GOVERNMENT BACKING FOR OFFSHORE OPERATIONS
With energy reserves off the South African coast optimistically estimated at nine billion barrels of oil, and approximately 60 trillion cubic feet of gas, the government has moved the issue of the offshore oil and gas sector to the front burner. If the recent protracted maritime industry discussions are anything to go by, the government appears committed to the undertaking. Known as Ocean Labs, and now marketed as Operation Phakisa, discussions highlighted areas of weakness in the wider maritime sector, and formulated action plans to upgrade the entire industry. Because of its strategic nature and its potential as a large-scale job creator in a country with around 30 percent unemployment, the offshore oil and gas sector received special attention.
In the quest by the apartheid government to reduce its dependence on imported oil, some discoveries of oil and gas were made during extensive undersea exploration about 40 years ago. Today those limited reserves are running low, however, those at the hub of this industry are pinning their hopes on new technology to discover southern extensions to the rich reserves of oil and gas off Angola and Mozambique.
Besides the South African governments desire to be independent of oil supplies from the turbulent Middle East, the reward for finding sustainable reserves will be a reduction in the cost of oil, while the government will benefit from taxes, and other levies payable on oil and gas production. The downstream petro-chemical industry is also expected to expand with the associated improvement in employment prospects.
Survey ships have been active and drilling operations have been attempted off the South African west and southern coasts. To support their optimism, advocates point to the recent discoveries off Norway that were not shown on earlier surveys of the seabed, but were revealed by advanced high-tech subsea survey technology only a few years ago. Some of these operations, have however, been aborted because of adverse seabed conditions, or because of government tardiness in formulating the taxation structure and other legislative issues surrounding undersea prospecting and production.
For South Africa to capitalise on this opportunity, however, it needs to create an environment that promotes exploration to drill about 30 exploration wells in the next 10 years, while simultaneously maximising the benefits for the country. Until the recent release of the recommendations by the working group charged with mapping the future of the maritime industry, a number of potential participants, including investors in the oil and gas prospecting sector opted out of contention, because there was a lack of legislative clarity, especially in respect to taxation and possible nationalisation of the oil industry.
In a dramatic U-turn, the South African government has undertaken to create a stable and clear legislative framework governing offshore oil and gas, as well as the formation of a “one-stop shop” within the Department of Mineral Resources (rather than within the Department of Energy) to streamline and regulate the licensing processes for offshore exploration and production. The South African Oil and Gas Alliance (SAOGA) welcomed this stance, commenting in a recent press release: “Outcomes of Operation Phakisa… could result in the implementation of policies that support growth and development in the oil and gas, [as well as the] marine transport and manufacturing sectors in South Africa. Comments by the Mineral Resources Minister Ngoako Ramatlhodi on proposed changes to the 2002 Mineral and Petroleum Resources Development Act and the creation of a separate Oil and Gas Act are encouraging”.
By addressing this major issue, the government has signaled its encouragement for oil exploration and support of production companies and investors in offshore operations. Opening the way for the desired development of a more robust oil and gas industry in turn will attract more industry-related vessels to operate from South African harbours. The vision for a fleet of South African flagged vessels and crew may be a reality.
Given the relative proximity of the West African oilfields, the prospect of South Africa’s offshore oil and gas sector, as well as the imminent launch of Mozambique’s extensive gas production plant, the market for offshore platforms, rigs, drill ships and numerous support vessels is expected to increase dramatically. South African ship repairers and shipbuilders, who are already supplying vessels for clients in West and East Africa, will be set to profit.
Industry has appealed to government to ensure insurance and charters remain fixed in South Africa, helping to retain revenue earned in the domestic economy. Wider ancillary activities, such as ships’ agents, Chandling and crews’ travel, are bound to benefit from this request. Several rig refits in Cape Town and Saldanha Bay continue to contribute to the economy of the Western Cape Province, while a number of rigs either in lay-up or undergoing maintenance work are harbored at the relatively new port of Ngqura in the Eastern Cape.
With its vast lagoon, deep natural harbor and vast tracks of undeveloped land, Saldanha Bay is destined for substantial growth. Its crude oil import terminal already has a throughput of millions of tons per annum. If sustainable volumes of oil and gas are found off South Africa’s West Coast, this figure will soar dramatically and as a result Saldanha Bay is expected to grow more rapidly than any other South African port.
Saldanha’s mega-storage facility for crude oil will enable the port to become a hub for oil distribution. Almost equidistant from West African and Brazilian oilfields, plans are under way to position the port as a major oil blending centre. This will have a positive impact on the local shipping industry, as this will attract more tankers to the port, encourage growth in the volume of dry bulk exports, and increased demand for oil rig and ship repair capability.
The positive scenario surrounding the oil and gas sector could become clouded by inertia, given the frequent failures of local politicians and maritime authorities to seize the opportunity to develop the South African offshore oil and gas industry. If, however, authorities catch the wave of enthusiasm stimulated by Operation Phakisa, the result could have exciting outcomes for the South African shipping industry and the people of this country.
