S Africa alerts extra help for power teams after Total exits gasoline venture | USAEMALL.com

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South Africa has signalled it could boost support for foreign energy groups after TotalEnergies abandoned plans to develop the country’s largest gas discovery.

Describing Total’s decision in July to withdraw from the Brulpadda and Luiperd prospects as “extremely disappointing”, South Africa’s energy minister Kgosientsho Ramokgopa said in an interview: “Could we have done better to ensure this resource could be exploited in a more commercially attractive sense? Yes.”

Ramokgopa added: “Domestic gas is far cheaper than imported gas, so we need to do more to work with players who can help us exploit these reserves.”

Brulpadda and Luiperd are located 175km off the country’s south coast with the potential to provide a total 1bn barrels of oil equivalent.

Total, which held a 45 per cent stake in the prospects, had already spent $400mn on development but said the project was “too challenging to economically develop and monetise”. 

Total declined to comment further, but industry investors told the Financial Times that the failure of state-run petroleum company PetroSA to strike a deal to buy gas from the project was partly to blame for the French group’s decision. PetroSA’s acting chief executive Sandisiwe Ncemane said last year that the parties were “not finding each other on the price”.

Jan Martinek, a former investment banker who runs a family office that invested in the project, said: “This was one of the largest gas finds in Africa, and South Africa needs the energy after years of blackouts. But for no good reason PetroSA simply refused to sign a deal to buy this gas.”

PetroSA declined to comment.

A series of “dramatic flip-flops” by the government on regulating the gas sector, including a draft law giving the state a 20 per cent interest in new exploration projects, was also a likely factor in Total’s decision, according to Busi Mavuso, chief executive of Business Leadership SA, which represents the country’s largest companies.

South Africa, which is only now emerging from more than a decade of crippling blackouts caused by problems at electricity provider Eskom, is set to face serious gas shortages in the next three years, Ramokgopa said. The threatened shortfall comes after Sasol, which supplies the country with natural gas from Mozambique, said it planned to halt deliveries to industrial customers in 2027 as the gasfields dried up.

Ramokgopa said the need to work more closely with global energy companies remained an imperative, despite positive news this week that TotalEnergies had taken over operating an oil exploration block on South Africa’s west coast.

Total’s partner in Brulpadda and Luiperd, the Canada-listed Africa Energy Corp (AEC), will now assume 100 per cent of the rights and seek technical partners to develop the prospects. But the company has said they will be harder to exploit without the French group.

Johnny Copelyn, chief executive of Hosken Consolidated Investments, which has a stake in AEC, said at the company’s annual meeting last week that South Africa had viable gas reserves but their development hinged on whether the government had the political will to support the sector.

However, insiders at Total told the FT its decision was not based on politics but on the technical complexity of exploiting the find at depths of 200-1,800 metres and uncertainty over how to commercialise the project.

AEC chief executive Rob Nicolella told the FT that a “combination of the economics and the business environment” were likely reasons for Total’s withdrawal.

“Total has retained its interest in other South Africa oil projects so . . . this is not a rejection of the country. But had there been greater support from the government, Eskom and PetroSA, it would undoubtedly have made the economics more beneficial,” he said.

While the deepwater find would not have been easy to develop, he added, it made no sense for the country to ignore a major gas discovery. “This project could provide up to 4,000 jobs and 4 gigawatts of power, and the government ignores this,” he added.

While experts said that forecast seemed too optimistic, it would still have made a significant contribution to a strained electricity grid, while the Petroleum Agency SA, which regulates oil and gas exploration, estimated the project could contribute $450mn to government coffers every year. 

James Mackay, chief executive of South Africa’s energy council, a private organisation representing the country’s energy companies, said it would be inaccurate to attribute Total’s withdrawal to government failure or a desire to avoid risky countries.

“Total is continuing with its projects in far more volatile areas of Mozambique, so they don’t shy away from politics or risk,” he said. “Rather, it is the economics of the project that doesn’t stack up.”