Real reason TotalEnergies wants to dump South Africa

Energy expert Anton Eberhard said problems with South African authorities are behind TotalEnergies’ decision to abandon its gas condensate discoveries in the country.

Eberhard is an energy policy and investment specialist and a professor at the Power Futures Lab at the University of Cape Town.

He is highly regarded in the South African energy market and has deep insight into how investments in the sector work.

He shared his views on TotalEnergies’ plan to walk away from its discoveries of gas condensate off the tip of South Africa.

Bloomberg reported that the French petroleum giant spent billions to find an estimated 1 billion barrels equivalent of light liquid hydrocarbon at the Brulpadda field in 2019.

It had further success at the Luiperd well the following year, but neither discovery has progressed to development.

However, it is set to dump the license for these blocks because it doubts whether the deep-water finds can be made commercially viable given South Africa’s small gas market.

The company will concentrate instead on exploring the Orange Basin, located near promising oil discoveries in Namibian waters.

Eberhard said the report is ‘polite speak’ for TotalEnergies not obtaining any traction with South African authorities to develop these offshore gas resources near Mossel Bay.

He said there are multiple options with these gas fields, including PetroSA’s gas-to-petrol refinery which is currently idle after exhausting its gas reserves.

It can also be used to convert Eskom’s peak power plants from expensive diesel to cheaper gas or power a possible new gas-to-power plant.

“Gwede Mantashe scored another own goal. He’s encouraged PetroSA to engage Russia’s Gazprom to explore options,” Eberhard said.

Mantashe suggested Gazprom, even though landing Russian liquefied natural gas (LNG) for the refinery would be completely uneconomic.

“This is a huge lost opportunity. TotalEnergies spent around R8 billion drilling exploration wells,” he said.

“PetroSA simply doesn’t have that kind of money or expertise. And now TotalEnergies is moving to more friendly waters in Namibia.”

Eberhard does not believe Mantashe is capable of leading the development of gas in South Africa, and he lacks experienced international gas transaction advisors.

“Perhaps it’s time for the Presidency’s Operation Vulindlela to step in,” Eberhard said.

The news about TotalEnergies followed two months after reports that Shell would exit shareholdings in its South African retail, transport and refining operations.

The energy company made the decision after reviewing its downstream and renewables business across all regions and markets.

Shell and BP’s southern African unit jointly own the Sapref refinery — the nation’s biggest — in Durban on the country’s east coast.

The 180,000-barrel-a-day facility halted operations before a sale in 2022 and was subsequently damaged by floods.

The government published new rules in 2022 that require refiners to meet low-sulfur fuel specifications by 2023.

According to a lobby group representing the fuel manufacturers, the new rules rendered most of the nation’s fleet obsolete.

Mineral Resources and Energy Minister Gwede Mantashe responded aggressively to the news, saying he would meet with Shell officials to discuss the matter.

“They still want to stay upstream, so what we should be doing, we should be more reluctant to grant licenses and permits, at that level, to Shell,” Mantashe said.

Shell’s oil exploration business has faced multiple challenges in South Africa, where the company has relinquished licenses over legislative uncertainty.

The nation’s Upstream Petroleum Resources Development Bill has yet to be finalised after a years-long process.

Environmental groups have also blocked exploration for hydrocarbons in South African waters through legal action.

Mantashe suggested geopolitical factors may be at play in the exit of Western companies from South Africa.

The minister cited South Africa’s successful lawsuit against Israel’s war on Hamas at the International Court of Justice earlier this year,

“The terms of engagement with Shell will be based on our national interests,” Mantashe said.

The minister said he planned to discuss a reported impasse with Shell and local equity partner Thebe Investment Corp., which has a 28% stake in Shell’s downstream business.