The Executive Director of the South African Oil and Gas Alliance (SAOGA), Niall Kramer, has stated that Alliance cautiously welcomes the certainty and direction provided by the recently released Integrated Resource Plan (IRP).
However, SAOGA has taken note of the lower than the expected role of gas in South Africa’s envisaged energy mix.
Kramer pointed out that some of the gas sources are expressly anticipated as accelerated exploration and production.
He said: “This we welcome. But the now more cautious role for LNG (liquified natural gas) is surprising,” adding that, until the document has been fully digested and a clearer common understanding prevails amongst players, it is important to note “the devil remains in the detail.”
Most pressing in respect of LNG will be the procurement model and related details, he stated.
The IRP sees gas providing 3GW of new capacity with 1GW coming online in 2023 and another 2GW in 2027 as LNG.
LNG imports remain crucially important, especially given South Africa’s urgent need for more power and for industrial applications. SAOGA underlined that while this could have a catalytic effect on the ports of entry, the large-scale build-up of infrastructure at these ports remains unlikely.
“What we will see is the conversion of the existing peaking plants at Saldanha, Mossel Bay, Durban and Coega, all of which will have lower gas utilisation,” said Kramer.
“Coega has been identified as the first port for LNG import infrastructure and a gas-to-power plant programme, and we will need to see how LNG will be moved from Coega – probably in virtual tankers or by ship,” he stated.
Strong interest in LNG market
While the tentative scale and economics seem uncertain, some power investors and South African value chain suppliers remain interested. Scale is a big factor and fleshed-out certainty is needed especially for the Coega region on other key factors such as timelines and sovereign guarantees to mitigate the risk.
“Despite Coega being the preferred port of entry, Richards Bay has indicated a viability study is under way and Saldanha may still want to import LNG independently, meaning we could still have several ports importing LNG. “But, for now, the focus is Coega; my view is that LNG to power won’t be imported under the 2016 bundled terms and a more organic model could be preferred.”
During a recent CNBC Africa interview, Kramer indicated that Southern Africa is home to significant energy reserves.
He noted: “Along the eastern coast, Mozambique has roughly 170tcf of gas reserves while on the western Atlantic coast we have numerous gas-producing countries, including Angola. There is no reason why the geology should stop at our political borders, but the challenge remains policy certainty.
“The big prize to catalyse exploration investment remains a fiscally attractive stable bill which we think is on the way in the form of the petroleum development bill through its various iterations. The recent discovery by French multinational Total and their partners off Mossel Bay and close to Coega gives us good reason to be optimistic.”
Kramer concluded: “The IRP has provided a certain amount of certainty for gas and the next stage, for both LNG to power, and for on and offshore exploration, must be for South Africa to be ready in terms of business capacity, skills development, infrastructure development, readiness and harmonised regulation.
“With this focus we can develop especially the Eastern Seaboard into an exciting energy hub for the future.”