South Africa signals more support for energy groups after Total exits gas project

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South Africa has signaled it may increase support for foreign energy groups after TotalEnergies abandoned plans to develop the country’s biggest gas discovery.

Describing Total’s decision in July to pull out of the Brulpadda and Luiperd prospects as “extremely disappointing”, South Africa’s energy minister Kgosientsho Ramokgopa said in an interview: “We could have done better to ensure that this can the resource be exploited in a more commercially attractive way? Yes.”

Ramokgopa added: “Domestic gas is much cheaper than imported gas, so we need to do more to work with players who can help us exploit these reserves.”

Brulpadda and Luiperd are located 175 km off the country’s southern coast, with the potential to provide a total of 1 billion barrels of oil equivalent.

Total, which held a 45 percent stake in the prospect, had already spent $400 million on development but said the project was “too difficult to develop and monetize economically.”

Total declined to comment further, but industry investors told the Financial Times that state oil company PetroSA’s failure to reach a deal to buy gas from the project was partly to blame for the French group’s decision. PetroSA acting chief executive Sandisiwe Ncemane said last year that the parties were “not mutually agreeable on price”.

Jan Martinek, a former investment banker who runs a family office that invested in the project, said: “This was one of the biggest gas discoveries in Africa and South Africa needs energy after years of blackouts. But for no good reason, PetroSA simply refused to sign an agreement to buy this gas.”

PetroSA declined to comment.

A series of “dramatic flip-flops” by the government on natural gas regulation, including a bill giving the state a 20 percent interest in new exploration projects, was also a likely factor in Total’s decision, according to to Busi Mavuso, the chief of the chief. executive director of Business Leadership SA, which represents the largest companies in the country.

South Africa, which is only now emerging from more than a decade of crippling blackouts caused by problems at electricity supplier Eskom, will face serious gas shortages in the next three years, Ramokgopa said. The threatened shortfall comes after Sasol, which supplies the country with natural gas from Mozambique, said it plans to stop supplies to industrial customers in 2027 as gas fields dry up.

Ramokgopa said the need to work more closely with global energy companies remained an imperative, despite positive news this week that TotalEnergies had taken over the operation of an oil exploration block on South Africa’s west coast.

Brulpadda and Luiperd’s Total partner, Canada-listed Africa Energy Corp (AEC), will now assume 100% of the rights and will seek technical partners to develop the prospects. But the company said they would be harder to operate without the French group.

Johnny Copelyn, chief executive of Hosken Consolidated Investments, which owns a stake in AEC, told the company’s annual meeting last week that South Africa had viable gas reserves but developing them depended on whether the government had the political will to support the sector.

However, members of Total told the FT that its decision was not based on politics, but on the technical complexity of exploiting the discovery at depths of 200-1,800 meters and the uncertainty over how to commercialize the project.

AEC chief executive Rob Nicolella told the FT that “a combination of the economy and the business environment” were the likely reasons for Total’s withdrawal.

“Total has retained interest in other oil projects in South Africa, so . . . this is not a rejection of the country. But if there had been more support from the government, Eskom and PetroSA, it would have undoubtedly made the economy more beneficial,” he said.

While the deepwater discovery would not have been easy to develop, he added, it did not make sense for the country to ignore a major gas discovery. “This project could provide up to 4,000 jobs and 4 gigawatts of power and the government is ignoring it,” he added.

While experts said the forecast appeared too optimistic, it would still make a significant contribution to a strained power grid, while the Petroleum Agency SA, which regulates oil and gas exploration, estimated the project could contribute 450 million of dollars to the state budget every year.

James Mackay, chief executive of the Energy Council of South Africa, a private organization that represents the country’s energy companies, said it would be inaccurate to attribute Total’s withdrawal to government failure or a desire to avoid risky countries.

“Total is continuing its projects in much more volatile areas of Mozambique so that it does not shy away from politics or risk,” he said. “Rather, it’s the economics of the project that aren’t picking up.”