Activists in South Africa renew fight with Shell over sea floor blasting

Hello and welcome back to Energy Source, coming to you from New York and Johannesburg.

Today’s edition is all about Shell. Our main piece is about the oil major’s battle with environmentalists to search for oil and gas off South Africa’s east coast.

But to start with, Shell has also beaten Saudi Aramco to a deal for Pavilion Energy, a Singapore-based liquefied natural gas (LNG) supplier and trader that was owned by the state investment fund Temasek.

Pavilion supplies more than one-third of Singapore’s power and industrial gas, and also has a presence in Spain, after it bought Iberdrola’s LNG business in 2019.

Shell already has the biggest LNG business of any international oil company, but the Pavilion deal will grow its volumes by just under 10 per cent. Read the full story here.

And now to South Africa, where a decade-long legal dispute for Shell is warming up again.

Shell to ask South Africa’s top court to weigh exploration case again

In a legal case that could create a precedent for energy exploration off South Africa’s eastern coast, petrochemical powerhouse Shell looks set to lock horns with environmental activists in South Africa’s top forum, its Constitutional Court. 

The story began in April 2014, when Shell won the right to look for oil and gas off of the nation’s Wild Coast. It spent R1.1bn ($60.2mn) preparing to do this, but the project failed to get off the ground following a court challenge from Greenpeace and communities living along that coast.

The activists argued that Shell’s attempt to conduct seismic blasting of the ocean floor would harm sea life and interfere with the “social and cultural customs” of local communities. Shell, however, argued that not only were these fears overblown, but scrapping the project would ruin South Africa’s chance for energy security.

This decade-long legal spat has inflamed passions in South Africa, as the global imperative for the country to ditch fossil fuels has bumped up against the political aspiration to revive an economy growing at less than 1 per cent a year and in which 32.9 per cent of the population is unemployed. 

In court papers, Shell’s former South African chair, Hloniphizwe Mtolo, made much of the potential economic benefits.

“South Africa is currently highly reliant on energy imports for some of its energy needs. Should commercially viable resources be found offshore, this could significantly contribute to South Africa’s energy security and government’s economic development programmes, whilst supporting local employment,” he said.

Beneath that seabed, Shell said, there could be many billions of barrels of recoverable hydrocarbon, and if this can’t be exploited, the potential economic loss to South Africa “would be in the billions of US dollars”.

The latest ructions

Two weeks ago, South Africa’s Supreme Court of Appeal (SCA) rejected Shell’s attempt to overturn a 2021 ruling halting this project, even as it simultaneously opened the door for Shell to reapproach the government for permission following further public consultation.

Judge Nathan Ponnan said the initial court order against Shell was wrong in holding that the authorisation of new oil and gas exploration is inconsistent with South Africa’s ability to comply with international commitments on climate change.

“Such a far-reaching finding . . . cannot be endorsed,” he said.

Cormac Cullinan, a lawyer acting for Greenpeace and Natural Justice, said those organisations will now appeal this case to the Constitutional Court.

“The judgment is quite peculiar as it upheld most of our arguments, but it throws a lifeline to Shell by allowing it to ask the government again for permission to go ahead with the project,” he told the FT. “Government’s decision to grant them the right in the first place was found to be unlawful, so it can’t be right that they can now get another bite of the cherry.”

Pam Ntaka, spokesperson for Shell in South Africa, told the FT that “we welcome the Court’s direction that the exploration right remains valid, subject to further public consultation and the renewal application.”

Tracey Davies, executive director of shareholder activist organisation Just Share, told the FT that Ponnan’s judgment was “disastrous” in opening the door for new fossil fuels projects in South Africa.

Nor were Shell’s arguments about economic development new, she said.

“In Africa, these projects haven’t benefited the wider population. In Nigeria and Angola, oil wealth has only destroyed the environment and made a few kleptocrats enormously wealthy. It may create a few jobs, but this comes at a steep cost to these countries,” she said.

South Africa’s government had seemingly prioritised the economic benefits when it first gave Shell the go ahead. 

In December 2021, South Africa’s minister of minerals and energy Gwede Mantashe had argued that to veto Shell’s exploration would be to ensure the status quo “of energy poverty” in Africa would remain. And he hinted at a darker agenda among environmentalists:

“Could it be possible that this is an extreme pure love for the environment, or an unrelenting campaign to ensure Africa and South Africa do not see the investment inflows they need?”

While Mantashe championed Shell’s cause, it remains unclear whether he will remain the minister after a shock election result forced the governing African National Congress into sharing power with rival political parties, which may want a say in the new cabinet.

The environmentalists had based their argument on more than just climate change, however. Greenpeace had argued that “despite the potentially devastating impact that the seismic blasting will have”, Shell did not get the required environmental authorisation nor did it “consult with affected communities”.

What Shell wanted to do was to conduct seismic surveys across 6,011 square kilometres of the Indian Ocean seabed by shooting waves of compressed air from an airgun into layers of rock to identify energy reserves. This would be done 20-80km from shore.

But Greenpeace said this type of blasting had been “linked to damaging effects on sea life from whales to microscopic zooplankton”, citing other nations’ bans on seismic tests.

Local communities also argued that Shell’s exploration would do serious harm to their “spiritual and cultural” practices. “The sea plays a central role in the spiritual and cultural life of the Amadiba community. It is sacred to them. Traditional healers rely on the sea for their treatments. Such healers go to the sea to commune with ancestors who reside in the ocean,” they argued. 

Shell’s Mtolo refuted this, arguing that Shell was “certain that the seismic survey will not have an impact on the local communities’ livelihoods in terms of their ability to fish and practise their cultural customs along the shoreline.” 

Finding balance

James Mackay, the CEO of the Energy Council of South Africa, told the FT that this debate requires a delicate balance.

“Developing countries like South Africa have contributed far less to climate change than developed countries, so it is equitable that developing economies should be able to draw down on this accumulation of environmental debt,” he said. “But on the other hand, South Africa absolutely needs to be committed to decarbonisation and our global climate change obligations.”

For a country that has battled crippling power blackouts for more than a decade, Mackay says there can be no dispute that South Africa needs natural gas for both power and industrial use, which would cost less than importing it, and is considered a cleaner fossil fuel than oil.

“At a global level, you can absolutely argue that we don’t need more exploration for fossil fuels. But does that mean that countries like South Africa must forgo its reserves, and spend far more on buying it from the Middle East, until we have fully transitioned to renewables?”

These arguments are likely to be ventilated when this case comes before South Africa’s Constitutional Court which has an opportunity to set an important precedent likely to affect future mining activity and progress towards climate change targets. (Rob Rose)

Power Points

• President Joe Biden came to office threatening to make Saudi Arabia a pariah state, but the kingdom has managed to win him over. This FT Big Read explains how.

• Trafigura has agreed to pay a $55mn US fine over charges of alleged fraud and manipulation.

• Biden is ready to reopen US oil stockpile if petrol prices surge again, the president’s closest energy adviser told me and Myles McCormick.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.