South Africa Will Benefit Greatly From Monetized Natural Gas With Derek Boulware, Head of Africa Research, Welligence Energy Analytics

In recent times, South Africa has been battling an energy crisis. President Cyril Ramaphosa has come up with some solutions to tackling this crisis.

Energy! reached out to the Vice President and Head of Africa Research at Welligence Energy Analytics, Derek Boulware, to provide some interesting insights into the crisis.

Less known facts about South Africa's current energy crisis

There are a diverse set of players who are currently working against one another in the South African energy ecosystem. On one hand, you have the State-Owned utility, Eskom, which cannot handle the power load for numerous reasons. In most instances, it relates to poor infrastructure, but the most recent spate of load-shedding is also related to strikes around wage negotiations by employees.

In addition, South Africa sells power to many of its neighboring countries, including Namibia. Meanwhile, Namibia typically does not have load shedding while South Africa does.

The next set of players are environmentalists, who are making an effort to put a stop to any potential oil & gas activity in the country. They argue that hydraulic fracturing (aka “fraccing”) in the Karoo, will contaminate the water supply; however, the concrete and steel casings required to conduct the “fraccing” work are strong enough to resist the relatively low pressures at which gas is produced from these wells.

More recently, they purport that offshore seismic studies pose a threat to marine life despite marine biologists working onboard these seismic vessels telling a different story. Exclusion zones are established in the process, and if marine mammals are detected in this zone, operations cease until they have safely passed through. This is, in part, why the process of collecting seismic data takes months on end.

Next, we have the oil & gas companies themselves. Many of them have been looking to explore South Africa for decades; however, the fiscal terms have been unclear since the Mineral and Petroleum Resources Development Act came up for revision in 2013. This means that players, like Shell which was looking to complete seismic work, are less incentivized to spend money in South Africa as they are uncertain about the economics of a potential discovery.

One thing is for sure though, the country will be able to benefit greatly from an energy source like natural gas if it can be monetized. The latest estimates of reserves in the Karoo are now up to 291 Tcf of gas (although this is admittedly a high-case scenario). Private companies, like Shell and TotalEnergies, really have the ability to unlock the energy potential of South Africa if all players can come to a common understanding and work together for the benefit of all involved.

Much more work is needed to bring environmentalists, government officials, oil & gas experts, and the general public into the same room - Boulware

Action steps you believe can make South Africa energy secure in the short to long term

In addition to the above, projects like TotalEnergies’ Matola Gas Project which aims to import Mozambican gas via pipeline from Maputo, can do a great deal to secure feedstock gas for the country. The import of Liquefied Natural Gas (LNG) has been studied and discussed for many years as well, but no players have taken it upon themselves to move the agenda forward.

Most importantly, South Africa needs to provide fiscal clarity to would-be energy players. And of course, all of this needs to take place alongside the energy transition which includes more renewable energy projects and continued research into green hydrogen. South Africa can also try to expedite TotalEnergies’ Brulpadda/Luiperd development; this would supply significant quantities of gas, and condensate, to help alleviate the supply crunch at Mossel Bay, as well as transition coal-powered stations to cleaner gas. It would also send a very positive investment-friendly message to the upstream sector. 

Some stakeholders want a second state-owned utility to tackle Eskom's failings as a power utility in South Africa. Will this will help make South Africa more energy secure? 

I don’t think more government involvement is the answer. The government doesn’t have the funds to invest where it’s necessary. Look into the potential of private companies for investment, and let the government make the necessary off-take commitments to get the projects to a bankable status.   

We need to spend less time talking about what we are going to do and just do it - Boulware

Following the current crisis, what are your predictions for Oil and Gas exploration and production in South Africa, in the next five to ten years? 

Personally, I’ve been living in South Africa for 9 years, and I don’t see enough movement happening from a stakeholder and education perspective. Much more work is needed to bring environmentalists, government officials, oil & gas experts, and the general public into the same room. Most of the oil & gas players have left as they also have not seen positive movements.

It’s a difficult proposition when the most educated people in the room (when it comes to oil & gas projects) are seen as the enemy; therefore, anything they say will likely be scrutinized and misconstrued. I believe that the Brulpadda/Luiperd discoveries offshore Mossel Bay will come onstream later in the decade, but I think the would-be investors will be looking more eagerly at neighboring Namibia where the oil & gas potential has recently been realized and the fiscal terms are clear and advantageous. South Africa might be importing power from its neighbors before long.

The next 12-24 months will be crucial for Exploration &Appraisal activity. The Eco (Atlantic) operated Gazania well is due to spud later this year. TotalEnergies wants to drill on Block5/6/7 and Africa Oil & Gas Co has a number of prospects on Block 3B/4B lined up for a drilling campaign starting next year. A large seismic campaign is planned for South African acreage directly south of the Venus/Graff discoveries in Namibia, and Shell still wants to explore the Transkei and Algoa blocks off the southeast coast. Should the activity be permitted and discoveries made, they could totally change the dynamic of South Africa’s upstream.

Conversely, should the activity be denied/prevented and/or no discoveries made, I think we will see an exodus of operators and explorers. There are other high potential areas and countries upstream explorers can go to – South Africa is competing at a global scale and whatever the talk of its potential, it needs to deliver soon! 

President Cyril Ramaphosa has unveiled several plans to fix the energy crisis. Do you think those plans can work? From your analysis, when will South Africans begin to feel the impact of these solutions? 

Many of the plans have merit and can work to add power to the grid if everyone works together as envisioned. It will be imperative to add enough power to the grid to sustain the downtime that will be needed to properly improve the performance of the existing fleet of power stations. This will come down to timing as well (e.g. don’t take existing infrastructure offline at peak season).

Acceleration is also an important principle. We need to spend less time talking about what we are going to do and just do it. If private homes and businesses are going to be able to sell back into the grid, they also need to be fairly compensated for this which is not at parity as the current situation stands. One of the most important principles that must not be lost regarding Ramaphosa’s plan is that of a massive increase of private sector participation in generation capacity. Private businesses look after investments and will take the precautionary measures necessary to preserve asset value and asset life – both failings of the current state-owned approach.