Legislative support needed to boost gas industry

Within the last few months, the South African oil and gas industry has encountered both positive and negative impacts, however, inadequate legislative support presents a major hurdle, says energy advocacy group African Energy Chamber executive chairperson NJ Ayuk.

Ayuk highlights multinational oil and gas company Shell’s optimism for the vast hydrocarbon reserves discovered offshore Namibia extending into South Africa’s offshore zone. Demonstrating this optimism, Shell asked the South Africa government in July this year for permission to bid on exploration rights for the Northern Cape Ultra Deep block in the Orange basin.

In contrast, also in July, energy company TotalEnergies was said to be considering an exit from Block 11B/12B, the offshore licence area where it discovered large reserves of gas condensate and natural gas in 2019 and 2020.

“After floating several unsuccessful proposals for the development of its Brulpadda and Luiperd fields, the French major may now be ready to follow the lead of Canada’s Africa Energy Corp, which said on July 1 that it was dropping its 20% stake in the block,” Ayuk explains.

Inadequate Support
Ayuk notes that, for other countries, this combination of contrasting news might not be a big deal, as the oil and gas industry is subject to both setbacks and advances that can have varying impacts on stakeholders.

However, he adds that Department of Mineral Resources & Energy hinted in May that “it might punish Shell for selling its local downstream subsidiary by blocking its bids for new exploration licences”.

“If it carries out this threat, then Shell [. . .] will have a hard time testing its belief in the potential of the South African section of the Orange basin,” says Ayuk.

Further, in late April, the National Council of Provinces (NCOP), approved the Upstream Petroleum Resources Development Bill (UPDRB). This move cleared the final procedural hurdles to adoption of the law, and the NCOP followed the vote by sending the UPDRB to President Cyril Ramaphosa for signature.

However, while the UPDRB was first put forth more than four years ago, it is still awaiting signature. Ayuk expresses concern that the Bill has been on Ramaphosa’s desk for more than two months without any action being taken.

He acknowledges the impact of the latest election season in shifting the focus of the President owing to campaign obligations.

However, Ayuk stresses that the elections, and its subsequent priorities, have passed and yet Ramaphosa has not signed the UPDRB or given any indication as to when he might do so. Regardless, he stresses that further delay is “inexcusable in the face of South Africa’s ongoing energy crisis”.

Ayuk points out that South Africa has experienced electricity supply challenges for more than 15 years now, which have been exacerbated since 2019.

“Eskom [. . .] has tried to deal with the problem through loadshedding, but the resulting blackouts have greatly complicated South Africans’ lives while also doing real harm to the economy,” he says.

“The South African government first expressed concern about the prospect of electricity shortages in a White Paper published all the way back in 1998, long before it had committed to a policy of phasing out coal-fired thermal power plants (TPPs),” Ayuk says.

Therefore, for more than 25 years, the government had been aware that it would eventually need to find alternative ways of generating electricity. Despite this foresight, Ayuk contends, South Africa failed to make full use of the time it had to prepare.

Ayuk acknowledges that South Africa has not been entirely inactive. In 2002, former President Thabo Mbeki signed the Mineral and Petroleum Resources Development Act (MPRDA).

However, he notes, the legislation was inadequate as it failed to differentiate adequately between the needs of the already established coal industry and the emerging oil and gas sector.

These shortcomings prompted the government to begin drafting the UPDRB in 2019, however, progress on the new legal regime has been slow, Ayuk explains.

He notes that some of these delays may have been caused by unforeseen developments such as the Covid-19 pandemic, which significantly damaged South Africa’s economy. Additionally, rising environmental activism opposing oil and gas exploration has likely contributed to the slowdown.

Despite this, Ayuk argues that Ramaphosa should be aware of how much South Africa could lose if the energy crisis persists.

He calls on Ramaphosa to take decisive action by signing the UPDRB into law. Doing so would allow international oil companies such as Shell and Total Energies to help South Africa make use of the gas they have already discovered. This, in turn, would enable the country to instead deliver gas to TPPs and accelerate the transition away from coal.