GILLIAN HAMILTON: Gas is a risky investment for SA amid renewables push

Late in 2022, TotalEnergies Exploration & Production SA and its partners started applying for government permission to drill six deep sea wells in the vicinity of Plettenberg Bay and lay more than 80km of undersea gas pipelines along the length of the Garden Route’s beautiful coastline. The company’s website claims the project will “contribute to SA’s energy security” over its 25-year lifespan.

This was echoed in the project’s economic impact assessment, part of the environmental assessment report released in October, which stated: “The proposed project will positively impact general economic output levels, GDP, employment and household income ... [with] a positive impact on tax revenue for the national government.”

The argument seems unassailable. Load-shedding has cost the country more than R77bn in lost tax revenue in 2023 alone. A domestic source of gas could provide fuel for Eskom’s Gourikwa power plant and 3GW of gas-to-power plants recently proposed by the government. Assuming the project comes online within the next 12 months, load-shedding could be a thing of the past by early 2025. SA could even become a net exporter of gas.

But this thinking is flawed. It fails to acknowledge that across Africa projected revenues from oil and gas are, on average, 63% lower than initially estimated, largely due to the commercial variability of oil and gas. The share of after-cost revenues that flows to the governments (as opposed to companies) also falls short of expectations. Given that TotalEnergies Exploration & Production SA is 45% foreign-owned — a point not mentioned in the impact assessment — the claim that the project will “have a positive stimulus on the local economy” is questionable at best.

This reasoning also fails to consider the fallout of gas exploitation for the local economy. Global experience has shown that extractive sectors tend to steal capital and labour from other sectors while reducing their competitiveness on export markets as the local currency appreciates.

The Garden Route’s economy is highly dependent on tourism. In 2020 the wholesale and retail trade, accommodation and catering sector accounted for 15.6% of provincial GDP, or R8.1bn. Any decision that jeopardises this sector — even if, as proponents claim, the risk is low — should be thoroughly quantified before any decision is made. The economic impact assessment fails to provide such a granular assessment.

The third flaw is perhaps the most concerning. The recent medium-term budget policy statement (MTBPS) made it clear that SA does not have money to squander. We need to make smart investment decisions that will prepare us for a decarbonising global economy, not lock ourselves into 25-year projects targeting a short-term, diminishing market.

The Ukraine-Russia war may present a brief opportunity for Africa to fill the demand gap for gas, but there is a real risk that new gas infrastructure will become stranded assets once markets stabilise. And globally the horizon for decarbonising is closer than one might think. The EU’s carbon border adjustment mechanism (CBAM) will come into force in 2026, driving EU importers to favour low-carbon products or face a hefty border levy. The CBAM targets carbon-intensive sectors such as iron and steel, which in 2022 amounted to R7.5bn.

Yes, SA may have offshore gas reserves. What is not clear is if these are economically viable. The Green Connection does not believe the Garden Route economic impact assessment presents a clear and quantified argument to support investing in gas over renewables and has formally lodged detailed objections to this project with the department of mineral resources & energy.

SA is blessed with some of the best solar and wind energy potential in the world, coupled with the technical ability to access it. By contrast, offshore gas is a dubious resource that comes with a high price tag that could burden the country for decades to come. We urge the presidency to build on the wins of Operation Vulindlela and apply its collective mind to the country’s long-term prosperity by choosing to invest in renewables over oil and gas to improve energy security in a way that will benefit its economy and people.

• Hamilton is with The Green Connection.