SA OIL AND GAS SPACE HOTTING UP

By Nicola Nel Sunday, May 13, 2018
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Looking forward to 2050, South African demand for petroleum products is predicted to increase significantly. Use of natural gas as a cleaner source of natural energy is also expected to grow in South Africa. Logistically speaking, South Africa stands to benefit from the discovery of substantial offshore gas reserves off Mozambique, where industry heavyweights Eni, ExxonMobil and Anadarko are involved in projects to construct processing facilities in order to exploit these reserves. If current interest and sentiment is anything to go by, South Africa will shortly be following suit in establishing this kind of offshore oil and gas infrastructure.

Developing South Africa’s oil and gas industry remains one of the key initiatives of Government’s “Operation Phakisa” policy, which aims to grow South Africa’s ocean economy across a different sectors. A number of recent industry developments highlight what appears to be renewed confidence in the oil and gas sector by local and overseas investors alike. Laying out the necessary processing infrastructure is very capital intensive, and some commentators have remarked that this renewed interest may be due to the perception of a more “investor friendly” political regime under President Cyril Ramaphosa.

Some recent noteworthy developments include the following:

  1. Eni’s final scoping report for exploration drilling within Block ER236, off the East Coast of South Africa was submitted to the Petroleum Agency South Africa (PASA) for consideration on
    08 March 2018. The purpose of the drilling is to assess the commercial viability of exploiting the area’s gas reserves and (unsurprisingly) is regarded as controversial by the much of the public and many environmental conservationists. Before the project may go ahead, environmental authorisation must be granted by the National Department of Mineral Resources, via PASA.
  2. In March it was reported that French energy giant Total is looking to resume operations later this year on South Africa’s first deepsea exploration well, situated in the Outeniqua Basin about 175 km off the coastline. It was also reported that Total is looking to acquire a number of offshore vessels in order to assist with its operations at this particular well.
  3. On 18 April 2018, it was reported that Grindrod’s subsidiary, Unicorn Bunker Services, was sold to two local black economic empowerment entities - Women in Oil and Energy South Africa and 100% black-owned and -managed shipbroking firm, Linsen Nambi. The value of the transaction was not disclosed, but the deal was financed through the Industrial Development Corporation. The company is an established bunker (marine fuel) delivery service which owns three modern tankers and services blue chip clients such as Chevron, Engen and BP.
  4. On 23 April 2018 it was announced that a private port terminal operator by the name of Saldeco had been selected by Transnet to build and operate South Africa’s first offshore supply base at the Port of Saldanha in the Western Cape. The base is estimated to attract an investment of ZAR1.8 billion to the small town and will offer a number of employment opportunities. The purpose of the base is to provide support services to offshore oil and gas companies operating in and around Southern Africa. The intention is that it will operate as a repair and fabrication facility, as well as a refreshment station providing bunkers and fresh water to the vessels.

The above developments are positive signs of what could become a thriving local offshore industry in future years. This is of course very significant for local players – as of a few years ago there were no less than 200 companies registered with the South African Oil and Gas Alliance which provide support services to the offshore industry via the various South African ports.

Renewed economic activity in this sector will also be tempered by regulatory developments, such as the pending Mineral and Petroleum Resources Development Amendment Bill and the Merchant Shipping Bill. Notably, the Merchant Shipping Bill (which is currently within the public consultative phase) contemplates cabotage for merchant shipping vessels, meaning that vessels which ply a coastal trade in South Africa are required to be registered under the South African flag. There is a possibility that this concept could be extended to offshore supply vessels and other vessels operating in South African waters, such as bunker barges, as well. This in turn could propagate job creation in the ship-building and ship repair space.

Given the pace at which the off-shore industry is starting to move, it is important that industry players keep up to date on these developments and participate in the consultative processes wherever possible.

*This article first appeared in the Sunday Tribune.