They struck oil in southern Namibian waters last month. Again. In the last year, oil companies have hit oil three times in the same area, making Namibia one of the hottest offshore oil exploration destinations in the world.
Two more wells are being drilled right now, and after that, up to 10 more wells will be drilled this year. By year-end, Namibia may have as many as 5 or 6 locations that have had exploration and appraisal wells drilled.
One industry insider says that in ten years, Namibia’s government receipts from oil and gas will exceed its current income and will be equivalent to those of Norway.
South Africa’s prospects of finding similar fields are excellent, as the geological field where the discoveries are being made extends into South African waters. This should be the first really good piece of economic news in a while. The ANC government, though, could still blow it, hampering development with legislation that would make it unattractive to drill.
The newest well is called the Jonker-1X deepwater exploration well. The technologies involved are mind-boggling. Jonker is 270km off the Namibian coast. The well is 6,000 metres deep in total, with the first roughly 2,000 metres of that being through seawater. It is at similar depths to Shell’s nearby Graf (all the Shell wells are named for famous African diamonds) and Total’s Venus which were discovered about a year ago.
There are a few geological features that have been discovered in the nick of time for South Africa. The country was saved from being a rural agricultural backwater by the discovery of the diamond pipes at Kimberley in 1867. The country’s first electric lights and first powered flight were made there, as a result of the advancement in technology and investment that followed. Development was put on rocket fuel by the discovery of the Witwatersrand gold fields, which for a hundred years provided a thousand tons of gold each year and dramatically advanced South Africa’s economic and social development. The East Rand and Middelburg coalfields supplied power to drive development. Our range of mineral wealth was expanded by discovery of the Merensky Reef and Bushveld Complex, with their rich endowment of iron, chrome, vanadium and other minerals. Now, there’s another geological feature that could have an equivalent impact on South Africa’s economic health and social development: The Orange Basin.
Informed speculation
The basin includes not only the Orange River system on land, but also a large geological feature off the west coasts of South Africa and Namibia. There’s informed speculation that the offshore parts of the basin could contain over 10 billion barrels of oil and over 50 trillion cubic feet (tcf) of gas.
To get an idea of how much that is, consider that the Mossgas project off the coast of the Southern Cape converted gas into considerable quantities of liquid fuel, and ran for over 20 years after the discovery of about one trillion feet of gas. If used to create electricity, 1 tcf of gas could create 1,000 megawatts of electricity for 25 years.
Although the big finds have been in Namibian waters, the same geological features where they have been made stretch into South African waters. The Namibian discoveries are directly west of South African land but they are in Namibian waters, because sea borders follow the line into the sea of the rivers that are land borders. The Orange land border with Namibia reaches the sea in a south-west direction, so the border heads off from the coast at an angle.
The basin has been known to have hydrocarbons for years. The Kudu gas field was found in Namibian waters north-west of Oranjemund in 1974. Until now it’s not been seen as commercially attractive enough to be developed. That changed early last year, when Shell and Total announced the finding of oil and gas in the Graf and Venus fields, development of which would allow the pipeline and distribution infrastructure that could be shared by Kudu.
The Orange Basin discoveries are new, but they are not the only major oil and gas fields in South African waters. Total has been busy assessing finds made off the South Cape Coast four years ago, in an area known as the Paddavissie Fairway, where it sank the Brulpadda and Luiperd wells. These two are estimated to contain combined reserves of three to four tcf of gas, and up to 1 billion barrels of oil.
International standard
It’s a common complaint that large international oil companies will “steal our resources and take them overseas”. Not so. The oil will be refined in refineries anywhere in the world that is most appropriate to its quality. The important figure to look at is the international standard policy: that host governments, through various ownership, tax and royalty schemes, get around 60% of the value of every barrel of oil produced, or even more. That’s a lot of money coming into the government fiscus which is at a very low level at the moment, with the result that schools, hospitals and roads cannot be properly funded.
Phindile Masangane, Chief Executive at the Petroleum Agency of South Africa (PASA), has been quoted as saying that development of the Southern Cape field is expected to contribute up to $457 million per year to South Africa’s government revenues, creating new opportunities for industrialization and socioeconomic growth on the back of energy independence.
It’s about 64 kilometres between Total’s new finds off Mossel Bay and the old Mossgas offshore infrastructure. In three years, those could be connected, gas could start flowing both for the refurbishment of Mossgas for the production of liquid fuel, and for the gas turbines at the Gourikwa peaking plant. That gas would produce cheaper electricity than the diesel that is currently used. Cheaper fuel means longer running hours, which means more electricity.
Whereas oil could be put directly into tankers at sea, the difficulties in pressurising gas for transport mean that it would probably be more economical to send it to shore via pipelines. That would mean gas would be available for power and industrial use. Alternative sources of power that are cleaner than coal would have wide application, particularly as gas-fired electricity, which is quick to power up or dial back, is known as the perfect power source to complement renewables, which have intermittency problems.
Abortive attempt
After an abortive attempt to update oil and gas legislation and shoehorn it into a rewritten mining law in 2014, the ANC government realised, with glacial slowness, that oil and gas needed separate and very different governing legislation. The new Upstream Petroleum Bill is currently before Parliament. It is a better, but still imperfect attempt to strike a balance between a government that derives maximum benefits for the fiscus and still incentivises oil companies to commit the huge amounts of risk capital to offshore drilling.
With the International Energy Agency reporting over 80% of world energy being derived from fossil fuels, South Africa’s oil and gas endowment will be valuable for a long time. If the current government continues to mess up legislation and drive away investors, the endowment will remain an asset for the country, to be exploited under this government or the next.
[Photo: GETTY images]
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