In this article, Naviara Energy founder and director and Cresco Project Finance energy strategy advisory partner Dominic Goncalves writes that South Africa's planned gas-to-power are unlikely to be commissioned by 2030, while the current conflict in the Middle East is creating further complications in terms of how liquefied natural gas (LNG) is perceived globally and in South Africa.

South Africa first launched procurement of its Gas to Power Programme in 2015. More than ten years later, projects have not yet advanced to financing or construction. While official timelines maintain that these projects will be commissioned by 2030, Cresco believes these timelines will likely be pushed out to at least 2032.

The Hormuz crisis further complicates how energy policymakers – globally and in South Africa – perceive LNG.

LNG has frequently been seen as a bridge or a transition fuel, supporting renewables with load-following. LNG is generally 25% to 50% cleaner than coal (depending on full lifecycle costs) in terms of carbon emissions

However, South Africa does not have LNG import infrastructure. The infrastructure required is to build either an LNG terminal or use Floating Storage and Regasification Units (FSRUs) and the associated marine and port infrastructure, together with one or more and gas-fired power plants such as combined cycle gas turbines (CCGTs). The LNG itself will need to be imported by tankers from global suppliers, such as from Gulf states like Qatar or from the US LNG basins.

In 2015 the infrastructure was initially envisaged to be FSRU and CCGT, at Richards Bay, Saldanha and Coega.

By 2026, the original plan has fragmented into multiple procurements – the most advanced appearing to be an LNG Terminal in Richards Bay and a recently announced plan for similar project in Durban.

Without getting into details of the various procurements, the full development cycle of an integrated LNG-to-power project of this scale — procurement, environmental approvals, port and marine infrastructure, LNG supply contracting, project financing, grid connection, CCGT construction and commissioning — typically takes many years. For South Africa, a minimum six- to eight-year timeline from a bankable procurement award to commercial operation appears realistic, with more if delays arise.

The current status is that various procurement processes are underway but are unlikely to start construction until at least 2027 or 2028.

Meanwhile, globally LNG markets have been thrown into crisis by the Hormuz disruption. One-fifth of global LNG passes through the Strait. According to the International Energy Agency, more than 80 energy facilities have been damaged since the Iran War began, most notably Iran’s South Par gas field and Qatar’s Ras Laffan, the world’s largest LNG export facility. Early indications suggest that repairs for that facility could take several years rather than months. The repair bill for total energy infrastructure damage caused in the first seven weeks of the war is at least $34-billion, according to a mid-April analysis by Rystad Energy.

LNG is a global commodity. Perhaps strangely at first, LNG commodity prices and leading LNG stocks have not rocketed up as has oil during this crisis. In fact, after a slight uptick at the start of the war, LNG prices have actually dropped.

At first glance, it would seem that LNG supply disruption would benefit US LNG suppliers, currently the largest exporter globally. However, LNG producers out of the US, such as Cheniere Energy, see the Hormuz crisis as being bad for long term business. These LNG producers are concerned that the crisis will lead to ‘demand destruction’, because LNG is a power generation fuel and competes against coal and other feedstocks in many global energy markets, such as Asia.

In China and across Asian power markets, LNG competes directly with coal. When LNG becomes constrained or expensive, generation typically shifts toward coal, reducing LNG’s share in the energy mix.

What will the long-term impact on South Africa’s energy mix be if LNG is perceived as a less attractive solution in terms of price or less secure solution in terms of logistics?

It implies that SA might consider burning more coal, extending the life of its aging fleet of coal fired power plants as much as physically possible, and continue to mine coal locally. This was frowned upon over the last decade, when environmental and decarbonisation concerns globally were unanimous in that ‘coal must go’. However, after the turnaround in the second Trump presidency of decarbonisation imperatives, coupled by the global surprise of the Hormuz crisis and its effect on global oil-based fuel supply – countries like South Africa who have coal supply locally – may consider it more attractive to keep burning coal. It is justifiable from an energy security point of view, although with heavy environmental and carbon emissions impacts.

LNG – long been seen as a cleaner, bridging fuel that supports energy grids to transition from heavy coal, to lighter gas, to fully renewable systems – may have a smaller than anticipated role in the energy mix than envisaged prior to the Hormuz crisis. This is unfortunate from the decarbonisation perspective however is understandable from the energy security perspective.

One thing that experts are unanimous about regarding the Hormuz crisis: it has done nothing but good for renewable energy, which does not require countries to import or burn fuel at all.