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The most astonishing part about this hugely bullish keynote to the BizNews@10 event, is that it was delivered by a politician who has no inventive to talk up the country’s immediate economic potential. James Lorimer is the official opposition’s shadow minister of Mineral Resources, and hot favourite to land the portfolio’s cabinet position should the Multiparty Charter for SA prevail in the 2024 national election. Yet here he is, telling the BizNews tribe that a massive oil and gas resource is about to be unlocked, catapulting the country’s economic prospects. I guess his journalistic background kicked in – news as good as this simply cannot be kept under wraps. – Alec Hogg
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The edited version of DA Shadow Minister James Lorimer’s keynote address to the conference celebrating the 10th anniversary of BizNews.
I sit on the Mineral Resources and Energy Portfolio Committee in Parliament. What the DA did was to divide the portfolio in two, realising that energy was as much as one person could humanly take. So that’s been given to a colleague of mine, which is why I’m probably relatively more relaxed than I would otherwise be if Eskom was my problem. My problem, however, is when stuff is in the ground – all the mineral resources, and oil and gas that’s in the ground.
At the end of April this year, I wrote an article about the largely unreported goings-on in the oil and gas industries in South Africa and its neighbours. It’s an extraordinary story, which, as I’ve said, has not received the media attention that it should have. I’m going to start by recapping what I said there. The main takeaway from the story was that South Africa has a significant oil and gas industry under development. There is huge potential. And if we play our cards right – and by we, I’m largely talking about the government – we could have a resource find on our hands that will echo the great resources finds in the past, like the Kimberley Diamonds field, the Witwatersrand Goldfields, the Witbank coalfields, and the Bushveld Igneous complex. That’s an optimistic, even wildly optimistic take. But then I do rub shoulders with miners, and miners are always optimists. But I think if you listen to this, you may agree with me.
So the first piece of evidence is provided by the offshore discoveries on the Namibian coast, the southern Namibian territorial waters just kilometres away from South African territorial waters, and part of the same Orange Basin geological feature. Just over a year ago, both TOTAL and Shell, what are called super majors, the biggest of the oil companies with the most sophisticated offshore drilling capabilities, have sunk multiple successful oil and gas wells. Total has two rigs drilling its first well. The Venus has been appraised by a well drilled 13 kilometres from the first but in the same field and, according to a source, has lived up to its considerable expectations. That shows the field isn’t small. It is producing at the same rate that the second wave is producing at the same rate as the first field. CEO Patrick Pouyanne says Namibia is a priority for the company. He says the appraisal drilling on the Venus find was very positive. He said, “I can tell you the oil column is very big.” The company aims to start flow testing offshore Namibia this month and in September; at the end of September, we’re expecting a comprehensive update from Total. Probably Shell will give one at the same time about exactly how much they reckon they’ve found.
So onto Shell, which has drilled not far away. It’s calling its successful wells after the great and famous African diamonds. So far it’s drilled the Graff, the La Rona, the Jonker and the Lesedi, and the Cullinan well is being drilled right now. Shell’s CEO says the company has drilled four exploration wells and an appraisal in a short period. And just as an indication of how good these efforts have been, when you’re looking for oil offshore, you usually have a success ratio of maybe one in ten. Both these companies have hit every time they’ve drilled. It’s a good sign. So there’s a reason that Namibia is currently considered one of the two hottest offshore oil drilling destinations in the world. All of this seems to support the belief and the early estimates that the oil field we’re talking about contains some 5 billion barrels of oil. That’s wonderful news for Namibia. And one prediction I found gobsmacking was that in about ten years, the Namibian government’s receipts from oil and gas will be about the same as those of Norway. If progress continues at the rate that it is now, both Venus and Graff will be producing oil and gas by 2028.
So that’s Namibia. What about us? Well, the good news is, through a quirk of the sea border, the closest landfall to the wells is actually South Africa, because the sea border goes in as an angle following the line of the Orange River. So where they’re drilling, you go to the nearest shoreline, and that would be around Oranjemund. The key thing, though, is that they are in the same geological feature, the Orange Basin. Now, the Orange Basin stretches all the way down the coast to south of Cape Town, and there’s a sort of sub-basin there as well. Serious geologists tell us that there’s a very strong chance of finding oil all the way down the basin. That means in South African waters, in considerable quantities too.
