As an abundant global resource, natural gas is poised to take centre stage in the world’s total energy mix by 2030, according to the International Energy Agency (IEA), with more than 200 years of proved reserves and a worldwide increase in gas consumption, partly due to the global need for energy security.
Moreover, with the significant increase of natural gas finds in Southern Africa – once one of the world’s leading mining investment destinations – countries like Mozambique, Namibia, Botswana and Tanzania are steadily contributing to Africa’s total natural gas reserves.
According to the latest BP Statistical Review, these were estimated to be about 513 tcf at the end of 2011 – about 7% of the world’s reserves, which amount to 7 361 tcf. Compounded with a steady increase in gas discoveries, this is garnering significant investment interest worldwide.
However, gas currently accounts for only 3% of South Africa’s coal-intensive energy mix. This is a gross underrepresentation, say energy-sector analysts, who have commented on the notably low proportion of electricity generation capacity allocated to natural gas in the Integrated Resource Plan (IRP) 2010.
Government continues to acknowledge the country’s gas-anaemic energy mix, with plans under way to increase the future role of gas in South Africa from 3% in 2010 to a projected 11% in 2030.
The IRP2010, approved by Cabinet in May 2011, provides the nation with a 20-year electricity development plan, recognising the need to pursue clean-energy strategies. This includes an outline of the role of natural gas as a future alternative source to generate electricity.
“The IRP2010 indicates government’s intention to further increase the role of natural gas in the energy mix,” says audit, tax and advisory firm PricewaterhouseCoopers (PwC) Southern African energy industry leader Chris Bredenhann, further citing the National Planning Commission’s (NPC’s) National Development Plan (NDP), which fully advocates South Africa’s exploration of gas as an alternative to coal for energy production.
Minister in the Presidency responsible for the NPC Trevor Manuel has suggested that a more diverse energy portfolio will diminish risks.
This will include the establishment of several smaller, lower-capital-cost, gas- fired generators with short lead times using different sources of gas, which Manuel says will be “less risky than huge 1 600 MW nuclear units with engineering, project management, completion time and financing risks”.
Bredenhann agrees, adding that, from a risk, capital and timing point of view, it could be more beneficial for South Africa to consider adding gas-fired power into the country’s vertical energy mix.
“We have an energy-intensive economy which, if we maintain the status quo, will worsen the country’s carbon-emissions profile, which is something we need to take into account when considering gas and the need for power or energy in South Africa,” he says.
Bredenhann further points out that the country is operating on a tight supply margin in terms of electricity. “If we want to instil confidence in industry, we also need to ensure that we address issues pertaining to supply security. The question is: Can we achieve that using natural gas?”
The NPC’s NDP 2030 state that this is possible, outlining the country’s potential to partially substitute coal for gas to help reduce the country’s carbon intensity and greenhouse-gas emissions through the development of offshore natural gas plays, coal-bed methane deposits, shale gas resources in the Karoo basin and liquefied natural gas (LNG) imports, which could be used for power production and gas-to-liquid (GTL) refineries, among other applications.
However, it is the Department of Energy (DoE) that will determine the pace and extent of the scale-up as it adds meat to the NDP’s bones, firstly through the Integrated Energy Plan (IEP) and later through the revised Integrated Resource Plan (IRP) for electricity.
Energy Minister Dipuo Peters explains that the IEP is a planning instrument to determine the most appropriate approach to meeting all of South Africa’s energy needs until 2050, which was not limited to electricity.
She adds that the IEP “is ready to be taken through a robust public stakeholder process” and that the process will preceed the consultation on the constituent parts, or subsets, of the IEP, namely the revised IRP and the Liquid Fuels and Gas Infrastructure Plans.
REVISING THE GAS RATIO?
Meanwhile, Bredenhann and Standard Bank Southern Africa oil and gas head Paul Eardley-Taylor believe the reviewed IRP will make provision for more than the forecast 11% combined gas and diesel increase projected for 2030, which stood at 5% in 2010.
Eardley-Taylor says he will be surprised if a further increase is not projected in the revised document, considering the DoE’s Ministerial Determination, Gazetted in October and promulgated in December, which represents “a breakthrough” for natural gas in South Africa.
The determination calls for the commissioning of 12 GW of private power, of which 3 200 MW will be dedicated to different forms of gas-to-power (GTP) technology, independent of State-owned power utility Eskom.
