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Rob Hersov – South Africa’s potential oil and gas prospectivity
By Rob Hersov
South Africa is potentially well endowed with oil and gas. The Petroleum Agency SA (PASA) estimates that the country holds 27 billion barrels (bbls) and 60 trillion cubic feet (tcf) of prospective oil and gas resources on the south, west, and east coasts. The estimate for the onshore exceeds 200 tcf of prospective shale gas resources, biogenic gas, and coal bed methane.
The gas potential outlined above is very significant from a national energy security perspective. In fact, the PetroSA Gas to Liquids Refinery (GTL) in Mossel Bay, which produces petrol, diesel, jet fuel, paraffin, and liquefied petroleum gas (LPG) as the main products was sustained with 1.5 tcf of gas over 28 years from 1992 to 2020. Furthermore, the 865km gas import pipeline from Mozambique to the Sasol Secunda Gas-to-Liquids Refinery was built on the back of 3.5 tcf of discovered gas from the Pande and Temane fields. Those fields are still in production 18 years later, since first gas in 2004, and are expected to decline by 2026.
The 27 billion barrels of prospective oil resources estimated for South Africa are also very significant. By comparison, Angola has approximately 7 billion barrels of oil reserves and 10.5 trillion cubic feet of gas reserves. Angola’s oil production and supporting activities contribute about 50% to the country’s gross domestic product (GDP) and 89% to export earnings.
South Africa on the other hand is heavily dependent on imports in terms of crude oil, and refined petroleum products. Crude oil and refined petroleum products are the largest imported product category in South Africa. The country is spending some US$9.6 billion (~R150 billion) on the importation of crude oil and petroleum products per annum (representing some 15% of the country’s total imports). The importation of crude oil, gas, and petroleum products, therefore, has the largest negative impact on the country’s balance of payments and poses a risk to the country’s energy security and sovereignty.
NEAR DEVELOPMENT OIL & GAS PROJECTS
A number of natural gas discoveries on and offshore South Africa have already been made in South Africa recently and are near development. These include ~4 tcf gas and condensate discoveries in Block 11B/12B off the south coast by TotalEnergies and partners. TotalEnergies drilled two gas exploration wells in 2019 and 2020 in deepwater Block 11B/12B off the South Coast of South Africa, some 175km to Mossel Bay.
Some 400 billion cubic feet (bcf) of natural gas and helium have also been discovered by Tetra4, which is wholly owned by Renergen, in Virginia, near Welkom, Free State. Tetra 4 continued with the 2nd phase drilling campaign with at least 20 wells drilled in 2021 – 2022. Tetra4 also continued with the phased construction of the liquid Helium and liquefied natural gas (LNG) plant following the successful commissioning of the 1st phase in September 2022 and have started supplying LNG to the local market. South Africa starting exporting liquified Helium to the US in December 2022. The 2nd phase or scaling up of the Tetra4/Renergen project is underway. There are several other exploration activities in that region which is estimated to have high concentrations of Helium. Furthermore, there are at least 30 active exploration rights on and offshore South Africa in various stages of exploration. The 200 tcf shale gas potential in the Karoo remains untapped.
THE ROLE OF GAS IN THE JUST ENERGY TRANSITION
As stated above, South Africa has significant gas potential. According to the National Development Plan 20,000MW of baseload electricity could be generated from only 24 tcf of gas for at least 20 years. This is at least half of the current electricity-generating capacity in the country. Furthermore, gas burns cleaner than coal and oil, it emits at least 50% less carbon dioxide than coal and 30% less than oil, and without nitrogen and sulphur oxides. The exploration and exploitation of the country’s prospective gas resources could thus also aid the country’s transition towards net-zero carbon emissions by 2050.
The use of oil and gas in South Africa is consistent with the country’s decarbonisation strategy particularly as South Africa is a coal-based economy. The electricity supply infrastructure build programme of the country will be dominated by renewable energy technologies, but gas is still required to provide baseload and load following generation capacity. Gas fired generation plants also provide the much needed ancillary services to stabilise the electricity supply system.
