10 Dec Free State’s helium gamble: A new energy frontier?
The province is home to the biggest gas and helium project in the country. Will it speed up the shift towards renewable energy sources, or could it potentially hinder progress? Refilwe Mochoari investigates
Vusi Dlamini, head of operations at the Renergen Tetra4 Virginia Gas Project. Photo: Motlatsi Mofokeng
Virginia, a small and once-thriving gold-mining town in the Free State province, lies neglected, abandoned and deep in poverty after a devastating mine tailing failure killed 17 people in 1994 and turned it into a “ghost town”.
However, a liquid gas and helium project is promising a rebirth for Virginia as the province aspires to become the country’s energy security hub. Touted as a game changer for the local economy, the Renergen Tetra4 Virginia Gas Project has ballooned into a R20-billion project that is the first of its kind in South Africa and one of just 15 liquid helium producers in the world.
Helium is a critical element in renewable energy technologies, including the manufacture of solar power panels and wind turbines. It is also used in many other fields, including scientific research, medical technology, high-tech manufacturing, space exploration, national defence, deep-sea diving, welding and particle accelerators.
Nick Mitchell, chief operating officer at Renergen Ltd, said liquid helium is an element of the natural gas distillation process. The company extracts hydrocarbons by drilling down to a depth of 400m to 700m underground to bring natural gas to the surface.
“Natural gas is a concoction of methane, helium, nitrogen, CO2 and other trace elements. Helium cannot be extracted by itself. You have to extract the entire natural gas stream, then you begin to process it until… you are in a position to have isolated purified liquid helium,” he explained.
Mxolisi Dukwana, the then premier of the Free State, mentioned the Renergen gas and helium project at an Energy Security Indaba hosted by the provincial government in Bloemfontein in November 2023. “We are determined to position the Free State as the country’s central energy security hub. Not only does the geographic centrality of our province make it cost-effective in facilitating trade, but also ensuring easy and convenient access to markets throughout the country,” he said.
“It is estimated that the Free State has 23-billion cubic feet of natural gas. In 2019, Renergen found significant amounts of helium in Virginia, which is said to be the site of the world’s richest helium recorded globally.”
Helium hub
While Renergen’s helium hub is based on one of the largest gas projects in South Africa, several other gas projects are under way in other provinces such as Mpumalanga, Eastern Cape and Gauteng. Mpumalanga, in particular, has more than four known liquid natural gas (LNG) projects in development.
The Renergen project could compete internationally with its substantial helium and natural gas reserves. However, gas exploration in South Africa faces challenges, including environmental risks and limited long-term benefits, alongside factors and concerns over economic viability and helium quality.
According to a recent report in the Green Economy Journal, gas is a fossil fuel and a leading driver of the climate crisis. The report highlights that new gas infrastructure could hinder the transition to renewable energy and that gas, particularly due to its high methane content, can be as harmful to the climate as coal. The findings suggest that South Africa’s focus on gas development may undermine efforts to limit global warming.
Nick Mitchell: ‘Given that natural gas is the cleanest of all fossil fuels… we see our product as enabling the Just Energy Transition.’ Photo: Luntu Ndzandze
Energy challenges
Speaking to Oxpeckers, Mitchell said the Virginia gas and helium project offers solutions for the country’s energy challenges. “If we consider the energy mix in total, we have a looming energy crisis, and it’s no secret that we’re about to face a natural gas crisis in the next three years across the country as well,” he said.
South Africa currently relies heavily on imported natural gas from the Mozambique fields operated by Sasol. “Sasol has announced that those fields will come to an end around July 2027. If we look at it in that context, it becomes really important because energy in the form of traditional electricity represents only about 27% of South Africa’s energy mix. If we start to lose another key resource like natural gas, we’ll find ourselves facing a significant challenge,” he said.
Mitchell said the gas from the Free State project will be used domestically, and will substitute more traditional fossil fuels like coal, heavy fuel oil, diesel, LPG and paraffin in the industrial, logistics and electricity sectors. “Given that natural gas is the cleanest of all fossil fuels… we see our product as enabling the Just Energy Transition and providing critical options for companies who are reliant on these other products for their energy needs.”
Commercial viability
Helium was discovered in the Free State in the 1960s, but was not the initial target of Renergen’s exploration when it bought gas rights for the 187,000ha piece of land in 2012 for US$1 (about R8 at the time).
“We purchased the project with the intent to establish a pure gas-to-power operation, aiming to sell our power to one of the nearby gold-mining companies,” said Mitchell. “While helium was known to be in the gas historically, we didn’t understand the commercial viability of the concentrations we now know definitively to be the case.”
Gas samples taken in 2013 indicated high helium concentrations, “and prompted us to explore that market a little further. We then embarked on a deep dive into the world of helium in order to understand the complexity, and opportunity, [because] admittedly we knew very little about helium outside of its application in party balloons and diving gases.”
