Boston, MA -- (SBWIRE) -- 04/12/2013 -- BMI View: Rumours abound that the traditional refinery operators in South Africa could abandon the country in the face of huge investment in capacity to meet higher fuel specifications. Plans by the country to build a large new refinery are also causing concern, so the outlook for the downstream segment is uncertain. The state looks likely to allow drilling for shale gas to proceed, unlocking considerable upstream potential - although local resistance is set to continue.

The main trends and developments in South Africa's oil & gas sector are:

In September 2012, South Africa's Cabinet has announced the end of a temporary ban on fraccing, which had been in place since April 2011. Bundu Oil & Gas, Chesapeake Energy, Chevron, Falcon Oil & Gas, Sasol, Shell and Statoil are among the players actively pursuing the development of shale gas in South Africa. The government's decision will move the process forward, with public consultations the next step in an ongoing process to develop the country's unconventional gas reserves. Environmental groups have responded to the government's decision by confirming they will file a lawsuit to prevent any actual production of shale gas, but Shell has said that following the government's latest decision first gas from shale would be possible by 2015.

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South Africa has limited oil reserves of just under 15mn barrels (bbl), according to BMI's 2012 estimates. We expect this to decline over our forecast period, with just 13.4mn bbl expected in 2022. However, BMI expects liquids production to increase from an estimated 183,300 barrels per day (b/d) in 2012 to 288,500 in 2022.

Consumption of crude is forecasted to rise steadily over our 10-year forecast period, broadly in line with GDP growth. We anticipate that domestic demand will rise from an estimated 618,000b/d in 2012, to hit 788,500b/d in 2022.

A significant share of this consumption will be met with synthetic fuels (synfuels) derived from coal-toliquid (CTL) and gas-to-liquid (GTL) processes. Local company Sasol owns the 160,000b/d CTL Secunda plant and state-backed PetroSA operates the 45,000b/d Mossgas GTL facility, which combined add nearly 205,000b/d to domestic liquids production. Sasol has plans to expand Secunda by another 30,000b/d and has proposed to build the 80,000b/d Mafutha plant. As a result, we expect synfuels production to grow from an estimated 160,000b/d in 2011 to 258,000b/d in 2022.

Although there is the potential to source gas from the Orange basin and the onshore shale formations in the Karoo basins, we believe it is too early to adopt an overtly optimistic stance. As regards the Orange basin, we believe that the development of gas production could grow much faster and we estimate South Africa to have produced 3.5bn cubic metres (bcm) of gas in 2012. We forecast that this will increase significantly over our forecast period, reaching 7.1bcm by 2022.

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