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Great, South Africa found gas. Now what?

The Brulpadda well, offshore Mossel Bay, is one of a number of highly anticipated exploration prospects in South Africa.

An opinion piece by Zwelakhe Gila, Head of Commodities, African Energy Chamber.

At a time when South Africa’s policymakers are struggling to diversify the country’s energy mix, Total Exploration and Production Southern Africa recently announced a major offshore gas discovery. The Brulpadda well, offshore Mossel Bay, is one of a number of highly anticipated exploration prospects in South Africa. First reports of the field indicate that it holds between 500 million to over 1 billion barrels of oil equivalent. In comparison, neighbouring Mozambique’s 2012 discovery held over 350 billion barrels of oil equivalent. Those familiar with the history of Africa’s energy sector, and even those that are not, rejoice with a faint concern of what has been the outcome for many other resource abundant countries on the continent. While Total’s finding alone is not enough to eclipse the plethora of other resources in South Africa – coal in particular – it does find the country at a weak moment of energy policy and, more importantly, energy security. South Africa’s Integrated Resource Plan (IRP), which covers the 2010-2030 period, was only reviewed once since its release in 2011. The 2018 IRP draft, yet to approved, expects to see 8,100MW of additional gas-to-power capacity set up by 2030, but remains what it is: a draft.

This further justifies the need for an adequate and timely gas regulatory policy, and balanced local content regulations, to avoid squandering an opportunity to catapult South Africa into a booming African energy frontier. This crucial need is further highlighted; considering that month’s prior to Total’s discovery; Minister of Mineral Resources Gwede Mantashe halted all applications for oil and gas exploration in order to change its licensing process. The move notably saw super major, Royal Dutch Shell, relinquish a license to search for oil off South Africa, citing legislative uncertainty. Uncertainty does indeed prevail across South Africa’s oil and gas licensing and regulation. Careless expedience to reopen the licensing process, given the inevitable interest that follows such a discovery, could hinder the country from benefitting from possible reserves.

Natural gas allows for the creation of a cheaper, domestically-sourced, and more environmentally-neutral energy grid that has now become a global imperative. Natural gas is widely considered to be a key component to this impetus. Although South Africa is the largest electricity producer on the continent and even exports electricity to neighbouring countries like Namibia, it still suffers from inadequate infrastructure management that has seen an increasing rate of nation-wide blackouts. This begs many to question if the popularisation of gas-to-power infrastructure – electric power generated by gas-powered turbines – motivated by the recent Total find, will have an impact on energy security or suffer the same fate as South Africa’s coal-fired plants.

Given natural gas’s primary usage and function as a source of heat and power production, South Africa is now poised with answering the difficult question of how invested it is in its coal reserves and coal-reliant power infrastructure that practically serves the same purpose as gas. Especially when considering that South Africa holds approximately 11 percent of the worlds total coal reserves, coal mines being the largest direct job creator in the mining industry, and coal being South African economy’s highest foreign exchange earner.

President Cyril Ramaposa’s recent announcement to unbundle debt-ridden state-owned Eskom is a possible effort to motivate private power producers. This progressive approach to incentivize private companies, if conducted through a fair and inclusive manner, stands to be a significant determinant in attracting investment into gas-to-power facilities.

The trend for discoveries of this scale, especially in countries whose markets and infrastructure are unable to absorb the resource, is for immediate exporting of the resource to more lucrative European and Asian markets. Natural gas consumption in such regions as Western Europe, South or East Asia are currently at the highest level since 2001 and on the 20th consecutive monthly high deliveries. Natural gas exports are also the highest since the International Energy Agency began tracking monthly in 1973. The incentive to move the natural gas found in South Africa to international markets is overwhelmingly promising and would follow recent trends adopted by African countries that have recently discovered gas, such as Mozambique or Senegal. It is the duty of the Department of Energy and the Department of Mineral Resources to ensure that the regulatory master plans for such discoveries are adequately aligned with further developing local natural gas infrastructure as well as further debt-ridden International Oil Companies to carry out more exploration. It is a task whose failure to deliver accordingly has led to a litany of wasted gross domestic prosperity.

Zwelakhe Gila is the Head of Trade & Commerce for the African Energy Chamber and the Energy Originator for DMWA Resources.  His expertise in the energy sector includes finance analytics, investment strategy and trading solutions.  He holds an BSc in Consumer Economics from the University of Illinois, and a MSc in International Oil & Gas Management from the University of Dundee. 

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