Too late for gas to save a looming power deficit?

October 1st, 2019, Published in Articles: Energize

It is already too late to hope that the introduction of gas generation in the new energy mix would contribute to avoiding the projected power deficit from about 2023, according to panelists at a recent gas forum. The consensus was that to implement such a project would require at least six years, if everything was in place, which it is not, and there are only four years to 2023. This article summarises the discussions held at the forum.

Nedbank and EE Publishers recently hosted a gas forum to explore the possibility of establishing a viable gas sector in South Africa. The panel consisted of Advocate Sandra Coetzee, from the government’s IPP Office; Andy (Andries) Calitz, a former Eskom and Shell executive; John Smelcer, of Globeleq; and Jaco Human, from the Industrial Gas Users Association (IGUA).

South Africa’s national development plan (NDP) incorporates constructing infrastructure to import liquid natural gas (LNG) and use viable domestic gas feedstock, mainly for power production, to diversify the energy mix and reduce carbon emissions. The establishment of a gas industry in accordance with the NDP is inexorably linked to gas-to-power (GtP) projects incorporated in the integrated resource plan (IRP), which would provide an anchor market and allow third party offtake.

Establishing a viable gas sector

A natural gas (NG) market will contribute to energy security, diversity and stability, and become a source for the re-industrialisation of SA economy. NG can contribute to a higher and inclusive economic growth path and job creation in South Africa, as well as assisting the country in its journey towards achieving commitments to a lower carbon and a more carbon resilient future. This is, however, a long-term agenda for the next 25 or more years, but will only take place if there is commitment now to the development of enabling policies and for decisive action to be taken. We must follow a pro-active rather than a reactive approach.

Enabling a viable gas sector encompasses more than just natural gas and can also be interpreted to include shale gas, coalbed methane gas, underground coal gasification, liquid petroleum gas (LPG) and even biomass and landfill gas. Demand is estimated to possibly be 870 PJ, including non-electricity demand. Gas price uncertainty is a major inhibiting factor in the establishment of a non-electricity market. The LNG to power IPP is currently on hold. A bundling approach is required, anchored on a GtP programme, but not forgetting alternate use. Currently the IRP/IPPPP capacity is insufficient to drive third party uptake.

South Africa’s need for gas is driven by system flexibility requirements as RE penetration rises, industrial development potential, climate change mitigation imperatives and gradual diversification away from carbon-intensive sources (coal and diesel) through gas turbine fuel conversion. Previous studies have estimated total potential demand for gas in South Africa can be up to 870 PJ (25 Bcm) by 2032. Potential developmental impacts for the country’s industrialisation could be large. Gas fired power generation alone could use 100 PJ and add around R140-billion to GDP. Industrial demand could be 1200 PJ, transport 148 PJ and residential/commercial demand 40 PJ per annum.

At the right price, gas-based downstream industries (e.g. steel and petrochemicals) could add R110-billion to GDP and create 230 000 jobs. Uncertainty about demand remains as estimates vary widely among different studies. ESS could also improve energy security in a country reliant on gas imports. LNG can improve energy security in the absence of alternatives, but also increase the energy security risk and affordability given country reliance on imported gas under fluctuating exchange rates.

The question is whether South Africa can anchor development of these new sources of supply to establish a viable gas sector on a sustainable basis. The first step appears to be LNG imports from international markets as a bridge to unlocking regional supply and domestic upstream potential. The DME plans to import LNG via floating storage regasification units (FSRU) pursuant to a gas IPP procurement programme for 3000 MW of power, spearheaded by the department of Minerals and Energy (DME) with National Treasury support. A portion of the imported gas may be used for non-power utilisation. The minister of DME announced in July 2019 that the port of Ngqura Coega was the preferred for site for LNG to power plants, but Transnet has issued a tender aimed for development of LNG import terminal in Richards Bay. Coega and Saldhana are however seen to be of no consequence to current gas user base, and the industry sees Maputo and Richards Bay as the best options.

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