The future of oil and gas in South Africa

The latest WOW report on the petroleum industry in South Africa indicates that the future of oil and gas in South Africa is at a critical stage.

Oil and gas are not only of strategic importance but a cornerstone of the energy landscape and vital to South Africa’s economy. The industry’s impact on daily life – from fuels and plastics to medical supplies and construction materials, accentuates its irreplaceability.

Importance of oil and gas in the South African economy

Oil has been one of the most important and versatile fossil-based energy sources in the world. For those who want to ‘Just stop oil’, it might be worth considering some of its applications and the impact it has on daily lives such as:

• Fuels: Petrol, diesel, heating oil etc;
• Lubricants: Motor oil, grease, etc;
• Plastics and synthetic materials: Polyethylene, polyester, nylon, polyvinyl chloride, etc;
• Chemicals: Fertilisers, herbicides, solvents, detergents etc;
• Household products: Cleaners, cosmetics, candles, containers etc;
• Medical: Pharmaceuticals, IV bags and tubing, syringes, gloves, etc;
• Textiles: Clothing, fibres, carpets, etc;
• Construction: Asphalt, insulation etc;
• Packaging: plastic packaging, styrofoam etc; and
• Miscellaneous: Tyres, adhesives, paints, coating, inks and dyes, car seats, engine piping and dashboards, etc.

Gas, due to its better-than-oil emission credentials, has generally become the preferred option over oil in power generation, as well as for industrial and commercial applications that require heating for energy.

Oil and gas consumption are massive worldwide, and their multiple applications make them pervasive in society. Germany, due to its dependence on Russian gas, was rudely reminded of its strategic value when the Russia-Ukraine war broke out, which resulted in a global scramble for alternative gas supplies.

Energy transformation or conversion sources

Coal and gas to fuel

New technologies have made the conversion of coal to gas more economically and technically feasible. However, conversion always comes at a cost, and the quantities produced cannot fully meet total demand. South Africa is a leader in the conversion of coal to gas and to petroleum, providing about 30% of petrol consumption. This percentage excludes other energy consumption uses such as for power stations and industrial processes.

The technical and economic realities of the just energy transition pose a threat to jobs and livelihoods of communities that are coal-dependent like those in the Mpumalanga province. The transition requires substantial investment that could be burdensome to a country that already has high levels of debt and limited fiscal space.

The green hydrogen option

The WOW report lists several Northern Cape green hydrogen projects requiring substantial investments. The difficulty with hydrogen is differing views on whether it is the best strategy, with some specialists cautioning against this approach due to the complexity of storing green hydrogen , which requires extremely low temperatures or high pressure, and the high cost of infrastructure to transport and distribute the resource, which might derail its successful implementation.

It is argued that, considering the energy-hungry industrial process to extract, store and transport hydrogen, its net efficiency ranging between 18% and 46% (Ratio of end-use energy to input energy to produce up to end-use of hydrogen) calls for careful consideration.

The realities of the oil industry in South Africa

Neglect and absence of proper maintenance of infrastructure in the oil and gas sector cannot be underestimated.

The WOW report indicates that refinery capacity has halved in the past four years, resulting in more importation of refined products and the loss of hundreds of by-products such as fertiliser, floor covering, perfume petroleum jelly, soap, and some essential amino acids.

Four South African refineries closed at a time when petroleum products reached their highest prices in years, and led to a decline in refinery capacity and later a costly re-establishment caused by a totally avoidable disruption. While one refinery has since re-opened, refinery activity almost stopped completely from 2020 to 2022.

How the discontinuance of exploration projects impacted the economy

The withdrawal by Shell from the Karoo fracking exploration project after two years, and from ocean exploration of the Eastern Cape coast, as well as the withdrawal by TotalEnergies from the development of the Brulpadda and Luiperd gas fields, in which it invested billions of rands, will have a devastating impact. It is disappointing to read in a Daily Maverick article that the TotalEnergies withdrawal was due to the failure by the DMRE to follow through and its failure to invest in distribution infrastructure.

Being highly dependent on international energy supplies will make it difficult for South Africa to mitigate fluctuating energy prices, which has resulted in a decline in consumption in the past four years and a drag on GDP despite a growing population.

New policies putting economic growth at the centre and following through with the required investment, will take determination, commitment and perseverance from all parties concerned.