POTENTIAL SOCIO-ECONOMIC BENEFITS FROM AN UPSTREAM OIL & GAS PROJECT – CASE STUDY OF BLOCK 11B/12B
The macro-economic benefits of the development of gas discoveries are very significant. For example, the Block 11B/12B discoveries by TotalEnergies and Partners in the south coast provides an opportunity to supply affordable feedstock to the PetroSA gas-to-liquids refinery in Mossel Bay, thereby bringing the GTL to full commercial production and profitability. The gas can also be supply to the Eskom Gouwrikwa diesel fired power station or a new 1000MW baseload gas-to-power plant in the south coast or even in Coega. [See Annexure 1]. The potential socio-economic benefits of the Block 11B/12B development have been studied by independent economists and found to have the following benefits:
- Sustaining about 1500 direct jobs at the GT Refinery in Mossel Bay, which is currently under “care and maintenance” thus putting the jobs at risk
- Creating about 600 new direct jobs in the upstream operations
- Creating 5000 indirect jobs, and up to 42,500 in employment opportunities.
- Contributing R22 Billion annually to the country’s GDP
- Contributing R25 Billion annually in royalties and taxes to the fiscus
- Improving the country’s balance of payment by R26.5 Billion in petroleum imports substitution.
The Block 11B/12B development is targeting to use of PetroSA’s offshore infrastructure which is currently not in use and in time will require decommissioning. The TotalEnergies project therefore provides an opportunity to defer the decommissioning of these facilities, which would cost PetroSA an estimated R10 Billion.
POLITICAL SUPPORT REQUIRED
With the oil and gas discoveries made onshore and offshore South Africa, the country is at the cusp of becoming an oil and gas producing region. Political support is required to accelerate the development of the upstream oil and gas projects to resolve the country’s energy challenges and contribute to the economic recovery.
Enhancing regulatory certainty by finalising the new legislation
The finalization of the upstream petroleum resource development (UPRD) Bill and its corresponding Money Bill / Fiscal Framework is critical. The UPRD Bill was first published for comment in December 2019 and introduced in the national assembly in July 2021. National Treasury is in the process of developing the corresponding new fiscal framework.
The finalisation of the legislative framework for the industry would provide much-needed certainty to investors.
New guidelines for community consultations and curbing the abuse of the legal processes to stall oil and gas projects
The prevailing litigious environment is hindering the development of oil and gas resources in the country. The court judgement suspending two seismic acquisition surveys by Shell and Searcher on the east and west coasts of South Africa in 2021 and 2022 have dented investor confidence in the upstream oil and gas industry in South Africa.
While some of the grounds for challenging oil and gas projects seem legitimate, it seems there is an ideological opposition to the oil and gas industry by environmental lobby groups. The legal challenges against the production of oil and gas in South Africa are based on the following arguments:
- South Africa is a signatory to the Paris Agreement and has committed to net-zero carbon emissions by 2050 – while this is correct, “net-zero” carbon emissions target do not mean that oil and gas will no longer be used. The International Energy Agency (IEA) estimates that oil, gas and coal will still supply 60% of global energy demand in 2050. Renewable energy and energy storage technologies will grow significantly, but the world will continue to use oil and gas.
- The exploration and production of oil and gas will have a negative impact on the small-scale fisheries and limit other uses of the ocean – during the environmental impact assessment the project sponsors provide mitigation plans to minimise the impact of the oil and gas activities on the marine eco-systems. Norway has a thriving oil and gas production as well as a fisheries industry.
- Consultations with local communities was not adequate – up to now most project developers were conducting their local community consultation though emails using English and Afrikaans languages. The local community members who filed court challenges against oil and gas projects did so on the grounds that the information was not accessible due to language barriers as well as the information being too technical.
The courts ruled against the oil and gas projects largely because the community consultations were found to be inadequate. Government will issue new guidelines to ensure that community consultations are meaningful.
The risk remains that environmental lobby groups will take oil and gas projects for legal review to stall the development of the projects. Government departments need to respond collectively to these court challenges re-affirming the country’s energy sovereignty and energy policy on the role of oil and gas.
- Action again on SA’s “world class” oil and gas field
- Gas to power: Can a transition to energy sovereignty in South Africa be achieved in our lifetime? Rob Hersov
- Rob Hersov is back with a plan to turn talk into action: New South Africa.org
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