The government approach to shale gas mining is anything but dull – with conflicting statements at Ministerial level vying for space with notices in the government gazette in a month that has left the oil & gas industry reeling. And just to add a bit more confusion, South Africa’s own agencies (http://bit.ly/1eilcos) have reduced the estimates of shale gas by a factor of more than 12 from 485tcf (commonly touted) to 40tcf.
Parliament’s portfolio committee on mineral resources delayed its deliberations on controversial changes to the country’s mining and petroleum law this week.
Although it will bring some relief to the mining industry, which has publicly locked horns with the government over the changes envisaged in the Mineral and Petroleum Resources Development Amendment (MPRDA) Bill, it prolongs policy uncertainty for other players such as those in the nascent oil and gas sector.
The portfolio committee decided on Tuesday to delay deliberations on the Bill. This followed the introduction of new amendments that required alignment with environmental legislation and as such the speaker of Parliament and the National Assembly had to be notified in writing.
The committee’s chair, Faith Bikani, also said a thorough investigation of the separation of the oil and gas sector from the jurisdiction of the country’s mining laws was needed.
“We need to acknowledge that there is a difference in level of the progress we have made in the mining industry as compared to the progress we have made in the oil and gas industry,” Bikani said.
The oil and gas industry has long advocated this. The hiatus in legislative wrangling came hot on the heels of two notices published in the Government Gazette by Mineral Resources Minister Susan Shabangu that had oil and gas industry players scratching their heads.
A regard “for the national interest”
The first in effect extended the moratorium on hydraulic fracturing, or “fracking”, until draft technical regulations for it are finalised and promulgated.
The second invited comments from interested parties on the minister’s much broader intention to “restrict the granting of all new onshore and offshore applications for reconnaissance permits, technical co-operation permits, exploration rights and production rights” for two years.
The official reasons given for the notices were a regard “for the national interest and the need to promote the sustainable development of the nation’s petroleum resources”.
Luke Havemann, an oil and gas expert at law firm ENSafrica, said it could be surmised that the government is seeking to get its “regulatory and legislative house in order”.
Recent developments in the sector, notably the MPRDA Bill and the draft regulations on hydraulic fracturing, both of which have been sharply criticised by stakeholders, pointed to the need for the sector to be governed by is own regulatory and legislative framework.
“Regulation of two distinct industries under the MPRDA has never been the best approach,” Havemann said.
Renewed interest in SA’s oil sector
There is a renewed interest in South Africa’s oil and gas sector, he said, and three “super majors” are active in local waters.
There has also been a high number of applications for exploration licences and the like over the past three years.
Hitting the pause button may dampen the appetite of international oil and gas companies to operate in a country that is not going to be granting licences for the next two years, he said.
But, if the government took the opportunity to improve the regulatory and legislative regime, it could have important positive consequences in future, he said.
“Then the industry would be operating in an … environment that is not dissimilar to other jurisdictions in which these operators work. We are out of step with international best practice when it comes to the way in which we regulate our oil and gas industry.”
But the debate about a division goes against the position publicly taken by Shabangu. At the 2014 Mining Indaba two weeks ago, she said that the two sectors should be governed by one Act to ensure centralisation and regulatory harmony.
Less concerned about the deadline
She was confident that the Bill would be finalised before Parliament’s term expired before the elections.
But the portfolio committee appears less concerned about the deadline. Bikani said, given the stage of development of the local oil and gas sector, it has to be “nurtured” and special attention must be given to aspects of the industry, such as operations in a “sea environment”.
“Right now I am not worried about timelines of the Bill being passed. Instead, let’s wait for the ruling party and get a clear understanding of what route we take to nurture the oil and gas industry,” Bikani said.
The Democratic Alliance’s spokesperson on mineral resources, James Lorimer, said the “more time spent in processing the Bill, the more chance that those driving the Bill will see sense”.
He said the department had ignored the input of industry stakeholders, which had contributed to the current pressure to make so many changes to the legislation now.
Although delays may aggravate the uncertainty for the oil and gas industry, a “harsh choice” has to be made, he said.
Critical issues to be addressed
“It’s not first prize but its better than unacceptable, damaging legislation being passed now.”
Other critical issues still have to be addressed. These include clarity on a proposed 20% free carried interest for the state in all new oil and gas ventures, with an option to purchase a further 30%.
According to critics this proposal, and potential requirements for a 26% black economic empowerment stake, leaves little equity available to investors in new projects, even though they would provide most of the initial capital and bear most of the risk.
The department did not respond to emailed questions by deadline.