ALEXANDER PARKER: Debanking spectre killed Gazprom-Mossgas deal. So now what?

It’s crunch time for oil and gas in SA. Amid a flurry of somewhat lurid reporting on the decision of Shell to sell its share of Shell-branded forecourts in SA — nattily described as “downstream” in energy vernacular — we may have missed the point.

In fact, a huge struggle is playing out over the future of the industry, and the unnoticed passing of a deadline two weeks ago regarding a sanctioned Russian bank and an SA refinery tells us the future is murky. The passing of the Upstream Petroleum Resources Development Bill last week is a part of this environment, and one of the outcomes of this wrestling match could yet be the departure of the Western oil majors. But it’s far from over.

In March mineral resources & energy minister Gwede Mantashe said the cabinet’s December decision to approve the R3.8bn investment by sanctioned Russian bank Gazprombank Africa to refurbish and run state-owned PetroSA’s Mossel Bay gas-to-liquid refinery would be subject to studies before being implemented. The refinery shut down in 2022 due to a lack of feedstock.

Mantashe told Business Day the cabinet decision was dependent on nebulous feasibility studies and engagements with the parliamentary committee, the Central Energy Fund and PetroSA. He said a budget from Gazprombank was coming in April and the decision would be announced by the end of that month.

That deadline passed quietly two weeks ago and the minister’s silence — easily missed amid the noise around Shell One Stops and the elections — hides an important story.

At the time, the risk of secondary sanctions was dismissed by minister in the presidency Khumbudzo Ntshavheni and by executives at PetroSA. There were 20 expressions of interest, but tender guidelines heavily favoured the Gazprombank deal, which was what made it to cabinet.

I am told, though, that some SA banks have made it clear through informal channels that PetroSA would be debanked if the deal went ahead. While not taking any kind of qualitative view on the issue, the local banks will have had to explain that the risks involved for SA banks with US operations were severe.

The silence from the department on the future of the Mossgas-Gazprom deal is likely informed by the fact that it is dead. There may be more bluster and further announcements of progress, but it’s not going to happen — and this constitutes appalling mismanagement of an important energy resource that the government would like to keep quiet until after May 29.

Our oil and gas supplies are vulnerable to disruption for various reasons, and some have asked: without the downstream operations, what is left of Shell SA? As my colleague, Kabelo Khumalo, reports today, part of the answer to this will play out in the Supreme Court of Appeal this week, where the British company will seek to overturn a high court-imposed ban on seismic exploration off the Wild Coast, where it wants to prospect for oil and gas.

At the same time, French oil major TotalEnergies has said it will join the departments of mineral resources & energy and forestry, fisheries & the environment to oppose a bid to set aside their licence to drill off the coast. These legal manoeuvres will be fought tooth-and-nail by environmental organisations and community interest groups, but they do indicate that neither Shell nor Total has entirely given up on “upstream” operations in SA.

The state of our refineries (“midstream”) is not good. Mossgas is down. Both the Sapref (Shell and BP) refinery and the Engen refinery in Durban are closed, and TotalEnergies recently sold its minority share of Sasol’s Natref operation in Sasolburg to a London-based outfit called Prax Group.

Prax also recently bought Shell’s minority share of a German-based refinery owned by Russia’s Rosneft, as part of the company disposing of links with Russian firms. Natref represents an existential emissions challenge for Sasol that it seems to be unable strategically to get to grips with.

None of the oil companies wants to say it, but it’s likely these refineries will remain toxic to investment until there is certainty about regulations around fuel standards, which in the form of a proposal called Cleaner Fuels 2 (CF2) is a plan to bring SA fuels in line with more modern standards that has been rattling around the industry since 2011.

Upgrading the refineries will cost billions, so until there is cast-iron regulatory certainty it is likely they will remain closed, and SA will be exposed to the cost of imported fuels.

Logistics constraints and security issues on Transnet’s fuel lines, which are apparently tapped by thieves regularly, add to the constraints. Logistics issues meant OR Tambo International Airport started to run low of aviation fuel recently.

It is clear it almost doesn’t matter which “stream” you’re in. Upstream is a minefield of restrictive regulations and litigious and organised environmental groups. Midstream is in regulatory purgatory and carbon risk, and downstream is a business hobbled by administered prices and the exposure to property, security and labour issues. It’s a tough business, which is why you need the scale and deep pockets of either big oil or big state. The question is, which is best?

As for Gazprombank, the essay “The Kremlin’s playbook for South America” by Ruslan Stefanov and Martin Vladimirov is worth quoting. “In targeting countries the Kremlin engages with existing or aspiring [state] captors in the hopes of dominating local strategic markets in energy telecommunications and banking. Having gained an economic foothold, the regime’s networks employ opaque financial flows, or ‘corrosive capital’ to further exploit governance weaknesses ... to break down democratic institutions and entrench themselves in the power centres of the host country.”

Now, that hasn’t happened here, but only because local banks took one look at the US office of foreign assets control and squeaked. It does raise the question once again as to why those tender requirements were so perfectly designed for Gazprombank Africa.

Whatever the answer, our liquid fuels industry is in a complete mess. The country desperately needs new political leadership in energy.

• Parker is Business Day editor-in-chief.