“The market can expect some deals and transactions in the pipeline with the current developments taking place onshore and in neighbouring Mozambique,” says Chris Bredenhann, PwC Energy Leader for Southern Africa.
“There are also strong indications of a desire to increase the level of natural gas in South Africa’s energy mix from the government in the wake of recent initiatives.”
Recent energy supply disruptions have highlighted the need for integrated energy planning in South Africa. “The South African economy is energy constrained and the new proposals are intended to encourage investment in alternative forms of energy, such as gas,” he says.
There has been a shift in emphasis from primary energy resources, such as coal, to alternate forms of energy, in the light of the country’s commitment to sustainable development. Energy supply in the country is largely dependent on coal.
Natural gas accounts for a very small portion of the energy demand in South Africa (3% versus 21% globally). The current demand for natural gas in the country is mainly for gas-to liquids (GTL) and the chemical industries, where PetroSA, Sasol and some industrial users are the major players in the market.
The National Development Plan 2013 calls for moves to be made to substitute coal with gas in the energy mix, including developing shale gas resources.
The Integrated Resource Plan, which was promulgated in May 2011, lays the foundation for South Africa’s energy mix up to 2030. The plan makes provision for 711 MW gas-fired power generation in 2019 to 2021, which provides the most likely source of demand for gas in South Africa. A further 1 659MW of gas-fired CCGT generation capacity is provided for in the 2028 to 2030 period, bringing the total gas-fired power generation capacity up to 2 370 MW.
According to a recent report released by PwC entitled ‘The gas equation’, various studies have been carried out in the Western Cape to justify the use of gas-fired stations.
There are proposals by various companies, such as Forest Oil Exploration, to commercialise gas reserves in the area. Such an initiative will have the advantage of reducing the Western Cape’s dependence on electricity imported from the rest of the country.
Presently, about 2300MW of electricity is imported to the Western Cape.
While the power is available for transmission to the Western Cape, there are transmission losses and power generation closer to its final demand location is more efficient. However, in the absence of the development of a gas field, South Africa will have to rely on imported liquefied natural gas for the gas-fired power generation anticipated in the Integrated Resource Plan, states the PwC report.
The Minister of Energy recently made a section 34 determination under the Energy Act on new generation capacity, which includes confirmation of 2652 MW of gas fired base load capacity.
“This confirms that there is a move towards gas in line with what was planned in the Integrated Resource Plan 2010,” says Bredenhann.
The ministerial decision is to be followed by a procurement programme with more details on the framework and time frames for the different technologies involved.
The government is also in the process of reviewing its legislative and regulatory framework, which will include a process of reviewing the Gas Act of 2001 and the National Energy Regulator Act of 2004.
When having regard to the demand for natural gas, it is also important to take the industrial development nodes into consideration, as this is potentially where the biggest demand for energy will be.
The natural gas demand opportunities are also more likely to be located in the Western Cape, KwaZulu-Natal, Gauteng and the Eastern Cape.
Recently the Western Cape government initiated a process to conduct a pre-feasibility study into the viability of importing natural gas into the province.
Gauteng and KwaZulu-Natal already have gas supplies and there is unsatisfied demand as a result of a supply of shortfall and distribution network constraints. More recently, Kinetiko, announced that it had spudded a second production well on the Amersfoort project on Mpumalanga.
Kinetiko continues their exploration activities and has confirmed prospective gas in place of 2.4 tcf for their Amersfoort project.
PetroSA is also in talks with Mozambique to develop a gas-to-liquids (GTL) plant to feed the growing demand for diesel in the country.
Recent media reports also state that Sasol plans to invest up to US$21 billion in two plants in the US to take advantage of cheap natural gas.
“The demand for natural gas will also be influenced by carbon constraints. It is becoming extremely difficult to obtain funding for coal-fired power stations due to the high levels of associated greenhouse gas emissions,” says Bredenhann. ‘”This will more than likely lead to increased demand for natural gas and renewable energy.”
In the interim, South Africa continues to find itself in a quandary as the debate continues around fracking. Although the moratorium on shale gas exploration has been lifted, environmental concerns associated with the exploration and extraction of shale gas is considered the most high-profile of all barriers to the development of shale gas in the country.
The findings of the PwC research show that there are significant barriers to the development of a natural gas industry in South Africa.
Bredenhann says: “Some of these barriers may be overcome, while others may prevent the industry from developing.”
For instance, the analysis suggests that this can be overcome by importing natural gas, either by way of pipelines, as is the case with Mozambique, or shipping in liquid natural gas.
The number of license applications and exploration activities in progress at present suggest there is much interest in the natural gas industry.
Whether or not this interest can be converted into profitable operations for these participants is still subject to debate, states the report. The government’s introduction of a formal renewable energy policy also shows opportunities for natural gas to provide an additional security of supply.
“There appears to be significant potential for the development of natural gas in the country, which, with the right incentives, development plans and further pressure to reduce greenhouse gas emissions, will make it possible for natural gas to make up a larger share of the total energy mix in South Africa,” concludes Bredenhann.