A few weeks later the head of Linde Global Helium from New York flew out to South Africa to conclude a helium sales and purchase agreement, he said. “This agreement meant we needed to pivot from the initial concept of producing power into what we have today: a full-blown cryogenic LNG and liquid helium facility.”
Mitchell said the helium unit started producing in 2023. Now listed on the Johannesburg Stock Exchange and the Australian Security Exchange, Renergen is backed by more than 40,000 shareholders, including major investors like Mazi Capital and Sanlam. Over the years the company has secured significant funding for its projects, including a US$500-million commitment from the US Development Finance Corporation for phase two development and a US$250-million commitment from Standard Bank.
Vusi Dlamini on site with #PowerTracker journalist Refilwe Mochoari (right) and production assistant Skhalo Johnny Titebe (left). Photo: Motlatsi Mofokeng
Oil and gas sector
Mitchell has a history of working in the energy industry, specialising in the South African oil and gas sector, and focusing on early-stage company development. He currently serves as the chairperson of the Onshore Petroleum Association of South Africa.
His business partner and now chief executive officer of Renergen Ltd, Stefano Marani, has experience in structured finance and advisory services. He worked for Morgan Stanley, building its sub-Saharan African fixed income capital markets business before leaving banking to start his own financial services firm.
In the Free State, Renergen has partnered with local black-owned fund managers Mahlako A Phahla Investments and Thirdway Investment Partners to further its growth.
Mitchell said Mahlako Gas Energy, a black women-owned gas asset investment company, bought 5.5% of Tetra4, a Renergen subsidiary, for R515-million – “placing an enterprise value of R10-billion on the business to further diversify South Africa’s sources of primary energy. The Mahlako Energy Fund is an equity fund investing in energy projects and companies. It’s structured as an en commandite [limited] partnership.”
He acknowledged that the project is behind schedule and has exceeded its budget, leading to recent criticism in the media and on social platforms. “However, the process to achieve this has seen us move a once-considered stranded asset in the Free State through exploration, into development and construction, and now finally transitioned into an operating business,” he said.
In the process, the project created 74 permanent and 285 temporary jobs during phase one, which will increase to 245 permanent and 2,865 temporary jobs during phase two, he added.
Makhotla Sefuli: ‘When development takes place, it should be in such a way that the hosting communities are benefiting.’ Photo: Motlatsi Mofokeng
Environmental risks
Yegeshni Moodley, a senior campaigner at the environmental justice organisation Groundwork, said geohydrology reports prepared by experts indicate there are high risks from gas exploration in the area. “Shallow aquifers, gold-mining shafts and areas already affected by acid mine drainage indicate very high risk for water contamination,” she said.
Climate change concerns are also high risk, she said: “Gas leaks occur throughout the value chain and methane is a potent greenhouse gas which is 80 times more polluting than CO2 over 20 years.”
Communities living in the area are already affected by gold-mining and will bear a double burden if gas exploration is approved on the proposed scale, Moodley added. “As the world transitions away from fossil fuels, gas will no longer be used and any investments will be abandoned. This leaves more debt and rehabilitation costs for the country.”
Broken promises
Makhotla Sefuli, a local environmental activist and community leader, said Renergen has not uplifted communities living in Lejweleputswa district municipality, which includes the towns of Welkom, Virginia and Theunissen.
“We have had several engagements with Renergen since 2022,” he said. “They promised to upgrade the community hall in Virginia; instead, they just delivered a steel container. They promised to renovate a school on one of the farms and they also promised to install solar panels for a farm that has been without electricity for more than three years. They have not fulfilled any of their promises.”
Renergen has not complied with its environmental impact assessment, job creation and social labor plans, and consultations with the community, he said. “No one knows about their operations and no one knows what the duration of their operations will be.”
Sefuli does not know any member of the community who is employed by Renergen: “We don’t even know where their offices are in case there are vacancies or any kind of employment opportunity. I see their vehicles, but I do not see their offices.”
Sefuli said the local farming community which is most affected by the Renergen operations is in the dark and they don’t know what their future looks like. The farmers rely on crops and they don’t know how they will be affected by the Renergen operations.
“The farming communities and the local communities in the neighbouring town are poverty-stricken, but there is a multi-billion dollar project at their doorstep. This is serious cause for concern.
“Since the erection of the gas plant, the height of our grain is not as healthy as it was before. The output shows that there is something wrong with the underground water. So I can say that Renergen has brought nothing but misery to our community,” said Sefuli.
“We are not anti-development. But when development takes place, it should be in such a way that the hosting communities are benefiting,” he said.
This investigation is part of the Oxpeckers #PowerTracker investigative series titled ‘The human cost of energy in Africa’. Refilwe Mochoari is a Free State-based journalist who focuses on health and environmental issues. Video production was done by Motlatsi Mofokeng and Luntu Ndzandze.
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