South Africa getting eaten alive

Lumkile Mondi, senior lecturer at Wits Business School, says South Africa’s neighbours are eating South Africa alive by creating a better business environment for petroleum companies.

Mondi shares his views on the recent news that large petroleum companies like TotalEnergies and Shell plan to exit the country.

Last week, Bloomberg reported that TotalEnergies’ planned to walk away from its discoveries of gas condensate off the tip of South Africa.

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.

It is now 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.

Energy expert Anton Eberhard said the report is ‘polite speak’ for TotalEnergies’ failure to obtain any traction with South African authorities to develop these offshore gas resources.

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

TotalEnergies is not alone. Shell had already declared its intention to review its South African operations to cut non-core assets from its portfolio.

Shell announced that it intends to exit shareholdings in its South African retail, transport, and refining operations.

BP South Africa has also disposed of its jet fuel business and sold its stake in the Sapref Refinery.

BP gave similar reasons to Shell for selling its stake in the refinery, saying it was part of global cost-cutting efforts.

Eberhard does not believe Mineral Resources and Petroleum Minister Gwede Mantashe is capable of leading the development of gas in South Africa.

He said Mantashe lacks experienced international gas transaction advisors. “Perhaps it’s time for the Presidency’s Operation Vulindlela to step in,” Eberhard said.

Speaking to The Money Show, Mondi said the Namibian and Mozambiquan governments make it much easier for global companies to do business in their countries.

“They can extract resources at a lower cost, and decision-making is much easier in Namibia and Mozambique,” he said.

In comparison, South Africa struggles to provide policy certainty in the energy sector. This is chasing away companies like TotalEnergies.

The company is now contemplating abandoning these resources despite pumping billions into their discovery.

Instead of investing in South Africa, they are now looking at its neighbouring countries. “You will see massive developments in Namibia and Mozambique,” he said.

Mondi said these two countries are set to benefit from supplying South Africa with gas resources.

“It is a huge concern. As long as South Africa has policy uncertainty, cumbersome processes, and BEE requirements, we will miss the boat,” he said.

“Companies around us which are more competitive, like Namibia and Mozambique, are going to eat us alive.”

One consolation is that it will likely be more efficient for South Africa to work with its neighbours to get gas.

“Our neighbours have gone a long way in their gas exploration. The water currents around the local fields are much riskier and will cost more to explore,” he said.

Negotiating favourable deals with Namibia and Mozambique will bring valuable gas resources to power businesses and homes.

Such deals will be beneficial to South Africa, Namibia, and Mozambique and help the country to achieve its green energy goals.