Numerous legal victories by environmentalists against oil exploration in South Africa have created a precedent that will likely hamper the auction for exploration blocks for shale gas this year.
This is according to BMI, a Fitch Solutions company, reflecting on the plans of the South African government to auction blocks of shale gas, which is currently pursuing various legal and regulatory routes to ensure its upstream sector is attractive to investors.
“There are concerns that South Africa’s upstream ambitions will be stifled by legal challenges due to the outcome of previous court cases. Back in December 2021, a South African court ruled in favour of environmental groups, immediately halting Shell’s exploration activities in the Transkei region (now the eastern Cape), offshore South Africa’s wild coast,” BMI said in a research note.
This legal challenge came against Shell’s seismic testing exploration plans, which would entail firing air guns sending shockwaves down through 2.9km of water and approximately 40km into the seabed, collecting seismic data for over 6 000km2 of ocean.
“With these precedents in place, there is significant downside risk to the ambitions of South Africa’s government in attracting oil and gas companies to invest without significant legislative amendments. The high-risk characteristics of South Africa’s deep-water acreage coupled with the uncertainty of the above-ground environment will deter investors from funding South Africa’s drive to develop indigenous oil and gas resources,” BMI said.
Minerals and Energy Minister Gwede Mantashe has been a vocal critic of the environmental groups. He is of the view that they stifle development by running to the courts to stop projects with great economic value to the country’s economy.
Former trade unionist turned businessman Johnny Copelyn last year blasted the Ramaphosa administration for being “evasive” on gas exploration in South Africa.
“There is substantial litigation opposing such exploration work. The president has been particularly evasive as to whether he supports such work or not and it is unclear whether this will completely inhibit SA developing its own oil resources despite the obvious prospectivity of the blocks concerned,” Copelyn wrote in a letter to Hosken Consolidated Investments (HCI) shareholders.
“Such inhibition will of course oblige the country to continue to import its requirements at close to double the cost per barrel to the country. We say this because total taxes on such oil production are about half the cost of the product,” Copelyn said.
HCI has an interest in exploration vehicle Impact Oil and Gas.
The Petroleum Agency of South Africa has outlined over 400 000km2 of onshore and offshore territory up for grabs.
“In May 2023, South Africa released further details announcing plans to launch a minimum of 10 new onshore blocks for shale exploration.
“The auctions are expected to take place in 2024-2025 and are the first of its kind for South Africa. The auction would offer blocks located in the environmentally sensitive Karoo region,” BMI said.
