The developer of the Ibhubesi gas project off South Africa’s West Coast expects to conclude a sales memorandum of understanding (MoU) with power utility Eskom before the end of the year – a move that could open the way for a future supply agreement that facilitates the development of a $1.4-billion domestic gas project and enables the Ankerlig power plant to convert its fuel source from diesel to gas by 2018.

Sunbird Energy MD Will Barker describes the MoU as a key milestone for advancing the initial phase of project, which would comprise five production wells tied to an offshore facility, as well as a 400 km pipeline from Ibhubesi to the Ankerlig site in Atlantis, with a possible spin-off line to Saldanha Bay.

Barker tells Engineering News Online that the aim is to progress commercial negotiations with Eskom to the point of a firm sales agreement during the course of 2014, which would enable it and its project partner, PetroSA, to make a final investment decision by early 2015. ASX-listed Sunbird Energy has acquired 76% in the gas field, which is located 380 km north of Cape Town and 70 km offshore, with PetroSA holding the 24% balance.

Should it proceed, the Ankerlig conversion would help lower Eskom’s fuel costs and enable it to begin operating five of the plant’s nine turbines on a so-called mid-merit basis; equivalent to 15 hours a day for five days a week. For this, it would require 35-billion cubic feet (Bcf) of gas yearly.

Barker says the gas will be supplied at a cost of between $12/GJ and $15/GJ, significantly lower than the $22/GJ to $25/GJ that Eskom is currently paying to run the plant on imported diesel.

Nevertheless critics suggest that the Ibhubesi gas is still materially more expensive than imported alternatives, which are now being considered potential independent power producers. For instance, ArcelorMittal South Africa is considering an offtake agreement with an independent power producer, aiming to produce electricity on its Saldanha Steel site using compressed natural gas imported from Angola.

However, Barker says their analysis does not take a full cost-to-country view of the benefits of exploiting domestic resources ahead of imported gas. These benefits, he says, range from lower currency and commodity risks, through to domestic tax and royalty payments and job creation. 

“What we are focused on doing is demonstrating the national benefits of utilising these domestic gas reserves, by providing a competitively priced domestic fuel that is delinked from the dollar and the oil price and having predominantly rand-based contracts.”

For its part, Eskom is working on several schemes to convert both the Ankerlig and Gourikwa power plants from diesel to gas in a bid to lower primary energy costs and increase coastal capacity. Diesel has become an increasingly large portion of its primary energy bill since the plants were developed in response to South Africa’s rapidly deteriorating supply/demand balance in recent years.

Besides its negotiations with Sunbird Energy, Eskom has issued a request for information for the supply and delivery of conventional or unconventional gas to Ankerlig and is supporting PetroSA in its study of a liquefied natural gas (LNG) import terminal in Mossel Bay. Should the LNG project proceed, the imported gas would be shared between PetroSA’s gas-to-liquids refinery and Eskom’s Gourikwa power plant.

In 2012/13, the cost of operating the open cycle gas turbine (OCGT) plants at Ankerlig and Gourikwa rose by more than 200% to around R3.6-billion as the utility employed the plants for longer periods to meet peak demand and create space for higher levels of planned maintenance.

Barker estimates that Eskom is currently consuming upwards of 609-million litres of diesel, which accounts for about 8% of its primary energy costs. By contrast, the OCGT plants provide less than a percent of South Africa’s electricity.

There is also potential, he argued, to open up the Ibhubesi infrastructure to third parties, noting that a number of other energy group’s are currently exploring in blocks in relatively close proximity to its 5 000 km2 licence area. He is also optimistic that more gas will be discovered within its licence area, noting that exploration campaigns have yielded proven and probable reserves of 540 Bcf, and proven reserves of 210 Bcf.

Besides the sales agreement with Eskom, Sunbird Energy is also preparing the project for the front-end engineering design (Feed) phase, with an engineering consultant likely to be appointed early in 2014. The Feed phase is expected to endure for most of next year and, should offtake agreements be secured, a 30-month construction phase could begin in 2015. In terms of the current schedule, first gas could flow by late 2017.

“We believe Ibhubesi offers the ability to replace high-cost imported fuel, increase power generation and to create an entire new industry and jobs on the West Coast,” Barker enthuses.

Eskom says it cannot comment on an ongoing commericial matter.