Oil major TotalEnergies’ pullback from developing potentially lucrative gas fields off the South African coast is undoubtedly a huge setback. It’s not terribly surprising, though. Local development efforts have been frustratingly tied up by strenuous litigation, mainly by environmental groups.
Business Day reported that the African Energy Chamber reckons TotalEnergies’ withdrawal from gas field projects in South Africa was caused by the regulatory obstacles that hamper companies trying to develop energy sector projects.
Meanwhile, our neighbour Namibia seems intent on charging up its economy by allowing large-scale exploitation of its offshore oil and gas deposits. With still no clear indication of South Africa’s policy around harnessing its offshore energy potential, this contrasting attitude could be a painful point of reflection in 10 years’ time.
It may already be too late. The FM reported early in the year that another player in the Southern African oil and gas exploration sector, Toronto Stock Exchange-listed Africa Oil Corp (AOC), had already shown a distinct lack of enthusiasm for continued participation in developments in South African waters.
AOC — along with JSE-listed Hosken Consolidated Investments (HCI) — is a key shareholder in Impact Oil & Gas, which has partnered with TotalEnergies and other energy investment companies to exploit oil and gas deposits off the Southern African coast. Significantly, Impact, a junior partner in the development of the much-mooted Venus deposit off the Namibian coast, also has exposure to South African oil and gas exploration projects through a 36.5% stake in Africa Energy Corp. In January, AOC openly admitted it had scant interest in Impact’s South African investments.
With Namibia coming on stream rapidly, why even bother dilly-dallying in uncertain South African waters?
That said, the two most promising South African gas discoveries — the quaintly named Brulpadda and Luiperd wells in the Outeniqua Basin on the southern Cape coast — are hardly insignificant projects. Just the project value was set at about $3bn — and both these developments are potentially transformative to the country’s energy security.
The oil industry could earn Namibia more than R100bn a year in revenue, which will have huge positive spin-offs for that country
Initially, the Brulpadda and Luiperd wells were linked to a possible new 1.2GW dual-cycle gas-fired power station in Mossel Bay, which would be supplied directly with gas from the offshore discoveries.
HCI pointed out in its 2023 annual report that the direct use of gas without the need to liquefy it would offer an opportunity for generating cheap base electricity, so sorely needed in the country. What’s more, emissions from such a power station are less than a third of those from coal-fired plants for the same amount of electricity generated, and downtime for production stoppages is rare.
With TotalEnergies walking away, one also has to wonder about the future development of deep-sea blocks around the South African coast. There are legal hurdles here too. A prolonged stall in South Africa developing its own oil resources could be costly in terms of oil imports.
In the meantime, the first smatterings of optimism are apparent in the annual reports of Namibia-listed companies. Reports have suggested that the oil industry could earn Namibia more than R100bn a year in revenue, which will have huge positive spin-offs for that country’s industry and commerce.
Hopefully South Africa will have shifted a lot closer to a clear and concise strategy on tapping its offshore oil and gas reserves by the time the first oil starts gushing in Namibia in 2028.
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