“Government is clearly recognising the challenge to raise the level of gas in the overall energy mix,” says Eardley-Taylor, further emphasising the significance of generating 25% of the newly projected baseload capacity from natural gas, which represents the capacity allocated to combined-cycle gas turbines in the IRP2010, for commissioning from 2021 to 2025.
He tells Engineering News that, while the determination is silent on the specific procurement process, it appears to permit cross-border importation. “Standard Bank expects the procurement process to be influenced in some way by the successful Renewable Energy Independent Power Producer Procurement Programme (REIPPPP),” he adds.
Peters said in August 2012 that the announcement of the determination would be imminent, adding that it was aimed at kick-starting a baseload independent power producer (IPP) procurement process and extending the REIPPPP beyond the 3 725 MW currently being procured for delivery by 2016.
The determination is in line with the IRP’s goal to introduce an additional 6 250 MW of non-Eskom coal-fired generation between 2014 and 2030, and 2 370 MW of gas-based production between 2019 and 2030, among other plans to boost power production.
Eardley-Taylor believes this determination is a radical and massive departure from South Africa’s previous history and says this shows that government stakeholders have realised that GTP is a necessary route to market, which implies that they need to focus on gas-sector development and infrastructure.
While a burgeoning gas sector could be a significant economic ‘game changer’ for South Africa, industry stakeholders are not oblivious to the risks and challenges that have to be overcome, including inadequate gas supply and the need to motivate infrastructure investment necessary for development.
Addressing industry stakeholders and members of the media at Gas Week 2013 in April, DoE coal and gas policy director Landi Themba highlighted limited in-country natural gas resources as a latent problem in South Africa, but pinpointed current resources that could be the start of developing a gas economy in the country.
These include the Ibhubesi gas project – the largest undeveloped offshore gas discovery in South Africa – recently acquired, and awaiting Ministerial approval, by ASX-listed gas explorer and developer Sunbird Energy in a 76:24 joint venture with national oil company PetroSA.
Upon announcing the acquisition in December, Sunbird Energy mentioned the lack of domestic gas supply and limited peaking power capacity in South Africa, highlighting the company’s unique position to eventually provide a local gas supply that could assist the region in meeting its growing energy needs, improving energy security and alleviating power shortages.
Sunbird further put forward its oppor- tunity, in partnership with PetroSA, to develop a gas-fired power plant of between 400 MW and 900 MW on South Africa’s West Coast, to supply natural gas to Saldanha Bay and the Western Cape.
Ibhubesi could also supply gas to Eskom’s 1 300 MW Ankerlig power station, north of Cape Town, which is critical in meeting peak power requirements, thereby displacing the use of diesel as a fuel source.
This would benefit the national electricity grid by mitigating transmission losses and providing critical load-following and peaking capacity at economically competitive tariffs.
“The use of diesel for the gas-turbine facility leads to high running costs. Ibhubesi is ideally positioned to provide an alternative fuel source for this facility,” says Sunbird Energy.
Meanwhile, other offshore areas near South Africa have been less successful than Ibhubesi, despite promising finds in regions along both coasts of Southern Africa. Further, only limited gas supplies in the Southern African region are available to the domestic market for power generation, as gas use in South Africa is dominated by PetroSA and energy and chemicals giant Sasol as feedstock for their large-scale GTL facilities.
Sasol currently relies on gas sourced from Mozambique, which it transports through pipeline infrastructure to fuel gas turbines and power GTL facilities in Secunda, Mpumalanga, and Sasolburg, in the Free State, while PetroSA powers its Mossel Bay-based GTL plant from offshore gas near the Southern Cape.
In-country onshore gas reserves, however, could be significant. They include a possible 12 tcf coal-bed methane deposit and massive shale gas deposits in the Karoo basin, which highlight South Africa as the country with the fifth-largest potential shale reserve outside the US.
Until recently, Mozambique attracted the most natural gas investor interest, with reported long-term recoverable gas reserves approaching more than 250 tcf. However, South Africa may soon take centre stage with changes afoot in the unconventional natural gas sector, following an initial assessment commissioned in 2011 by the EIA, which estimates that there are 485 tcf of technically recoverable shale gas resources in the Karoo basin.
However, the deposits remain unproven and Bredenhann warns government and industry stakeholders to be realistic about local gas supply.
