South Africa is being urged to accelerate its response to a looming natural gas “supply cliff”, which could arise in the coming four to five years unless alternative sources of supply are found to offset “tapering” imports from southern Mozambique.
South Africa remains highly dependent on Sasol’s Pande and Temane production areas, with the gas used both by the JSE-listed group itself to produce fuel, power and chemicals in Secunda and Sasolburg, as well as by various industrial consumers in Gauteng and KwaZulu-Natal.
Although Sasol is currently exploring for additional gas in southern Mozambique, supply is currently scheduled to begin falling from 2023 onwards and the Industrial Gas Users Association of Southern Africa (IGUA-SA) is forecasting a yearly shortfall of 98-million gigajoules from 2025 onwards.
The IGUA-SA has acknowledged that the pace of the decline may be delayed by a few years as a result of proposed investments by Sasol in Mozambique. Nevertheless, additional sources would still be required not only to replace dwindling Mozambican supply, but also to meet any new industrial demand.
PwC director capital projects and infrastructure James Mackay warns that South Africa currently lacks both the policy and the implementation plan to avoid, or mitigate, the potential shortfall.
Speaking at the release of the latest PwC Africa oil & gas review, Mackay said that, although significant volumes of gas would become available in the region as the liquefied natural gas (LNG) export projects in northern Mozambique came on line, these volumes represented longer-term supply opportunities that would not be available in time to alleviate South Africa's anticipated supply constraints.
The impact on the country’s industrial economy could be significant, given that, besides Sasol, downstream gas industries employ some 45 000 people and produce R150-billion of economic value yearly.
“Speed is more important than ever,” Mackay argued, indicating that all the supply options available to South Africa could take up to five years to implement, including the importation of LNG, which is viewed by PwC as the most feasible near-term solution.
Mackay believes that an LNG import terminal at the Port of Richards Bay, in KwaZulu-Natal, represents the “lowest-cost and least-regret” option for augmenting South Africa’s gas supply by the mid-2020s.
He is more sceptical, however, about the commercial viability of developing the first LNG import terminal at the Coega Industrial Development Zone, in the Eastern Cape, which has been held up as government’s preferred location.
Unlike Richards Bay, which has potential to immediately connect into established pipeline infrastructure linking KwaZulu-Natal with the industrial heartland of Gauteng, Coega is relatively isolated from areas of demand. Logistically, the LNG would have to be transported by either road or rail inland, before being re-gassed. This is likely to be far less cost-effective when compared with a solution that uses an existing pipeline network and is aligned to a sizeable market that will justify the initial terminal investment.
Likewise the IGUA-SA has argued that the Coega option “would be of no consequence to the current user base”.
In the longer-term, the development of domestic and regional resources, including the recently discovered Brulpadda resource off the south coast and those set to arise from northern Mozambique, could offer supply-side relief. The massive finds in northern Mozambique, the PwC reviews states, have already resulted in LNG project developments worth a combined $54-billion and have the potential to turn South Africa’s impoverished neighbour into the world’s third-largest LNG exporter.
Neither of these options would be on line in time to counteract the envisaged drop in supply from southern Mozambique through the Rompco pipeline to South Africa.
Mackay argues that, unless a coherent solution is urgently found as to when and how the gas shortfall will be met, and by who, there is a genuine risk that a significant portion of South Africa’s industrial base, including companies such as Columbus Stainless, Consol Glass, Hulamin and Nampak will be “left stranded”.
State-owned logistics group Transnet has, together with the International Finance Corporation, initiated a feasibility study into the development, by 2024, of an LNG storage and regasification terminal at the Port of Richards Bay. Nevertheless, no solution has been finalised and no procurement programme initiated.
The Cabinet-approved Integrated Resource Plan 2019 (IRP 2019) has also not increased certainty, as it has reduced the demand for gas as a source for electricity to 2030, making the gas-to-power programme an unlikely anchor for the scale of gas imports required.
The IRP 2019 has reduced the gas-to-power component to 3 000 MW by 2030, from the 5 100 MW outlined in the draft IRP 2018, with the bulk of that capacity expected to arise from the conversion of the diesel-fuelled peaking plant to gas over the coming ten years.
“The gas volumes left in the IRP are not enough to anchor the gas infrastructure envisaged. So, we have to look more broadly than the IRP as to how to get over this gas crunch. But at the moment, there is no policy certainty with regards to who will do it, how it will be done and which port will be prioritised.”
That said, Mackay is heartened by recent moves by the Department of Trade, Industry and Competition to intervene on the issue and expressed some optimism that a national gas strategy could begin to emerge as a result of that intervention.