So, South Africa clearly has a need for the revenues oil and gas would bring, but is there the potential for such oil riches? For the moment, activity in the oil and gas sector would suggest that is the case as several major international oil companies are vying for exploration and drilling rights all across the country.
Offshore, hopes of finding similar-sized oil and gas discoveries as found in Mozambique have drawn in Exxon-Mobil, — which has snapped up prospecting rights for a block of ocean off of Durban, on the country’s eastern coast. On South Africa’s western coast, meanwhile, Royal Dutch Shell is leading an investor consortium interested in obtaining significant offshore exploration rights. Additionally, Shell is exploring the potential for deep water oil along the South African-Namibian border.
Onshore, while prospects for conventional oil development remain poor, the introduction of hydraulic fracturing technology — which has recently revolutionized U.S. oil and gas production — could open up significant amounts of shale gas and oil. U.S. oil giant Chevron, for instance, has aimed to move in on developing this opportunity through partnerships with local oil companies.
Though the economic windfall from onshore natural gas alone could amount to nearly $115 billion, and offshore vastly more, skeptics cite many potential problems. First, oil and gas development, especially onshore fracking, would take place in environmentally sensitive areas threatening already tight fresh-water supplies.
In the United States, concern over groundwater contamination has sparked widespread protests against hydraulic fracturing and in Texas and New Mexico – both severely affected by drought – local farmers and whole towns have lost access to water as a result of the process. Whether fracking in South Africa will face similar opposition remains to be seen; though as one of Africa’s most vibrant democracies it can no doubt be expected.
Second, offshore oil production – as seen in the recent Deepwater Horizon disaster in the Gulf of Mexico – is also extremely risky. Regulating such an industry to ensure safety and sound environmental stewardship is a difficult task even for advanced, developed countries like the United States — and the record of such management in Africa is scanty. Still, South Africa is no Nigeria or Angola, suggesting that if initial opposition to drilling can be overcome then a reasonably sound regulatory framework will likely be established.
Longer term, a growing oil and gas industry – while great for domestic energy security – could threaten the soundness of South Africa’s manufacturing and mining sectors by putting upward pressure on the rand. Already South African manufacturers face immense pressure from cheap imports from Asia and a stronger currency will only worsen the country’s manufacturing competitiveness. As for mining – long South Africa’s prime source of income – a stronger currency will make capital-intensive mining equipment easier to finance and thus easier to import, thereby reducing costs. A stronger rand will also diminish the attractiveness of South African-sourced minerals on global markets.
Since mining and manufacturing traditionally employ far more people than oil and gas, unemployment could thus also become even more of a problem than it currently is today. This in turn could only be ameliorated by expanding social services – which would increase the power and size of government and raise the stakes of winning or losing elections. Corruption, a common side-effect of energy investment in developing countries, could become a significant problem in a political system all but controlled by the ANC.
As in the rest of Africa, oil and gas development will provide no quick-and-easy solutions to the country’s problems. Indeed, it could make them worse. However, given the potential riches that lie underground and offshore, it seems a safe bet that they are just too tempting to leave lying fallow for too much longer.
