The deal breaker that resulted in global oil and gas giant TotalEnergies withdrawing from its gas development off the Mossel Bay coast was that it could not reach agreement with state-owned PetroSA on the price of the gas produced, MPs were told on Tuesday.
The price that would have made the project commercially viable for TotalEnergies was not commercially viable for PetroSA, which owns a mothballed gas-to-liquid plant at Mossel Bay, the department of mineral resources deputy director-general Ntokozo Nzimande told MPs.
“Pricing became a major problem,” Nzimande said, noting that the nature of the development in harsh conditions contributed to the price required by TotalEnergies.
Minister Gwede Mantashe led a departmental delegation to brief the parliamentary mineral & petroleum resources committee on the withdrawal of TotalEnergies and on the department’s legislative programme for the year. The minister said he was looking at who could take over the gas development, including SA entities, and engagements were under way with a number of parties.
Petroleum Agency of SA COO Bongani Sayidini said TotalEnergies required a firm gas offtake agreement which would have been determined by a favourable gas price. This would have made the project commercially viable, but no-one was prepared to pay its price, which was determined by the difficult ocean conditions in which the development would have to take place. The find was 1,400m-1,800m deep amid strong currents.
Gas is not a readily tradable commodity and could not be developed without a gas market and offtake agreements, Sayidini said. This was why a proven gas field in Namibia had remained stranded since 1974. The country had now become an attractive destination because of the discovery of oil.
Sayidini was confident the gas field could be developed by new partners and he expected other players to have an interest in it in future, especially as the discovery had already been made by TotalEnergies. Other developers would have different economic hurdles.
“So it is not all lost. We are expecting there will be a strong interest in terms of a discovered gas reserve near existing infrastructure,” he said.
Block 11b and 12b off Mossel Bay, where TotalEnergies was involved, have proven combined reserves of 3.4-trillion cubic feet of gas, which Sayidini said would sustain about 560-million standard cubic feet per day gas supply. A total of $400m has already been invested in the project, which would require $2.5bn-$3bn for the first phase of the development and $10bn for full field development.
Sayidini also noted that TotalEnergies was not leaving SA completely as it was going to the Orange Basin on the west coast to an easier development which also involved oil, its major interest. It was common practice, he said, for oil and gas giants to enter and exit blocks.
DA spokesperson on mineral & petroleum resources James Lorimer questioned whether the development would be commercially viable for other developers if the price was not right.
He was sceptical about another developer being interested in the project and being able to offer cheaper gas given that several majors had already pulled out of SA. “So there is a very limited pool of people who have the technical expertise and the pockets deep enough to develop something like this,” Lorimer said in an interview with Business Day after the meeting.
Presenting the department’s legislative programme for 2024/25, Nzimande said there were six bills in the pipeline: the Mineral & Petroleum Resources Development Amendment (MPRDA) Bill, the Mine Health & Safety Amendment Bill, the SA National Petroleum Company Bill, Petroleum Products Bill, Gas Amendment Bill and Radioactive Waste Management Fund Bill.
The MPRDA bill is aimed at streamlining licensing processes, which have been a source of major concern, and will strengthen consultation and transformation provisions in the law. Stakeholder consultations are expected to end in October and the draft bill will be submitted to the state law adviser by February next year.
New penalties for transgressions amounting to 10% of annual turnover are planned in the Mine Health & Safety Amendment Bill. A fine of R500,000 per day under the proposed Petroleum Products Bill is envisaged for undue profits derived from not charging the regulated petrol price when it is adjusted downwards.
The aims of the Petroleum Products Bill are to promote transformation of the sector and streamline licensing provisions. Nzimande said it would be submitted to cabinet for public comments by October and gazetted for public comments by end-March next year.
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