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SA Gas Boom Gains Ground, But Official Says Rules Revision Needed

The discovery of large South African offshore gas deposits has buoyed the oil and gas sector, but legislation needs to be finalized to attract investors and ensure that citizens benefit from the exploitation of the country’s resources.

The discovery was made in February by oil and gas company Total at its Brulpadda prospect, located 175 kilometers off the southern Cape, in the Outeniqua basin, the Johannesburg City Press reported Nov. 10. Estimated to contain 1 billion barrels of oil equivalent, the find has been lauded as a “game-changer” for South Africa by Adewale Fayemi, managing director for exploration and production at Total. He was addressing delegates at last week’s Africa Oil Week conference, held in Cape Town.

The discovery of gas in the Rovuma basin, off Mozambique’s northern coast, which holds an estimated 32 billion barrels of oil equivalent, has also spurred interest in drilling off KwaZulu-Natal — where Sasol and Italian multinational oil and gas company Eni have exploration rights.

However, the drilling of six exploration wells off KwaZulu-Natal has been stalled by 47 appeals, lodged in terms of the National Environmental Management Act.

As reported by City Press on Oct. 27, the appellants include a dive center, academics, environmental nongovernmental organizations, a documentary production company, an architectural firm, marine biologists and an eThekwini ward committee. The appellants are challenging the authorization granted by the department of mineral resources and energy.

The Brulpadda find — undertaken by Total, despite a lack of legislative and regulatory clarity on issues such as future cost recovery — has also renewed interest in exploration. This interest has been spurred by the recent publication of the government’s long-awaited Integrated Resource Plan, which provides for an additional 3,000 megawatts of gas-fired power by 2030.

However, said Fayemi this week, in order to unlock the potential billions of rands worth of investment in exploration and infrastructure, the government needs to provide an enabling environment for investors.

The splitting of minerals and energy into separate departments in 2009 created a host of practical problems regarding governance of the petroleum sector. This was exacerbated by minerals and petroleum having been combined in the Mineral and Petroleum Resources Development Act of 2002. The act regulated exploration and production of oil and natural gas (known as the upstream sector), but it fell solely under the authority of the mineral resources minister.

The Mineral and Petroleum Resources Development Amendment Bill of 2008 further stultified the development of the upstream petroleum sector by about five years, said Peter Leon, a partner at global law firm Herbert Smith Freehills and co-chair of its Africa practice.

Leon said the government had now “clearly recognized” that petroleum needed its own legislation. Hence, the Brulpadda discovery had led to the withdrawal of the amendment bill and the development of the new Petroleum Resources Development Bill, focusing on the oil and gas sector.

Kishan Pillay, director of upstream and midstream oil and gas in the department of trade and industry, said the bill’s finalization would lead to much-needed investment in South Africa.

“We need to get the ball over the line,” Pillay said. “Operators want to know that the rules of the game are set. They want to understand how they play within those rules, and to understand that if there are going to be changes down the line, how these changes will be effected. But the main thing they want to know is the price risk.”

Pillay said that Mozambique had set an example by modeling its legislative framework on Norway’s best practice. As a result, Mozambique was now the recipient of $80 billion (R1.2 trillion) in foreign direct investment linked to the Rovuma basin discovery. The amount is more than five times the country’s GDP.

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