by Ralph Staniforth

Gas discovery could boost the economy

In February this year, there was a much-celebrated large gas field discovery off the Southern Coast of South Africa

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In February this year, there was a much-celebrated large gas field discovery off the Southern Coast of South Africa–some 275km South of Mossel Bay. This discovery was made by Total, who own the Brulpadda block, along with others.

It is a much-lauded discovery and Total was congratulated on it by President Cyril Ramaphosa when he said, “This could well be a game-changer for our country and will have significant consequences for our country’s energy security and the development of the industry. We congratulate Total and its various partners and wish them well in their endeavours.”

The discovery was made on the Brulpadda Prospects, which is located in the Outeniqua Basin, block 11B/12B.

The early estimates have started to get many people excited as it could be a major financial boost to South Africa, a boost that is desperately necessary for an and economy on its knees, and with the light at the end of the tunnel becoming dimmer by the day. However, there have also been a few cautious warnings about not getting carried away with this discovery.

If all the projections come to fruition, it will indeed provide a boost to the economy, but it is far too soon to tell. It could be up to three years before drilling starts and as some experts have warned, deep sea drilling is not a simple task.

Total drilled the block in 2014 too, but the rough weather of winter wreaked havoc on their equipment, so they pulled the plug. This time, they returned with a more specialised rig and drilled in the summer month of December when the weather is far more conducive.

“We are very pleased to announce the Brulpadda discovery, which was drilled in a challenging deep-water environment. With this discovery, Total has opened a new world-class gas and oil play and is well-positioned to test several follow-on prospects on the same block,” said Total’s Vice-President, Kevin McLachlan.

Because South Africa imports a lot of crude oil and due to the exchange rate of the American Dollar, this discovery is believed to have the capability of having a positive impact on South Africa’s fuel cost.

The prediction from Total is that the field could yield up to one billion barrels of gas. To put this amount into context, ExxonMobil, one of the largest international oil and gas companies, discovered a total of 895 million barrels across the globe and is considered the most successful explorer worldwide.

But this find far exceeds that. This will also be South Africa’s first deepwater well. The country has over 300 offshore wells but they are in far more shallow waters. As with any new find, it has attracted interest from all over and, soon enough, ExxonMobil might

be in South African waters, as might the Italian group, Eni S.p.A, as both companies have stakes in blocks close to that of Brulpadda’s.

Revenue could stream into the government from this project as Total and its partners will pay the regular 28% tax on all the taxable income from Brulpadda.

While all numbers remain estimates, and according to many, the estimates are rather generous, there is a possibility of Brulpadda earning one trillion dollars for Total, with the tax windfall being massive—oil and gas companies also have to pay approximately 5% royalty on all gross sales.

Despite the largely positive views on the gas discovery, many experts believe it is too early to decide what the gas will be used for. The obvious option is to convert the gas at PetroSA’s gas-to-fuel refinery in Mossel Bay—the closest option to where the Brulpadda is situated. However, other options also exist, such as converting the gas to electricity, something the country is clearly in desperate need of.

Another positive for the country would be the impact it could have on job creation, should it all go according to plan. While Mossel Bay is the closest hub to the find, places like Saldanha Bay have already been developed as an oil and gas services hub and can service rigs and drilling equipment, according to Niall Kramer, the CEO of the South African Oil and Gas Alliance.

However, not all views on the discovery have been positive. There have been many legitimate concerns, especially in terms of the environmental impact the discovery could and more likely will have. The strongest of these views came from Melita Steele, Greenpeace Africa’s Senior Climate and Energy Campaign Manager.

After President Cyril Ramaphosa lauded the find at the State of the Nation Address (SONA) in February this year, Melita said: “Greenpeace Africa strongly condemns Total’s reckless oil exploration off the coast of South Africa. Discovering yet more oil and gas is not something to celebrate when burning fossil fuels is driving potentially catastrophic climate change. This is essentially oil that we cannot afford to burn in the face of extreme weather conditions and recurrent droughts.

“Deep sea drilling is far too risky. The possibility for an oil spill always exists, and the environmental impacts of deep sea drilling for oil and gas are too significant to be ignored, with very little benefit or job creation for South Africans. It is reckless of the South African government to allow oil and gas exploration to go ahead, and unfortunate that this was lauded as a victory at the State of the Nation Address last night.”

Other experts on marine life and climate change are largely in agreement with Melita and believe South Africa needs to back renewable energy as the country possesses some of the best resources in the world.

Should Melita’s advice not be heeded and the drilling process goes ahead, as seems likely, there are other pitfalls that must be avoided, the biggest being corruption. There will be large amounts of capital, which will have to be handled properly for South Africans to feel the full benefit.

While Total doesn’t own the full licensing rights to Brulpadda, they do hold the majority with 45%. The others involved will be Qatar Petroleum (25%), Canadian Natural Resources (20%) and Main Street (10%), according to Business Insider. One South African businessman who will be smiling is MTN’s Chairperson, Phuthuma Nhleko. Nhleko owns up to 51% and is the only South African Director of the Main Street company.

Like with any find, there are positive and negative views on the Brulpadda discovery, however, it will be some time before this project fully takes off.

The environmental impact will no doubt be discussed at length, but should they not come out on top, hopefully, the project will end up benefitting the people of South Africa, as it should. 

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