SA’s hopes high as majors search for oil and gas

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South Africa is on the cusp of an oil rush never before seen in the country as growing energy demand exposes the vulnerability of its coal dependence.

Exxon Mobil, the largest US energy producer, plans to search for crude and natural gas off eastern South Africa after snapping up blocks near Durban, and Anadarko Petroleum has bought stakes 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,” said Dave van der Spuy, the resource evaluation manager at state regulator Petroleum Agency SA. “The level of activity and interest in South Africa is at its highest ever.”

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 under the seabed. Such advances have already opened up energy provinces elsewhere in African waters.

South Africa had proven oil reserves of 15 million barrels in January 2011, according to Oil and Gas Journal, but has no “significant” crude output, according to the US Energy Information Administration.

By contrast, the country produces more coal than any other in Africa, and relies on the fossil fuel to generate three-quarters of its power. The emergence of an oil industry could lower that dependence and bolster the economy.

“The biggest restriction on the economy of South Africa is the availability of energy,” Standard Bank global head of oil and gas at Simon Ashby-Rudd said last month.

The government, seeking to attract oil and gas firms, has offered seismic data to explorers.

Exxon would enter the nation after buying a stake in blocks from Impact Oil & Gas, it said on December 17. Shell is collecting seismic data in the Orange Basin after winning a 37 000km² area last February.

Cairn India, BHP Billiton and Canadian Natural Resources have also struck exploration accords.

Interest in African oil and gas has increased as companies’ traditional fields age, while expansion in some of the world’s largest energy areas is restricted by tightened state control and conflict.

Companies have commissioned six seismic surveys in South Africa in this fiscal year, according to a presentation by Petroleum Agency SA.

“The entire offshore acreage is either taken up or is under application,” said Tebogo Motloung, the agency’s manager of licensing and legal compliance.

“If they find significant volumes, it will fundamentally change the energy infrastructure of South Africa and cheap domestic energy, as you’re finding in the US, will revolutionise the economy,” Ashby-Rudd said in an interview.

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, lifting a moratorium on the use of hydraulic fracturing to test the extent of reserves in September last year.

Shell in 2011 applied to drill 24 exploratory wells in the onshore Karoo basin, which may hold 7.3 percent of the world’s shale-gas resource. Chevron had also agreed with Falcon Oil & Gas to explore the area, the companies said last month.

Cairn agreed in August to explore Block 1 in the Orange Basin with parastatal PetroSA, while Canadian Natural Resources plans to drill a block with “billion-barrel-type structures” as soon as this year.

South Africa granted 25 technical co-operation permits last year and eight exploration licences. 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,” Ashby-Rudd said. “Now the hunt is on to find the appropriate geological structures.” – Paul Burkhardt from Bloomberg


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