SA gears up for rush of energy explorers
SOUTH Africa is on the cusp of an oil rush never before seen in the country as burgeoning energy demand exposes the vulnerability of its dependence on coal.
US energy producer Exxon Mobil plans to search for crude and natural gas off eastern South Africa after snapping up blocks near Durban, while Anadarco Petroleum bought stakes in about 9,7-million hectares offshore. Royal Dutch Shell has led investor interest, exploring prospects off the west coast.
"The presence of one super-major makes others take an interest," says Dave van der Spuy, resource evaluation manager at state regulator Petroleum Agency South Africa.
"The level of activity and interest in South Africa is at its highest ever," he says.
International energy companies are entering South Africa, the continent’s biggest oil importer, as new technology boosts their ability to find and pump hydrocarbons from deep underneath the seabed. Such advances have already opened up energy provinces elsewhere in African waters, including off neighbouring Mozambique, home to the largest gas finds in a decade.
South Africa had proven oil reserves of 15-million barrels in January 2011, located to the south and off the west coast near the Namibian border, according to Oil and Gas Journal.
The country, isolated from foreign investment until apartheid ended in 1994, has no "significant" crude output, according to the US Energy Information Administration (EIA).
By contrast, South Africa produces more coal than any other African nation, and relies on it to generate three-quarters of its power. The emergence of an oil industry could lower that dependency, tested last year as mine strikes threatened supply, while bolstering an economy that grew at the slowest pace since the 2009 recession in the third quarter.
"The biggest restriction on the economy of South Africa is the availability of energy," says Simon Ashby-Rudd, the global head of oil and gas at Standard Bank Group.
South Africa is boosting power generation capacity to avoid a repeat of blackouts in 2008 that caused mines and smelters to shut down. State utility Eskom, which supplies about 95% of the country’s power, has capacity of about 40,000MW, with almost all of that coming from coal. South Africa aims to more than double that capacity by 2030, says the US Energy Information Administration.
The government, seeking to attract oil and gas producers as the energy mix expands, has offered seismic data to explorers.
Exxon will enter South Africa after buying a stake in blocks from Impact Oil & Gas. Shell is collecting seismic data in the Orange Basin near the Namibian border after winning 37,000km² in February. Cairn India, BHP Billiton and Canadian Natural Resources have also struck exploration accords.
Companies have commissioned six seismic surveys in South Africa in the fiscal year, according to a presentation by the agency.
"The entire offshore acreage is either taken up or is under application," says Tebogo Motloung, manager of licensing and legal compliance at the agency.
Energy discoveries may help lower oil imports, which account for about 67% of the nation’s 550,000-barrel-a-day demand, according to the US department of energy. In 2009, South Africa produced 67-billion cubic feet of the 191-billion cubic feet of gas it consumed, sourcing the remainder from Mozambique.
"If they find significant volumes, it will fundamentally change the energy infrastructure of South Africa and with cheap domestic energy, as you’re finding in the US, will revolutionise the economy," Mr Ashby-Rudd says.
The US became the largest gas producer in 2009 after developing shale resources.
South Africa has also given the green light to shale-gas exploration once a regulatory framework is in place.
Shell in 2011 applied to drill 24 exploratory wells in the onshore Karoo basin, that may hold 485-trillion cubic feet of shale-gas resources, US Energy Information Administratio data show. That’s about 7.3% of the global total, making it the world’s fifth-largest gas reserve.
Chevron has also agreed with Falcon Oil & Gas to explore the area, the companies said last month.
"The government will not stand in the way of exploration and is certainly looking to diversify," says Mark Rosenberg, an analyst at Eurasia Group in New York. "South Africa will present significant demand upstream."
Shale and deepwater drilling could provide new sources of income in South Africa, where economic growth eased to an estimated 2.4% last year from 3.5% a year earlier, according to data compiled by Bloomberg.
Cairn agreed in August to explore the 19,922m² Block 1 in the Orange Basin with local oil company PetroSA. Canadian Natural Resources plans to drill a block with "billion-barrel-type structures" as soon as this year, it said last month.
South Africa granted 25 technical cooperation permits last year and eight exploration licences, according to the petroleum agency. That compares with 10 co-operation permits a year earlier and three in 2010.
"Demand is clear and in certain basins around the coast of South Africa the source has been established," says Mr Ashby-Rudd. "Now the hunt is on to find the appropriate geological structures."
More in this section
- New leader in Iran may offer respite to MTN, Sasol
- Nordex awarded wind farm contract
- Eskom to invest R1bn to diversify its energy mix
- Petrol price to close in on record R13.20 a litre in July
- Eskom will divert power from Billiton whenever demand exceeds capacity
- Cinnergi secures R7bn for its clean energy projects