South African petroleum catastrophe

Eunomix CEO Claude de Baissac said TotalEnergies’ decision to abandon its gas condensate discoveries in South Africa was an avoidable catastrophe.

In July, news broke that TotalEnergies planned to exit its discoveries of gas condensate off the tip of South Africa to prioritise exploration in other areas closer to Namibia.

On 29 July 2024, TotalEnergies officially announced that it had exited the Brulpadda and Luiperd fields.

This followed 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.

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.

Lorimer said TotalEnergies’ exit from the Brulpadda and Luiperd fields would cost the country at least R100 billion in foregone tax.

Avoidable catastrophe

De Baissac told Classic Business that TotalEnergies’ decision was linked to South Africa’s poor governance and strategy in the energy and mining sector.

He added that the type of transformation forced on companies doing business in South Africa also played a role.

He said the discovery of gas condensate in the Brulpadda and Luiperd fields was big enough to change South Africa’s energy equation.

However, its size was not big enough to justify a large offshore gas liquefaction plant. Instead, it relied on South Africa using the gas.

“The deal required the government and state-owned enterprises to get their ducks in a row,” De Baissac said.

Many things needed to happen for the exploration to happen, ranging from infrastructure and legal contracts to pricing negotiations and route-to-market plans.

“All of these aspects were essential and critical. You can’t say we have 50% or 70% of this right. You must have 100% of it correct,” he said.

However, over five years after the discovery, the South African government did not put things in place to support the exploration.

De Baissac said the guilty parties included the Department of Mineral Resources, PetroSA, and Eskom.

He said the failed project caused South Africa to lose between R70 billion and R90 billion in foreign direct investment.

It also hurt the country in many other ways, including a lost opportunity to generate cheaper electricity and the lack of jobs associated with the project.

He said the whole issue, which extends to mining, is a ‘catastrophe and disaster’ that must be fixed.

“Bring in the right consultants to fix it and make it work. If you can’t make it work, farm it out to a management firm which can do it properly,” he said.