Massive own-goal for South Africa – costing thousands of jobs and R100 billion

TotalEnergies’ exit from its discoveries of gas condensate will cost thousands of jobs and R100 billion in foregone tax revenue.

At the end of July 2024, TotalEnergies announced its exit from its discoveries of gas condensate off the tip of South Africa.

This followed its partner CNR International’s decision to withdraw from Block 11B/12 B (off the southern coast of South Africa); the French energy giant is also withdrawing.

TotalEnergies EP South Africa holds a 45% interest in the block.

The French Giant entered into Block 11B/12B in 2013 and made two gas discoveries, Brulpadda and Luiperd.

That said, neither could be turned into a commercial development as it appeared to be too challenging to economically develop and monetise these gas discoveries for the South African market.

TotalEnergies also decided to exit exploration Block 5/6/7 (SouthWest of Cape Town), where TotalEnergies EP South Africa currently holds a 40% interest.

In 2019, Total spent $400 million (R7.3 billion) to find an estimated 1 billion barrels equivalent of light liquid hydrocarbon at the Brulpadda field. The following year, it had more success in the Luiperd field.

Potential production from Brulpadda and Luiperd was intended to help the country reduce its dependence on coal and provide feedstock for PetroSA’s 45,000-barrel-a-day gas-to-liquids plant, which depends on the depleted fields nearby.

Speaking to BizNews, Portfolio Committee member on Mineral and Petroleum Resources James Lorimer noted that this exit will come at a massive cost.

He explained that a domestic customer or surety to buy and use the gas is needed for the project to be viable.

Some of the uses for this gas included reintroducing Mossgas and building a gas-to-power plant in Mossel Bay.

These were some of the products that were meant to come from the two gas discoveries, Brulpadda and Luiperd. However, TotalEnergies and its parameters were unable to get it from PetroSA.

Lorimer speculated that a possible reason for the exit of TotalEnergies had to do with sentiment around PetroSA and recent reports about its contracts.

This was detailed in an exposé by investigative reporters at amaBhungane, where it looked at companies that were awarded a R21 billion contract to refurbish the Mossgas plant.

Half of the contract was awarded to a Russian group, while the other half went to a company that had already been liquidated because it was unable to pay a relatively small amount owed.

PetroSA offered no comment when these contracts were queried by amaBhungane. However, Lorimer said it posed a clear problem.

“A company that receives a multi-billion rand contract gets liquidated for not paying a couple of R100,000 in salaries is a clear problem,” said Lorimer.

Lorimer said that the optics surrounding these contracts may have influenced the petroleum giant’s decision to move on.

Claude de Baissac, founder and CEO of advisory firm Eunomix, had another long list of possible reasons for the exit.

These range from a failure on the government’s part to properly commit to and develop a serious gas economy (thus limiting the petroleum giant’s prospects for a successful long-term business) to other concerns around compliance with environmental regulations.

However, while the real reason for TotalEnergies’ decision to abandon the projects is rife with speculation, the impact on South Africa is not.

Had South Africa secured surety with TotalEnergies and its partners and gone ahead with Brulpadda and Luiperd, the project would’ve attracted R80 billion in investment and around R10 billion in tax revenues annually, said Lorimer.

This amounts to at least R100 billion in foregone tax revenues. The Petroleum Agency of South Africa estimated that it would also create around 6,500 jobs and R22 billion to GDP.

“South Africa cannot afford this forgone revenue from oil and gas receipts and the potential jobs lost as a result,” said Lorimer.

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