Total’s second major gas find puts SA on the global energy map

Written by Ciaran Ryan. Posted in Journalism

Government must act fast to reap the benefits of this discovery, which could attract $40bn in investment – Africa Energy Chamber. From Moneyweb.

An enabler rig off the coast of Norway; the country has been adept at using its sovereign wealth fund to hedge against oil price volatility and save wealth generated from its petroleum sector. Image: Mikhael Holter, Bloomberg

An enabler rig off the coast of Norway; the country has been adept at using its sovereign wealth fund to hedge against oil price volatility and save wealth generated from its petroleum sector. Image: Mikhael Holter, Bloomberg

Last month French energy giant Total announced it had made a significant gas condensate discovery 175km off the southern coast of SA in what is known as the Luiperd prospect.

This follows the 2019 discovery of an estimated one billion barrels of oil equivalent of gas and condensate at Brulpadda, off the coast of Mossel Bay.

Even before the latest Total discovery, the 2019 Brulpadda find was touted as one of the biggest finds globally, and a ‘game changer’ that puts SA on the global energy map.

An analysis by engineering group EPCM Holdings suggests that the billion barrels at Brulpadda is enough to run all of SA’s refineries at a cumulative volume of 700 000 barrels a day for just less than four years. “Mossgas is the only refinery in SA ready and equipped to run on condensate. So it would naturally be assumed that the condensate will be extracted for use in the Mossgas refinery, which couldn’t come too soon, since this refinery has been on the verge of closing down for the last year or two, due to the dwindling gas resources feeding the facility.”

Add to this a potentially even larger find at Luiperd, and it’s clear that SA’s energy matrix has been radically reshaped. The gas discoveries come at a time when Eskom is having to retire its older coal-fired power stations and reduce its carbon output.

Gas as a source of power generation is now a real option.

Total’s Luiperd well was drilled to a total depth of about 3 400 metres and encountered 73 metres of net gas condensate pay in well-developed good quality lower cretaceous reservoirs,” says a statement by Total. “Following a comprehensive coring and logging programme the well will be tested to assess the dynamic reservoir characteristics and deliverability.”

The prospecting block in question covers an area of 19 000km2 at water depths ranging from 200 to 1 800 metres. Total has a 45% interest in the block alongside Qatar Petroleum (25%), CNR International (20%) and Main Street, a SA consortium (10%). Main Street is 49% controlled by Africa Energy. The three international shareholders in this project have large war chests which could be quickly deployed to build the necessary infrastructure to land the gas onshore.

What’s also become clear is how underexplored SA’s offshore basins are. Given the latest find, there’s possibly much more waiting for discovery.

NJ Ayuk, executive chair at the Africa Energy Chamber, says many South Africans seem unaware of the significance of these two gas discoveries.

“These two discoveries put SA on the map as a global gas player. Gas is the future, and is needed as we transition to renewables as a source of energy.”

The timing of the find is near perfect, adds Ayuk.

Move fast, get it right

“As we enter the post-Covid recovery phase, SA needs to move fast and put in place the right incentives and policies to make sure we do not make the mistakes made in Nigeria and Angola.”

And what were those mistakes? Policies that favoured oil companies over the local population, creating massive inequity in the spread of oil wealth, and weak local content requirements which allowed most infrastructure investment to be spent outside the host country.

Ayuk says government needs to move fast to reap the benefits of these finds. “It will have to relook at its BEE codes, its labour laws and will have to offer some kind of incentives for tax and skills training. If we get it right, we can be looking at an investment of $40 billion to $60 billion over the next decade, which makes the IMF loan of $4 billion [that SA has applied for] look insignificant in comparison.”

Ayuk points to the roughly $100 billion investment earmarked for gas extraction off the coast of Mozambique as the kind of cash injection that could be in SA’s future.

“We estimate the investment required to extract this gas would be of the order of $40 billion to $60 billion, of which $35 billion would be spent in SA.”

If we get it right, we could land gas onshore within two to three years.

This was recently done in Equatorial Guinea, which put in place policies that encouraged energy investment while ensuring most of the benefits remained in the country. Ayuk points to contrasting examples of two countries that both discovered oil around 2007 – Ghana and Uganda. Ghana had the right regulatory framework in place and extracted its first offshore oil in 2011. Uganda’s oil find remains buried underground because it has been unable to finalise policies that satisfy investors.

When Norway discovered oil in the North Sea in the 1960s, it put in place policies and a sovereign wealth fund (SWF) to ensure that there would be economic benefits long after the oil was gone. Key among these policies was an insistence on developing the local oil and gas sector, rather than leaving it all to outsiders. Petroleum accounted for 43% of exports in 2018, and great care is taken to ensure that exports exceed imports – which in turn provides currency stability. Compare this to Venezuela, where oil accounts for 95% of exports, a key factor behind its current political instability.

Norway has been particularly adept at using its SWF to hedge against oil price volatility and as a means of saving wealth generated from its petroleum sector for use by future generations. Another benefit of SWFs is to diversify away from cash holdings or low-yielding US Treasury bills.

Infrastructure already in place

South Africa’s only local source of natural gas was developed in the 1980s with the Mossgas facility built to beneficiate the gas. Additional natural gas is imported from Mozambique to supply the gas industry around Gauteng and Mpumalanga.

“The Brulpadda discovery could have a similar impact on Mossel Bay and the Mossgas facility as the Zohr discovery did in Egypt. At the time of the Zohr discovery, Egypt was starting to plan for a future where the domestic gas production would not be enough to keep up with local demand for gas,” says EPCM Holdings.

The Total discoveries have significant advantages over the Kudu development in Namibia or the giant fields of Mozambique and Tanzania. The SA finds would be able to tap into a pre-existing local market where the infrastructure and demand are already in place.

“This is a great moment for SA,” says Ayuk. ”We shouldn’t waste it.”

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.