“South Africa doesn’t feature at the top of the list of proved gas reserves, but, while there is certainly a growing market and what seems to be a receptiveness to the prospect of natural gas in the country, I think we need to be realistic and have a clear view on where it’s going to come from. It’s a fairly simple solution – either it’s our own indigenous gas or we import it,” Bredenhann says.
He does not discount the promising probability that South Africa could benefit from its own shale reserves in the longer term, but reminds stakeholders that there is still a lot of work to be done to prove that the reserves exist.
In terms of offshore GTP projects, South Africa is likely to benefit from Namibia’s developing Kudu gasfield. In April, National Petroleum Corporation of Namibia MD Obeth Kandjoze reported that the much-delayed 800 MW Kudu GTP plant, which will be connected to the Namibian and South African electricity grids, is expected to produce natural gas only by the second half of 2017.
Meanwhile, in Botswana, Sasol and Australia-based gas exploration company Origin Energy’s joint venture company, Kubu Energy Resources, has conducted a study with a US-based geological survey team, declaring a potential 196 tcf of coal-bed methane in the region.
Bredenhann reminds stakeholders, how- ever, that this, together with South Africa’s potential onshore gas finds, come with the caveat that these reserves remain unproven. “These developments do not translate into production, but are certainly worth looking into,” he says.
Moreover, assuming that the reserves in Southern Africa will be proven, the region will subsequently be promoted to being the third-largest with proven reserves, widening the gap for natural gas industry investment from international players.
Considering the long-term future of Southern Africa’s natural gas sector, Themba emphasises the need to strengthen and extend regional cooperation in natural gas markets in terms of trade, technological exchange and skills development, as well as the “harmon-isation of legislative framework, policy and regulations”.
Meanwhile, in the short to medium term, investing in imported LNG and developing LNG import infrastructure could significantly ease the pressure on South Africa in terms of current insufficient gas reserves.
In her keynote address at Gas Week 2013, PetroSA CEO Nosizwe Nokwe-Macamo announced that the State-owned group faced insufficient gas reserves at its Mossel-Bay-based GTL refinery and that further development of an LNG import plant would enable South Africa to tap into the recent gas discoveries off the East African coast.
She noted that PetroSA could leverage imported gas reserves while seeking further feedstock sources of its own and added that the potential project included the possibility of importing LNG into Mossel Bay through a floating LNG facility.
Meanwhile, the Western Cape provincial government is also investigating available options in terms of importing LNG into the province, with power generation as an anchor, in addition to considering the options available from the Ibhubesi field.
There are, therefore, several existing applications for an LNG import market in South Africa, with significant room for growth.
Moreover, South Africa could assist Mozambique with meaningful LNG infrastructure development, which is significant, considering Mozambique’s potential to become the world’s third-largest LNG exporter behind Qatar and Australia.
As local law firm Webber Wentzel oil and gas practice head John Smelcer points out, while investing in LNG remains a challenge, it is, conversely, a significant opportunity for many downstream gas players who want to benefit from gas finds in Southern and East Africa.
While South Africa may need to contend with international players in terms of investing in Mozambique’s upstream industry, including downstream players from Asia, the Natural Gas Trade Agreement, which was established in 2001 between South Africa and Mozambique, could be beneficial to highlight South Africa as a potential candidate to assist with LNG infrastructure and the route to market.
GAS MASTER PLAN
Despite much public support for more gas in South Africa’s energy mix, a Gas Master Plan is still required to define the direction the country will take in gas exploration, development and exploitation.
Mozambique has already drafted a Gas Master Plan, which is currently open for public comment and is expected to be implemented in August, says Smelcer. He adds that Mozambique’s plan “explores options for a framework for carrying out projects, further highlighting the need to add value to extracted gas”.
Eardley-Taylor says Mozambique’s Gas Master Plan is signed off by the State, but is funded by the World Bank and drafted by technology, policy and management consultancy ICF International. “This confirms that, for Mozambique, putting the country’s first phase of upstream success into LNG before deciding on the state of play for the following phases was the right thing to do.”
Meanwhile, Eardley-Taylor advocates a variant sequence of events for South Africa. “No holes have been drilled yet and there is still some uncertainty about the proven reserves. We, therefore, need a strategic options document to determine what we would do if the resources were available and, from there, decide on the route to market.”
Eardley-Taylor believes that this would save between 12 and 18 months if and when South Africa’s upstream market comes on line as, once the reserves are certain, the debate and analysis in terms of where South Africa’s indigenous gas belongs would already have played out.