South Africa's offshore sector finally making waves

South Africa is waiting for a major discovery to spark interest in its offshore oil and gas sector for years. Total provided one last week. But the government still needs to put in place a new regulatory framework for industry that will appeal to investors and, with general elections on the horizon, this process may not be fast.

The French major announced on February 7 that he made "an important discovery of gas condensate" on his Brulpadda project on block 11B / 12B in the Outeniqua basin, 175 km from the southern tip of South Africa, by calling it "new world-clbad gas" and oil play ".

"The well encountered 57 meters of net gas condensate in the lower Cretaceous reservoirs.After the success of the main objective, the well was deepened to a final depth of 3,633 meters and also was a success in the Brulpadda-deep perspective, "said the company said.

Patrick Pouyanné, General Manager of Total, said that he could hold "about 1 billion barrels of global resources, gas and light condensed oil".

The next step is to acquire 3D seismic data this year and drill four exploration wells on the permit, which covers an area of ​​19,000 km2 and water depths of 200 to 1,800 meters.

The region is subject to harsh weather conditions – the weather has contributed to the abandonment of a previous attempt to drill the well in 2014, just before the fall in oil prices that year. However, Total believes that his experience working in the difficult West Shetland area on the British continental shelf will be helpful.

Domestic potential

The fact that the discovery mainly concerns gas rather than oil may be a disappointment for the government, given the costly oil import balance.

However, it opens up exciting opportunities for a nascent gas-to-energy program to help South Africa escape its reliance on coal. The long-term energy plan provides for the commissioning of a gas-fired generation capacity of more than 8 gigawatts in 2026-29, the raw material can be pipelined from Mozambique's offshore gas fields or through LNG import intermediary. Now, a domestic alternative may be available.

A future project could also exploit the offshore pipeline infrastructure already in place to link long-established, near-shore gas reserves serving the Sasol-Mossel liquids process plant. Bay. This plant, which operated at reduced capacity because it did not have enough gas load, could be another potential customer for Total's gas.

If enough gas were discovered, South Africa could even become an LNG exporter and, of course, future exploration could still produce oil, which would change the dynamics again.

Expected regulatory reforms

A number of international oil companies, including ExxonMobil, Equinor, Eni and Total, have interests in other offshore exploration licenses in South Africa. But the success of a well can not pave the way for further offshore development–Total must prove the potential of its discovery and South Africa urgently needs to change its regulatory framework upstream.

Last year, the government put in place a moratorium on new petroleum and gas licensing applications, while working on new legislation. This was then simplified to allow applications already in the system to be taken into account, but the planned legislation has not yet been defined.

The implementation of a new petroleum bill will be complicated by the upcoming general elections which, according to President Cyril Ramaphosa, will be held on May 8th. An oil discovery making the headlines ensures that the future of the sector will now be the focus of a campaign.

"The process of revising the country's hydrocarbons legislation will now be catapulted onto the political front line.A few months away from the general election, the government should be pressured hard to ensure that the industry provides benefits. local, "said Ben Payton. Africa manager of the political risk consulting firm Verisk Maplecroft.

He added that the ruling African National Congress (ANC) should face pressure to bring immediate tangible benefits to the nation by allowing black-owned South African firms or the government to be given a bigger share. important in new projects. Similar pressures in the mining sector have already forced licensees to reserve a 30% stake in the equity of black-owned partner companies.

An opposition party, the left wing Economic Freedom Fighters (EFF), said it would nationalize the extractive industries when it came to power. Pre-election polls show that the EFF ranks third, far behind the ANC, in power since 1994 and is expected to gain comfortably again, possibly with a reduced vote.