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Shell leads S. Africa on record Oil rush as Coal Falters

  • SOURCE: | qwesa2big
  • South Africa, the African continent’s economic engine, is on the cusp of an oil rush never before seen in the country as burgeoning energy demand exposes the vulnerability of its dependence on coal.

    Exxon Mobil Corp. (XOM), the largest U.S. energy producer, plans to search for crude and natural gas off eastern South Africa after snapping up blocks near Durban, while Anadarko Petroleum Corp. (APC) bought stakes in about 24 million acres offshore. Royal Dutch Shell Plc (RDSA) has led investor interest, exploring prospects off the west coast.

    “The presence of one super-major makes others take an interest,” said Dave van der Spuy, resource evaluation manager at state regulator Petroleum Agency SA. “The level of activity and interest in South Africa is at its highest ever.”

    International energy companies are entering South Africa, the continent’s biggest oil importer, as new technology boosts their ability to find and pump hydrocarbons from deep underneath the seabed. Such advances have already opened up energy provinces elsewhere in African waters, including off neighboring Mozambique, home to the largest gas finds in a decade.

    South Africa had proven oil reserves of 15 million barrels in January 2011, located to the south and off the west coast near the Namibian border, according to Oil and Gas Journal. The country, isolated from foreign investment until apartheid ended in 1994, has no “significant” crude output, according to the U.S. Energy Information Administration.

    Coal Nation
    By contrast, the country produces more coal than any other nation in Africa, and relies on the fuel to generate three- quarters of its power. The emergence of an oil industry could lower that dependence, tested last year as mine strikes threatened supply, while bolstering an economy that grew at the slowest pace since the 2009 recession in the third quarter.

    “The biggest restriction on the economy of South Africa is the availability of energy,” Simon Ashby-Rudd, global head of oil and gas at Standard Bank Group, said Dec. 21.

    South Africa has embarked on a drive to diversify and boost power generation capacity to avoid a repeat of blackouts in 2008 that caused mines and smelters to shut down. Eskom Holdings SOC Ltd., the state utility that supplies about 95 percent of the country’s power, has capacity of about 40,000 megawatts, with almost all of that coming from coal. The nation aims to more than double that capacity by 2030, according to the EIA.

    Exploration Interest
    The government, seeking to attract oil and gas producers as the energy mix expands, has offered seismic data to explorers.

    Exxon will enter the nation after buying a stake in blocks from Impact Oil & Gas Ltd., it said Dec. 17. Shell is collecting seismic data in the Orange Basin near the Namibian border after winning a 37,000-square-kilometer (14,300-square-mile) area in February. Cairn India Ltd., BHP Billiton Ltd. (BHP) and Canadian Natural Resources Ltd. (CNQ) have also struck exploration accords.

    Interest in African oil and gas has increased as companies’ traditional fields age, while expansion in some of the world’s largest energy provinces is restricted by tightened state control over natural resources and by conflict.

    “Everyone is revisiting the geology of South Africa as a place of interest,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis. “Also, investing in the Middle East and Russia is looking less attractive geopolitically these days, so that increases the interest in Africa in general.”

    Shell has held talks with Anadarko and Eni SpA (ENI) to join gas projects off Mozambique, after last year losing a bidding war with Thailand’s PTT Exploration & Production Pcl for Anadarko’s partner Cove Energy Plc. Irving, Texas-based Exxon, missing out on recent finds in Mozambique, Ghana and Uganda, made discoveries off Tanzania with Statoil ASA (STL) last year.

    Seismic Surveys
    Companies have commissioned six seismic surveys in South Africa in the fiscal year, according to a presentation by Petroleum Agency SA.

    “The entire offshore acreage is either taken up or is under application,” Tebogo Motloung, manager of licensing and legal compliance at the agency, said in an e-mail.

    Energy discoveries may help lower oil imports, which account for about 67 percent of the nation’s 550,000-barrel-a- day demand, according to the U.S. Department of Energy. In 2009, South Africa produced 67 billion cubic feet of the 191 billion cubic feet of gas it consumed, sourcing the remainder from Mozambique.

    “If they find significant volumes, it will fundamentally change the energy infrastructure of South Africa and with cheap domestic energy, as you’re finding in the U.S., will revolutionize the economy,” Standard Bank’s Ashby-Rudd said in an interview in London.

    Shale Gas
    The U.S. became the largest gas producer in 2009 after developing shale resources. South Africa has also given the green light to shale-gas exploration once a regulatory framework is in place, lifting a moratorium on the use of hydraulic fracturing to test the extent of reserves in September.

    Shell in 2011 applied to drill 24 exploratory wells in the onshore Karoo basin, an arid region in the west of South Africa that may hold 485 trillion cubic feet of shale-gas resources, EIA data show. That’s about 7.3 percent of the global total, making it the world’s fifth-largest gas reserve. Chevron Corp. (CVX) has also agreed with Falcon Oil & Gas Ltd. to explore the area, the companies said Dec. 12.

    “The government will not stand in the way of exploration and is certainly looking to diversify,” Mark Rosenberg, an analyst at Eurasia Group in New York, said in an e-mail. “South Africa will present significant demand upstream.”

    Fuel Growth
    Shale and deepwater drilling could provide new sources of income in South Africa, where economic growth eased to an estimated 2.4 percent last year from 3.5 percent a year earlier, according to data compiled by Bloomberg.

    Cairn agreed in August to explore the 19,922-square- kilometer Block 1 in the Orange Basin with local oil company PetroSA. Canadian Natural Resources plans to drill a block with “billion-barrel-type structures” as soon as 2013, a Dec. 4 statement shows.

    South Africa granted 25 technical cooperation permits in 2012 and eight exploration licenses, according to Petroleum Agency SA. That compares with 10 cooperation permits a year earlier and three in 2010.

    “Demand is clear and in certain basins around the coast of South Africa the source has been established,” Standard Bank’s Ashby-Rudd said. “Now the hunt is on to find the appropriate geological structures.”

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