The National Development Plan (NDP) identifies the need for South Africa to invest in a strong network of economic infrastructure designed to support the country’s medium- and long-term economic and social objectives.
The NDP requires the development of 10,000MW additional electricity capacity to be established by 2025 against the 2013 baseline of 44,000MW.
In line with the national commitment to transition to a low carbon economy, 3,126MW of gas-fired power plants (2,652MW baseload and 474MW medium term risk management) is envisaged by the Government.
Latching onto global trends
The move to include gas in the energy mix for South Africa is part of a global trend to include gas as a significant source of primary energy.
Globally, natural gas is expected to provide on average 25% of the primary energy of many countries, most notably industrialised and middle income countries.
Natural gas produces up to 50-60% less carbon (CO2) than coal, and 24% less than diesel.
Electricity from renewable energy and natural gas plants are expected to increase due to the lower carbon emissions, against a backdrop of declining production from carbon intensive coal and diesel power plants as countries move to lower carbon energy generation sources.
Natural gas is also seen as an intermediate power back-up source until smart grids and electricity storage are able to replicate the utility-scale, base load and peaking power characteristics of natural gas power plants.
Africa’s uptake of natural gas
The Government’s commitment to gas as part of the energy mix through the Independent Power Producer (IPP) process is encouraging; reference given to the IPP Office’s Request for Information for 3,126MW of gas fired power plants in 2015, and an additional 600MW recently announced.
Additional factors supporting the uptake of gas in Africa is the significant amount of proven gas reserves on the continent, calculated at more than 600 trillion cubic feet in 2015, which is geographically well spread across the continent in many countries, notably Nigeria, Ghana, Tanzania, Mozambique and Egypt.
In addition, South Africa could have significant offshore gas resources estimated at 60 trillion cubic feet and onshore shale gas potential resources conservatively estimated at 40 trillion cubic feet.
While electric power generation is probably the most compelling need and use for gas, there are many other important uses that gas serves well, which should promote the Government’s policy of re-industrialisation of the South African economy.
Such uses include Compressed Natural Gas (CNG), which is a ready fuel for transportation, cooking and heating fuel, Gas-to-Liquids (GTL), whereby gas is converted to fuels like diesel, chemical manufacturing feedstocks, methanol, and fertiliser for agriculture.
Gas compressed down to liquid state (LNG) is fast becoming plentiful on the world market, making it cheap to buy and import.
This makes the Government’s timing of its launch to build a gas industry in South Africa well-chosen and augurs well for its success, though it will take several years to reach scale.
Considering that coal accounts for around 95% of South Africa’s energy, and gas only 3%, the upside is obvious.
The IPP Office’s gas-to-power programme has attracted the attention of many large, quality international companies eager to participate in building gas to power and foster wider gas industry development.
However, that office has already learned that gas infrastructure development is an altogether more complex and capital-intensive undertaking than wind and solar farms, which it is building under its renewables programme (REIPPP).
Major questions influencing investor appetite remain to be answered, including how capital investments running into billions of US dollars will provide a dependable return when the power is sold to Eskom in depreciating Rand, and the input costs of gas fluctuate based on an indexed commodity price.
There are limits to how much companies can prepare investment bids until such questions are satisfactorily answered. For that reason the sector awaits the Request for Qualification (RFQ) with much anticipation, since it should hopefully spell out the IPP Office’s investigations, which make clear the rules of the game for all.
Ebrahim is a seasoned energy industry executive and currently the Co-Founder and Chief Strategy Officer of Monetizing Gas Africa Inc.; an investor, developer and operator of gas infrastructure in Africa.