Any potential oil and gas sector in SA has taken a back seat to other industries, such as mining, says the writer. Picture: BUSINESS DAY
Any potential oil and gas sector in SA has taken a back seat to other industries, such as mining, says the writer. Picture: BUSINESS DAY
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Cape Town has hosted two African oil- and gas-related trade fairs in the past four months, and with each it has become clearer that when it comes to this booming industry SA is a mere blip on the radar. But elsewhere on the continent, big things are happening.

Though persistently plagued by chronic issues such as corruption and poor infrastructure, African nations such as Gabon, Angola, Tanzania, Congo-Brazzaville, Uganda, Ghana and beyond have promising oil and gas resources that are drawing foreign investors’ eyes.

Nigeria, with some 30-billion barrels of estimated oil resources — enough to meet SA’s current oil needs for the next 134 years — continues to draw investment despite an unattractive regulatory environment. Research by Deloitte shows there have been 20 foreign direct investment (FDI) projects in the country since 2010 and $15.5bn in capital investment.

In SA’s neighbour to the north, Mozambique, the offshore Rovuma basin is home to the world’s most significant gas discovery in recent history, with estimated reserves that could supply Germany, the UK, France and Italy for nearly two decades. According to Deloitte, 23 FDI projects have been launched in the country since 2010 and capital investment has totalled $12.5bn.

In recent years, when commodity prices slumped and oil went as low as $35 a barrel, exploration spending was cut. According to PwC’s Chris Bredenhann, between 2014 and 2017 exploration budgets were slashed 58% globally and 71% in Africa. But with a tailwind behind the oil price in 2018, budgets for exploration activity, which is high-cost and high-risk, have begun to recover.

There is now optimism that policy development is starting to move in the right direction, especially since the government announced the withdrawal of the contested Minerals and Petroleum Resources Development Amendment Bill in August and promised to develop a separate policy framework for oil and gas. 

SA will not be on the receiving end of this. Any potential oil and gas sector in SA has taken a back seat to other industries, such as mining. But chronic policy uncertainty has also played a key role in keeping oil and gas exploration from getting off the ground.

Onshore, the only producing operation is Renergen’s Tetra4 in the Free State, where helium-rich natural gas was discovered. The potential shale gas reserves in the Karoo have produced many headlines after a 2012 economic report from Econometrix said gas development in the Karoo could add R200bn to the GDP annually and create 700,000 sustainable jobs.

But communities and activists raised the alarm over the impact the use of an extraction method called hydraulic fracturing — or fracking — would have on the environment. There has been little movement since, though in May mining minister Gwede Mantashe said applications for shale-gas exploration rights in the Karoo would be fast-tracked.

There is now optimism that policy development is starting to move in the right direction, especially since the government announced the withdrawal of the contested Minerals and Petroleum Resources Development Amendment Bill in August and promised to develop a separate policy framework for oil and gas. 

“We’ve been left behind by policy constipation, but that is now over,” says Niall Kramer, CEO of the South African Oil and Gas Alliance.

“SA is in a situation where there may be something, but we don’t understand the value of that — and to get to that point, we need to drill, to get good SA data to make these decisions.”

On the ground, or rather in the water, there are also signs of life. Notably, oil behemoth Total will return to drill its Brulpadda offshore exploration well, which is located 180km off the coast of Mossel Bay, not far from where PetroSA’s exploration efforts failed to find new feedstock for its gas-to-liquids refinery, Mossgas.

Total abandoned efforts to drill at Brulpadda in 2014, which at the time was estimated would cost more than R2bn, when the environment proved too harsh for the rig. It’s not that the area is too deep, though it certainly is deep, but rather that it is subject to exceedingly strong currents.

Four years after going back to the drawing board, a special rig is en route from Norway, built to withstand the adverse conditions Brulpadda might present. The rig is expected to arrive mid-December and exploration drilling should take three to four months.

Of course, nobody knows whether Total’s investment will pay off — for example, Tullow Oil’s exploration well off the Namibian coastline was determined a dud in September this year. But if Total were to strike oil or gas offshore of SA, it would undoubtedly be a game-changer for the country.

There are also signs of life on the south coast, where Sasol in partnership with Italian multinational ENI as operator, is in the process of seeking environmental authorisation to embark on exploratory drilling. It’s already facing an uphill battle from various parties, including those concerned about the impact on the environment.

Jon Harris, Sasol’s executive vice-president of upstream, says regulatory certainty is crucial for a vibrant exploration and production business, explaining that while data gleaned from 3D seismic surveys can suggest all kinds of things to geologists, you simply don’t know for sure if anything is there until you’ve drilled.

 “To absolutely understand it, you have to drill it,” says Harris.

• Steyn is mining and energy writer.