SARS Commissioner Edward Kieswetter kisses R100 billion goodbye

TotalEnergies’ decision to quit its gas-condensate discoveries in South Africa can cost the country R100 billion in tax revenue.

TotalEnergies’ decision to quit its gas-condensate discoveries in South Africa can cost the country R100 billion in tax revenue.

On 29 July, TotalEnergies announced that it had exited the Brulpadda and Luiperd fields after its partner, Canadian Natural Resources International (CNRI), had made a similar decision.

Canadian Natural Resources International, which held a 20% stake in the block, announced its plans to exit in early July. It did not provide reasons for its decision.

TotalEnergies has also decided to exit from offshore exploration Block 5/6/7 where TotalEnergies EP South Africa currently holds a 40% interest.

TotalEnergies entered into Block 11B/12B in 2013 and made two gas discoveries, Brulpadda and Luiperd.

TotalEnergies spent at least $400 million using unprecedented engineering solutions to drill in one of the fastest ocean currents in the world.

In 2019, an estimated 1 billion barrels equivalent of light liquid hydrocarbons were found in the Brulpadda field. It had further success at the Luiperd well the following year.

Potential production from the fields was also earmarked as feedstock for state-owned PetroSA’s 45,000-barrel-a-day gas-to-liquids plant.

However, it decided to exit these finds because “it appeared to be too challenging to economically develop and monetise these gas discoveries for the South African market”.

The decision comes as South Africa, which imports all its oil and gas, plans to use more fuel to reduce its dependence on coal for power generation.

However, TotalEnergies remains in Block 3B/4B and other areas closer to the maritime border with Namibia, where significant discoveries have been made.

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

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 for 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.

James Lorimer, a DA Member of Parliament and the shadow minister of environmental affairs, forestry and fisheries, said this is a blow to South Africa.

Speaking to Biznews, Lorimer said TotalEnergies’ exit from the Brulpadda and Luiperd fields would cost the country at least R100bn in foregone tax.

He explained that it was the first serious offshore discovery of hydrocarbons in South Africa, estimated at a billion barrels of oil condensate.

The Petroleum Agency of South Africa estimated it would add about 6,500 jobs and R22 billion to South Africa’s GDP annually.

“Gas from these fields would have powered the old Mossgas gas-to-liquids plant and the Harikwa peaking plant,” he said.

He explained that petroleum companies are highly sensitive and politically correct, which means their official reason for exiting South Africa should be taken with a pinch of salt.

Lorimer said there are many possible reasons behind TotalEnergies’ decision to quit its gas-condensate discoveries in South Africa.

They include the field’s technical difficulty, a lack of a secure offtake agreement, and concerns over Petro SA’s credibility.

“Recent contracts given to dubious companies, like the Russian Gazprom and Equator Holdings, might have played a role,” he said.

Lorimer said the negative impact on South Africa and its economy should not be underestimated.

“It was estimated that the project would generate about R10 billion rand in tax revenues annually,” he said.

The project would have also created thousands of jobs and reduced diesel costs for peaking power plants.