supply – beyond 2010 The approval of the NMPP is the most critical project for the liquid fuels industry –Some changes required to Petronet’s design –Cannot leave the approval process to external processes

46. 46 Pipeline sizes costs

47. 47 Current state of affairs Current growth in demand for petroleum products used for electricity generation is unsustainable Potential diesel shortages

48. 48 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

49. 49 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

50. 50 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

51. 51 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 Petronet’s 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

52. 52 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

53. 53 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

54. I Thank You