Shell’s SA business at crossroads after R1bn exploration blow

British multinational energy major Shell, fresh from concluding a deal to sell its downstream business in South Africa to Emirati investors for R16bn, is facing unprecedented pushback in its upstream business in Africa’s largest economy.

The Constitutional Court on Friday dealt the company a setback in its efforts to explore for oil and gas in South Africa — as environmental and commercial interests come into conflict.

South Africa’s apex court, in a majority judgment penned by justice Jody Kollapen, said members of the public were not sufficiently consulted, and it would be a futile exercise to remit the matter back for public consultation; which dealt a huge blow to Shell and its local partners, who have already spent R1bn on the project.

“This case must also be understood against the backdrop of well-documented struggles by coastal communities to protect their land, marine resources and ways of life in the face of extractive activities that they believe threaten their very existence. The sea is of deep importance to coastal communities along the Wild Coast,” Kollapen ruled.

“Issues that relate to the environment do not only have a national dimension but are the collective concern of all. There have been significant developments at the international level around climate change concerns that impact on our approach at the national level to these issues, particularly the intersection between the environment and development.

“Taken together, the financial prejudice to the company respondents from setting aside the decisions while a moratorium is in place cannot outweigh the gravity of the unlawfulness in this case, especially where there is no demonstrable public interest in preserving the unlawful right or allowing the application for the right to be reconsidered on substantively new grounds.”

Oil and gas exploration projects in South Africa have often been met by legal challenges, with a lack of adequate public consultation often being the burning issue

The effect of the Constitutional Court ruling sets aside the exploration right granted to Shell and Impact more than a decade ago. The exploration right was awarded in 2014, while the review application by environmental groups was launched in 2021.

Shell and its local partner, Impact Africa, have accused the environmental pressure groups of wanting to “sterilise” all oil and gas exploration activity. The companies had already invested more than R1bn before being interdicted by the high court in Makhanda five years ago.

Shell last month sealed the deal to sell its fuel station business to Adnoc Distribution as part of the group’s worldwide scaling back on the low margins of the downstream business in a pivot to lucrative upstream activities.

Oil and gas exploration projects in South Africa have often been met by legal challenges, with a lack of adequate public consultation often being the burning issue.

The Western Cape High Court last year dealt a blow to government efforts to explore for gas offshore from Mossel Bay, setting aside the granting of an environmental authorisation to TotalEnergies and remitting the matter back to the department.

The court found the French oil and gas giant’s environmental impact report was flawed, did not properly consider the economic risk of oil spills, failed to consider climate change, and lacked proper public participation.

It is not only gas and oil projects that have drawn the ire of environmental groups. The minister of electricity and energy, Kgosientsho Ramokgopa, will next week square off with the African Climate Alliance and environmental justice organisations Vukani Environmental Justice Movement in Action, and groundWork over the fate of Eskom’s coal-fired power stations.

Ramokgopa is appealing the decision by the Pretoria high court to bar the government from pursuing new coal projects.

The climate activists will argue that new coal is expensive to build and will push up electricity costs for everyone, pollute the air, deepen job precarity and accelerate climate change.

“Coal-fired power is the single largest contributor to South Africa’s greenhouse gas emissions and among the largest historical contributors to global warming, placing South Africa among the world’s top 15 emitters,” said the Centre for Environmental Rights, which represents the activists.

“The World Health Organisation has declared air pollution one of the world’s greatest public health threats; the cost of air pollution in South Africa is estimated at over R980bn a year, equivalent to 14% of GDP. The 2019 IRP [Integrated Resource Plan] would have committed the country to a further 30 years of new coal-fired power, undermining efforts to limit South Africa’s contribution to climate change.”