/ 23 April 2021

Oil, gas an ‘illusionary’ quick fix

Africa's Oil Hub Woos Global Traders With New Million Barrel Tanks
Paradox: Workers secure beams at the crude oil storage and blending facility in Saldanha Bay in 2019. South Africa has pushed the offshore oil and gas industry, exposing contradictions with its climate change commitments. (Waldo Swiegers/Bloomberg/Getty Images)

The growth of an offshore oil and gas industry is unlikely to have benefits nationally or locally, despite claims that it will bring significant economic development to South Africa.

This is the thrust of a new report, Who Stole our Oceans: A Literature Review of the Socioeconomic Consequences of Offshore Oil and Gas Activities in South Africa.

“We find that there is little evidence from elsewhere in Africa that the exploitation of oil and gas resources naturally leads to improvements in the lives of those living and working in oil and gas-rich areas,” says the report’s author, Gillian Hamilton, of the nonprofit Green Connection

“The report reveals that it normally leads to a wholesale deterioration in living conditions for the vast majority of citizens who live and work in such areas.”

In 2014, the government launched Operation Phakisa as a “fast results delivery programme” designed to boost economic growth and create jobs in the context of the government’s National Development Plan, with the oceans economy as one of its focus areas. 

But rather than focusing on the stewardship of the ocean and the sustainable use of ocean resources, Operation Phakisa has prioritised the establishment of an offshore oil and gas industry, according to the report.

This exposes the policy contradictions between the government’s international climate change commitments against the backdrop of the ongoing loss of ocean biodiversity and its “continued pursuit of fossil fuels”.

Predictions were made that the oceans economy would contribute R177-billion to GDP and create one million jobs by 2033. 

Instead, Hamilton says, the oceans’ contribution to GDP has fallen as a percentage of GDP from 4.4% (R110-billion) in 2010 to 4.2% (R130-billion) in 2019.

On the job creation front, Operation Phakisa has been a failure, she writes. More than R40-billion had been invested in targeted maritime sectors between 2014 and 2019 but less than 10 000 of the 77 000 direct jobs promised had been created. 

“This lower than forecast job creation rate has been attributed to the mismatch between skills available and skills required — especially in the offshore oil and gas sector, which requires highly specialised skills.”

There is a startling paradox at the heart of Operation Phakisa, says Hamilton. 

“At the same time, it is trying to promote the growth of the sustainable ocean economy via fishing, aquaculture and tourism, while simultaneously promoting the unsustainable extraction of fossil fuels from the very same source — two entirely incompatible goals.” 

The department of forestry, fisheries and the environment, which administers Operation Phakisa, did not respond to the Mail & Guardian’s inquiries.

In countries such as Nigeria, Uganda and Mozambique, the “only real beneficiaries were the companies awarded the drilling rights and corrupt government officials while the surrounding communities were left to suffer devastating environmental impacts and governments were left in more debt from the projects”, the report notes.

Extensive migration into oil-producing areas places strain on public infrastructure and results in increased poverty rates, inadequate healthcare, high rates of child mortality, gender and economic inequality and crime.

The research is framed by the phenomenon of the paradox of plenty, also known as the resource curse. “The paradox is that, on average, countries with an abundance of non-renewable resources tend to have lower levels of economic development and growth than those without such resources.” 

This is characterised by negative economic, social, environmental and governance effects, often concentrated at locations where extraction occurs. 

Non-renewable resources entrench existing weak governance institutions and weaken effective governance institutions where they exist, says the report.

For South Africa, the likely social and economic effects of the development of the oil and gas industry are discouraging, says Hamilton. 

“There will probably be a long-term decrease in GDP. Few jobs are likely to be created. The economy is likely to suffer from ‘Dutch disease’. Simultaneously, adverse environmental impacts from offshore oil and gas will harm the fishing and tourism industries.”

Also, there are numerous climate-related financial risks. These include transition risk — the problem of stranded assets, negative effects on trade and competitiveness, and the physical risks of climate change itself. 

“These factors have become increasingly important when analysing or insuring projects and are seen by the world’s central banks as one of the biggest threats to global financial stability,” according to the report.

Research undertaken by the World Wildlife Fund South Africa estimated the total contribution of coastal resources (without regulatory services) was R57-billion, contributing as much as 35% to the country’s GDP. 

According to the Who Stole Our Oceans report, indirect economic benefits, largely made up of ecosystem services, are said to contribute as much as 28% to GDP.

If South Africa establishes an oil and gas industry, it will contribute a significant amount of carbon dioxide emissions to the atmosphere and increase its greenhouse gas emissions. 

The consequences — climate change — will have a significant negative effect on the coastal and marine economy. South Africa, which is warming at twice the global average, is the 14th largest carbon emitter in the world. 

“The negative impacts of expanding the oil and gas industry within this context are patently obvious,” the report notes.

It is unlikely, says the report, that South Africa will be able to meet its nationally determined contribution to reduce greenhouse gas emissions if it pushes ahead with the “wholesale extraction of more fossil fuels”. 

Hamilton says that rather than look for the “illusionary ‘quick fix’ ” of oil and gas revenues, the government should look to the sustainable ocean economy and renewable energy to provide economic growth and the long-term, skills-based, low-carbon and resilient jobs that are desperately needed. 

This “could be the real game changer”, she says.

Timothy Walker, maritime project leader and senior researcher at the Institute for Security Studies, says Operation Phakisa has not been a complete failure.

“It’s achieved notable successes in the marine protection and ocean governance sector. I suggest it’s good to see a lot of the purpose for Phakisa was promoting ocean economic growth as an aspiration or incremental. It was certainly too ambitious and lofty. 

“I believe this reason was speaking of it in this way helped gain and show political will in the short-term, but not in the long-term. As far as we know, Phakisa was steered a lot by McKinsey — before their role in state capture and corruption was exposed — and they created a concept paper/report that was the anchor for Phakisa’s ocean economy.”

Walker says this report has yet to see the light of day and should be released for scrutiny and to aid attempts to revise the goals of Phakisa to something more sustainable.

“Phakisa has led to some fantastic results: the increasing drive to declare greater amounts of South Africa’s maritime domain as protected areas is certainly aided in this regard, as is the creation of a national oceans and coastal information management system.”

These are not necessarily big income earners or job-creators, but they are fundamental tools for future ocean governance, he says.

Oil and gas objectives should not have featured as strongly as they did in Operation Phakisa, Walker says.

“I understand that they grab attention and are major resources that influence international relations, so it is understandable to a degree. Yet the oil price collapsed towards the end of 2014, which rendered almost all Phakisa targets illogical almost immediately after it was launched.

“They do not seem to have been subject to any review or reappraisal — for which I would partly attribute the reluctance to release the original McKinsey report because of the scandal around them,” he says. “That was a mistake, because researchers and advocates of ocean economies could never accurately determine if the baselines the government had accepted were accurate or feasible. I’m afraid a lot of potential allies and friends were lost because of this widespread ambivalence towards the ocean economy project.”

Walker says Phakisa’s ocean economy potential is still framed in terms of its “ocean” nature, which is incongruent with an emergent global discourse that favours the term “blue” in regard to its economic attributes. 

“South Africa has a golden opportunity to demonstrate its determination to create and benefit from Blue Economies at this year’s World Maritime Day celebration in September, which was postponed last year because of the Covid pandemic. 

“The eyes of some of the key stakeholders in maritime industries, particularly the ones such as shipbuilding and ownership that Phakisa was designed to appeal to, will be watching and expecting to see progress.”