So TOTAL has exploration rights in this area down south, stretching from Saldanha to far south of Cape Town. And it’s so confident that there is oil there that it is intending to drill what they call a wildcat oil well sometime next year, south of Cape Town. They reckon they’re going to find oil. And when I say confident, bear in mind that these wells, which are incredibly technically complicated, can be a couple of hundred kilometres offshore and over a couple of kilometres of water, cost about half a billion rand to sink just one. So when those guys are guessing, you better be certain that they know what they’re talking about. But it is a big gamble unless you have that expectation that you’re going to find something profitable.
So rough expectations for the total West Coast oil fields are something around 10 billion barrels of oil. And listen to this one: 50 trillion cubic feet of gas. The best way to deal with the oil when it’s that far out at sea is to put it directly onto a tanker and take it to whatever oil refinery in the world is most appropriate. What happens to the gas, though? The best thing to do is probably to pipe it to shore. It is technically complicated and expensive to put gas onto a tanker to carry it around the world. Profitable, but complicated. But once you have it on shore, if you’re going to use it onshore, the best way to use it is to make electricity.
So there’s a strong possibility that there will be onshore gas available in southern Namibia and, in a couple of years, perhaps South Africa too. Wouldn’t that be nice to have gas-fired electricity at port? Not as or arrangement or litter. The one thing I find difficult to get my head around is how to quantify gas. What’s a trillion cubic feet? Consider Mossgas, which you’ll remember was set up in the 1980s to make liquid fuel out of the shallow gas fields off the coast of Mossel Bay. It produced tens of thousands of barrels of fuel a day on 1 trillion cubic feet for more than 20 years.
So, we’re talking 50 trillion cubic feet off the West Coast. Put it another way, 1 trillion cubic feet of gas could create a thousand megawatts of electricity for 25 years. That’s the West Coast. Let’s move to the discoveries that have actually been made in South African waters further off Mossel Bay. They call it the Paddavissie fairway, the Brulpadda and Luiperd discoveries by TOTAL. These are currently going through the process of obtaining production licences and are estimated to contain combined reserves of 3 to 4 trillion cubic feet of gas and a billion barrels of oil.
Dr Phindile Masangane, the chief executive at the Petroleum Agency of South Africa (which licenses oil and gas drilling), has said that development of the Southern Cape Field alone could contribute up to $457 million per year to South Africa’s government revenues. These aren’t the only offshore oil resources that oil companies are interested in off the East Coast. An Italian major oil company was interested in looking but gave up on their acreage after challenges by green groups. They found easier opportunities in Mozambique, so they moved off.
The charge is sometimes made that big international oil companies will exploit our resources and take all the profits overseas. But that’s not true. Roughly 60% of the earnings from a barrel of oil go to the government through taxes, royalties, and state ownership. This would be a substantial addition to state revenues, especially needed since South Africa’s finances are in a terrible state.
Offshore is a great story, but fewer people know about onshore gas. Companies like Renergen and Kinetico have been successful, with the latter drilling 40 holes and finding gas in every single one. This gas is payable and relatively shallow. It has a potential life of 12 to 30 years, with another 5 trillion cubic feet expected. The location of their resource is close to South Africa’s power-producing heartland, making it easy to transport and use.
Then there’s shale gas, very controversial and with large estimated reserves. It’s unlikely to happen quickly, with commercial viability still 6 to 7 years away. The ten-year delay has allowed us to observe fracking in the United States and set proper safety standards.
The potential of our oil and gas fields could be threatened by two possible issues. First, if the government mishandles the legislation again, as it did in 2014. The Upstream Petroleum Development Act is currently before Parliament, and its passage will be crucial. The second potential threat is from Big Green, internationally funded anti-development groups that often challenge drilling or seismic applications.
South Africans must decide whether they want development or not. If so, it can be boosted by South Africa’s mineral endowments, including fossil fuels. Renewable energy is with us to stay, but fossil fuels still have a major role to play in energy worldwide. The demand for minerals for renewable energy is much greater than the current mining industry can supply. There’s also concern about China’s global leadership in processing these minerals, leading to a need for diversification.
I propose a fanciful idea: what if we had loads of cheap power in ten years, thanks to our oil and gas energy endowment? Could we not become a destination not just for mining the minerals but also for refining them and adding even more to our economy? The world will be primarily powered by fossil fuels for a long time to come, and South Africa should seize on the endowments we’ve been given to create a better future for our countrymen.
The game is worth playing. We should play it.
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