TotalEnergies takes its foot off the gas – why SA lost a huge energy deal
Daily Maverick
Daily Maverick is a unique blend of news, analysis and opinion delivered from our newsrooms in South Africa.
From a business standpoint, monetisation is the process through which investor-acceptable revenues are generated, writes Claude de Baissac . This appears to be where TotalEnergies’ Brulpadda and Luiperd gas projects failed. Nearly five and a half years after discovery, there was no visible path to revenues.
They say a week is a long time in politics. It can also be a long time in the life of an analyst.?
Much of my career has been devoted to identifying the risks that businesses and governments must contend with in our hyperdynamic world. I pay a lot of special attention to events in South Africa, my home for over 25 years, and a country that is nowhere near fulfilling its enormous development potential.
Others and I in the advisory business have a role to play in putting the country on a strong and sustainable trajectory of economic growth. Like civil society activists or our brave journalists, our message can sometimes be hard to hear, not least where vested interests lie.??
And so I learnt last week, in a phone call that I received from one of our better-known government ministers. Though this minister has a reputation for vigorously haranguing his critics, privately and publicly, I wanted to believe that we could find some common ground. It didn’t take long to realise that that was never going to happen.?
Decline of mining industry?
It all started with an op-ed that I co-wrote in this publication on the tragic decline of South Africa’s once-mighty mining industry. We saluted the significant progress made in transformation and ownership of the industry, community consultation and participation, labour wages and mine safety.
But we lamented the various policy failures and outdated dogmas that had pulled the sector down from the commanding heights of the global industry to a third-tier destination for mining investment. Much of this seemed to be manifest in the often-nativistic debates which followed Australian mining giant BHP’s failed takeover of once-all-conquering South African firm, Anglo American.?
Our unambiguous aim in writing the piece was to highlight mining’s catalytic potential for (once again) boosting South Africa’s economy writ large and how key mining reforms could align South Africa much more strongly with the green transition globally. If only we were more open to new thinking, new ideas, maybe even new partners.
A few days after our article was published, the bombshell announcement came from the French oil and gas giant TotalEnergies that it was walking away from the Eastern Cape Brulpadda and Luiperd gas discoveries situated about 200km offshore along the Eastern Cape coast (officially designated Blocks 11B/12B).
This came shortly after its main project partner, the strategically important QatarEnergy (owned by the state of Qatar and previously known as Qatar Petroleum), had thrown in the towel. Another partner, CNR International, had also quit. This leaves South African consortium Africa Energy Corp as the sole remaining owner of the development licence.
The news made headlines well beyond South Africa, fanning like wildfire in the global, very close-knit oil and gas industry and its highly influential specialised press.
When I received a call from SABC television to discuss TotalEnergies’ decision, I welcomed the opportunity to share my analysis and perspective on a telling development for South Africa’s future energy mix. And, in my view, what amounted to a scathing verdict on government policy and leadership in this sector. One, critically, for which South Africa will pay a heavy economic and reputational price.
Niall Kramer, the previous CEO of the South African Oil and Gas Alliance, has repeatedly stated that the department in charge might as well have been the gas exploration promotion agency of Namibia (where a lot of investment is heading). His flippant view has now been vindicated.
TotalEnergies’ public release was customarily to the point. The company is renowned amongst the top-tier energy companies worldwide for having the sharpest, and often the toughest, negotiators in the business. But it’s also famously discreet: it simply said that it exited this project and an exploration project along the Western Cape coast.
The company appears to be staying the course with exploration in South Africa’s Orange River Basin, which runs offshore along the coast from the Northern Cape to southern Namibia. The discoveries TotalEnergies was exiting could not “be turned into a commercial development as it appeared to be too challenging to economically develop and monetise these gas discoveries for the South African market”, so said the company.?
I had followed this potentially significant energy opportunity for South Africa closely since 2020. It was a crucial test of the country’s willingness and ability to commercially develop and produce oil and gas in one of the world’s most promising new frontiers – an imposing swath of discoveries and likely discoveries that stretches from southern Tanzania to southern Namibia and which may turn this mega region into a major hydrocarbon producer.
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The development of 11B/12B was undoubtedly a litmus test for whether the government was serious about developing a ‘gas economy’, which was once thought to be a central pillar of Operation Phakisa, the fast results delivery programme launched 10 years ago to aid the implementation of the National Development Plan, with the ultimate goal of boosting economic growth and creating jobs.?
It was a key performance target for the then Department of Mineral Resources and Energy, now Mineral and Petroleum Resources.
Potential economic boost
As someone with broad contacts across the industry, it felt especially important to get to the bottom of the decision as best I could. Here’s what I have come to know.?
Upper-medium size natural gas discoveries of the kind made by TotalEnergies and its project partners off the Eastern Cape coast at a cost so far of R12-billion do not portend the economic revolution that gas-rich Guyana is about to experience, or the one Qatar has enjoyed. Nor the ones that Namibia and Mozambique are now contemplating. Nor the ones that may arise from the extraordinarily promising Orange Basin.
In theory – and theory only because events have taken a very different turn – Brulpadda and Luiperd provided an incredibly well-timed and well-located opportunity to bring gas to existing energy infrastructure and catalyse the creation of new infrastructure that would have contributed to energy efficiency, security and greenhouse gas emissions reduction.
Four main options existed, which needed to work together to justify the considerable investment TotalEnergies would have to make to reach production – anywhere between R35 and R55-billion, to be spent over three to four years (add the R12-billion already spent on exploration).?
Demand-wise, there was the Mossgas refinery, which, when opened in 1992, was the world’s earliest gas-to-liquid refinery. But it has been in care and maintenance – i.e. not operating – since the end of 2020 under the ownership of state-owned PetroSA, as the previous natural gas reserves off the coast ran out.
Its 45,000 barrel-a-day capacity was originally intended to take up part of production. PetroSA would also have bought condensates for direct commercialisation, which are a small portion of the TotalEnergies volume of gas that turns liquid once it reaches the surface during the extraction process.
Then there was Eskom’s 740MW Gourikwa power plant adjacent to the refinery. It was designed to run on gas or diesel to provide peak-demand load, part of a fleet of four such plants nationwide. Called open-cycle gas turbines or OCGT, they have been running hard to offset the decayed coal-fired power plants, and account for the large unplanned diesel bills that hit Eskom in 2022 and 2023.
Finally, and most critically, was the option for a new Eskom or independent producer gas-fired power plant, this one a combined-cycle gas turbine or CCGT designed to provide baseload electricity at the tune of around 1,300 MW. These are bigger, more complex, and more expansive but significantly more efficient than OCGT (over 60% of the gas burnt turned into electricity instead of 40%).
The onshore investment necessary to bring the offshore gas to the market consisted of upgrades to the PetroSA gas infrastructure to the tune of around R5-billion. A new CCGT plant would have cost around R25-billion. Total offshore and onshore investment was thus estimated to amount to a very cool R70 to R90-billion spread over three to five years.
To put this in perspective, last year South Africa received R100-billion in foreign direct investment, down from R150-billion in 2022. Had it gone ahead, the project would thus have added around 25% per year to FDI. This is simply enormous.
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Consultant
3 个月In O&G you never slam the door loud making a fuss in public as you might (or will) come back some day. Moneytizing your project with public entities that are not creditworthy is a tough one. If on top of that the government talks about adding a 20% free carry... there are plenty of other projects in the portfolio that have less hurdles.
Director at NetZerO Minerals
3 个月It becomes clearer every day why the struggle took almost 100 years until FW de Klerk blindsided them by handing over the reigns. The promises of attracting 5% of global exploration spent and the Total inaction has the same timeline.