SOUTH Africa needed to encourage investment in oil and gas exploration or it would not derive any benefit from the resource, Standard Bank oil and gas expert Simon Ashby-Rudd said on Wednesday.

South Africa has shale gas potential in the Karoo, and oil and gas potential in deep water off the coast. If these were economically viable they could be used for internal power generation, which is currently constrained, replacing imported fuel, which would support the balance of payments.

The country has yet to prove shale gas reserves, though the estimate is 40-trillion cubic feet, and no clear plan on how to exploit this resource has yet come from the government.

Shale gas reserves were seen as enough to generate almost all South Africa’s power needs for 20 years, though there would have to be big investment in infrastructure.

South Africa was "a great market" for oil and gas because it had no other source of hydrocarbons. This meant developers and producers would get a good price if the reserves were proved and if developers had solid off-take agreements with entities such as Eskom, Mr Ashby-Rudd said.

"The biggest risk to the Karoo is that they (gas companies) find gas elsewhere," he said.

The Ibhubesi offshore gas project on South Africa’s west coast, which contains an estimated 540-billion cubic feet of proven and probable recoverable gas reserves, was "small" in comparison to what could lie beneath the ocean, said Mr Ashby-Rudd.

Companies exploring in deep water offshore around South Africa include PetroSA, Cairn India, BHP Billiton, Anadarko, Sasol, ExxonMobil and Total, according to the latest Petroleum Agency SA map.

But to properly exploit its potential in the Karoo and offshore, South Africa would have to beef up its legal and regulatory infrastructure, and its nascent physical infrastructure, Mr Ashby-Rudd said. "Most of South Africa’s industrial infrastructure, including legislation, has been done on the assumption that there is no gas here, but now there is belief in deep offshore (gas pockets).

"A few years ago even I could have got an exploration licence. Now lots of licensing has been taken up," Mr Ashby-Rudd said.

But offshore resources were not proved — "structures" had been found in South Africa’s ocean floor that may hold gas, but could also hold water or be depleted. The depth is great — 1,000m-2,000m. However, there existed now the technology needed to exploit gas reserves this deep — as seen in the Gulf of Mexico.

"But the legislation needs to be sorted out, and it will be, the government sees a need," Mr Ashby-Rudd said.

According to the South African Oil and Gas Alliance (Saoga) website, the issuing of 30 licences to 20 companies for offshore exploration around South Africa will see the first private-sector activity within 18-24 months. "This could, however, be delayed if some of the issues related to legislative uncertainty are not resolved," Saoga said.

Mineral Resources Minister Susan Shabangu came in for flak from some this year when legal experts said the Minerals and Petroleum Resources Act amendments she had made were inadequate for the exploitation of oil and gas. The biggest stumbling block is that the amendments give the government a 20% free carry in any new oil and gas project and the option to take up to another 80% at an "agreed" price.