Gas can stabilise the national economy

Petroleum Agency South Africa is granting licences to explore for gas, a fuel that can assist the transition to a net-zero economy.

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South Africa is a net importer of fuel and the country’s refining capacity has been reduced in recent years.

To counter this trend, exploration has been on an upward trajectory. Partly this is explained by growing certainty in the regulatory environment and by the good work done by Petroleum Agency South Africa (PASA), the agency which evaluates, promotes and regulates oil and gas production in the country. This has seen increased interest in South Africa’s potential as a destination for investment dollars.

Underpinning PASA’s strategy is the need to ensure that all prospecting and mining leases are for the long-term economic benefit of South Africa. This applies to every kind of licence issued by the agency, be it in old technologies or new.

Dr Phindile Masangane, CEO of Petroleum Agency South Africa.
Dr Phindile Masangane, CEO of Petroleum Agency South Africa.

Can the economy grow by exploiting the country’s natural resources while at the same time transitioning to a greener future? PASA CEO Dr Phindile Masangane insists that it’s an economic imperative for South Africa to do just that.

Dr Masangane points out that with South Africa’s excellent solar resources it makes sense to localise the solar value chain to boost manufacturing but the country should not ignore what it has. “At the same time, we know that the gas value chain is well established in the country, so let’s also capitalise on that.”

The multiple uses of gas could play a major role in helping South Africa transition away from fossil fuels while at the same time boosting economic growth. “We need gas not just in electricity and transport,” noted Dr Masangane, “but importantly for South Africa, which is in desperate need of an economic turnaround, is for us to use this gas for our manufacturing industry.”

Referencing a section on gas in a report on energy in Africa by the International Energy Agency, Dr Masangane says, “Most of what Africa produces is actually exported out of the continent.”

The report notes that Africa accounts for less than 3% of the world’s energy-related carbon dioxide emissions. Says Dr Masangane, “This report calls for us as Africa to extract the gas and produce it and use it not just to power the continent but to reindustrialise the continent and industrialise in the case of nations that are still to go through that stage.”

Another benefit of the IEA report is that it demystifies some ideas about gas that are not based on science. Says Masangane, “I think there is a misconception – sometimes I think it is deliberate – that the use of oil and gas is not consistent with the decarbonisation strategy. The report unpacks that.”

Many of the 600-million African citizens who are without electricity use distinctly environmentally-unfriendly methods to cook. Masangane notes, “If they were to use gas, whether it is LPG or natural gas or another form of gas for cooking, that in itself is decarbonisation because then you arrest the negative impact of deforestation.” She describes as a “false narrative” the idea that the use of oil and gas cannot be part of a decarbonisation strategy and is pleased that the IEA report puts that argument to rest.

National government’s policy is to diversify the country’s energy mix which is currently coal-dominated to a lower-carbon future by introducing proportionately higher renewable-energy resources such as wind and solar, into the energy mix as well as gas-to-power. Gas burns with less than half the CO2 emissions from coal and additionally has no SOx emissions.

Gas is therefore a suitable transition fuel towards a lower-carbon economy for South Africa especially since gas-to-power technologies are flexible and would therefore complement the intermittent renewable energy being added to the national grid.

Exploration in South Africa

In 2022 TotalEnergies and its partners submitted a production plan to PASA for their recent discoveries off the coast of Mossel Bay, an event which coincided with the beginning of commercial operations of Tetra4’s natural gas project in the north-eastern Free State. These two events prove that investors can see that the South African resources equation adds up to an investable proposition.

Both of these projects came about through the licensing authority of Petroleum Agency South Africa (PASA), reporting to the Minister of Mineral Resources and Energy (DMRE). PASA regulates and monitors exploration and production activities and is the custodian of the national exploration and production database for petroleum. Its role was statutorily endorsed in June 2004 in terms of the Mineral and Petroleum Resources Development Act of 2002.

In terms of strategy, the agency actively seeks out technically competent and financially sound clients to whom it markets acreage, while ensuring that all prospecting and mining leases are for the long-term economic benefit of South Africa. As custodian, PASA ensures that companies applying for gas rights are vetted to make sure they are financially qualified and technically capable, as well having a good track record in terms of environmental responsibility. Oil and gas exploration requires enormous capital outlay and can represent a risk to workers, communities and the environment. Applicants are therefore required to prove their capabilities and safety record and must carry insurance for environmental rehabilitation.

Environmental issues are increasingly playing a big part in discussions about how best to utilise South Africa’s natural resources. As part of an attempt to engage in a broader discussion on policy issues, a joint colloquium was held in 2022 on the subject of how to balance South Africa’s energy needs with the country’s climate change commitments. The colloquium, and several online events which prepared for and anticipated the main event, was jointly hosted by the DMRE, the Department of Forestry, Fisheries and the Environment (DFFE) and PASA.

As part of a drive to create certainty for investors, a new bill has been introduced to replace old legislation. The Upstream Petroleum Resources Development (UPRD) Bill provides for greater certainty in terms of security of tenure by combining the rights for the exploration, development and production phase under one permit.

The draft bill was first published in June 2021 and discussions with industry stakeholders are ongoing. Organisations such as the South African Oil and Gas Alliance (SAOGA) will be coordinating responses to present to parliament.

Objectives of the bill include:

  • expanding black participation
  • promoting local employment and skills development
  • creating an enabling environment to accelerate exploration and production of South Africa’s petroleum resources.

Revised draft regulations related to hydraulic fracking in the gas-rich Karoo region were published by the DFFE in July 2022 for public comment. Fracking is a drilling technique that is widely used in other jurisdictions such as the United States, but environmental concerns have been raised. Dr Masangane told Bloomberg in an interview that groundwater and geological studies are being conducted in the biodiversity-rich areas of the Karoo and that once regulations have been finalised, seismic activity will be undertaken to establish which blocks to license.