The promoters of liquefied natural gas (LNG) import terminals at Maputo, in Mozambique, and Richards Bay, in South Africa, insist that the two proposed projects can be complementary rather than competitive as there is sufficient existing demand and growth potential in the region to support both initiatives.
In early December, Total and Gigajoule signed a joint development agreement for a $350-million LNG importation terminal at the Matola harbour, in Maputo. A final investment decision on the project, which hinges on the securing of firm offtake agreements in both South Africa and Mozambique, is expected in mid-2020.
The construction schedule, which envisages commercial operation of the terminal from the end of 2022, has been aligned with the expected tapering of gas output from Sasol’s Pande and Temane gasfields in southern Mozambique from 2023 onwards. The terminal will facilitate initial yearly LNG imports of two-million tons, or 100 petajoules (PJ), but includes scope for further growth.
Simultaneously, Transnet and the International Finance Corporation are aiming to finalise, during the first quarter of 2020, the investment case for an import terminal at the KwaZulu-Natal deep-water harbour of Richards Bay.
Should the investment case be proved, a competitive process will be initiated to secure partners for the public-private project with the intention of reaching financial close in 2022 and commercial operation in 2024.
Transnet itself intends taking only a minority equity position in the terminal, but has indicated that it will help lower the cost and risk of the facility by linking it to existing port and pipeline assets, including the Lily pipeline and parts of the Durban-to-Johannesburg pipeline.
Both projects, Matola and Richards Bay, envisaged the introduction of floating storage and regasification units, or FSRUs, rather than onshore terminals.
Gigajoule CEO Johan de Vos, who previously worked for Sasol on the project to import gas from Mozambique through the Rompco pipeline and who has since overseen the creation of a 100-km gas pipeline network within Maputo, as well as gas-fired power plants and natural-gas filling stations in Mozambique, says he has yet to be involved in a gas project that was sufficiently sized to meet eventual demand.
“The Rompco pipeline, and I was involved in signing that contract in 1999, was initially a 600-mm pipeline that has since been doubled. The pipeline we built from Ressano Garcia to Matola is too small to supply the market currently. Once you have developed the gas infrastructure and industry begins to see the benefits of natural gas – and provided it is priced properly – you grow faster than anticipated,” De Vos told delegates who attended the Industrial Gas Users Association of Southern Africa (IGUA-SA) seminar in Johannesburg on Wednesday.
“Perhaps we [Matola and Richards Bay] need to move closer to each other to ensure that we put the building blocks into a logical order. But in the longer-term, I believe we need four LNG ports. We need Maputo, we need Richards Bay, we need Coega and let’s think about Saldanha Bay again, which is close to a big gas-fired power station that is being fed by diesel right now.”
PRICING ‘SWEET SPOT’
De Vos also argues that South African and Mozambique would be developing LNG infrastructure in what he terms a “sweet spot”, which has arisen as a result of a global surplus of LNG.
“It’s a good time to secure the contracts and the right mix between long and short-term contracts. I can assure you that, if we get the volumes right, we will get the pricing right,” De Vos adds, arguing that, as four-million tons, the region will be taken seriously by suppliers.
Likewise, Transnet chief business development officer Gert de Beer describes the two proposed projects as “complementary”.
“We haven’t spent time comparing notes, we are two independent initiatives that know of each other. But the more I look at it and the more I speak to stakeholders, the more I believe it is an ‘and’ not an ‘or’ scenario.”
Transnet estimates that yearly demand from South African industrial and power users will be about 181.5 PJ, or 3.3-million tons, from the outset, with significant scope for growth from that base should supply be guaranteed.
Security of supply is currently at risk owing to the fact that Sasol’s exploration campaigns in southern Mozambique have not yet being able to shore up sufficient replacement gas for when output from the Temane and Pande gasfields begin to decline.
IGUA-SA has cautioned that South Africa will begin facing gas shortages from 2023 onwards and that the yearly shortfall could be as large as 98 PJ from 2025 onwards. Sasol’s central processing facility in Mozambique is currently able to produce at a yearly rate of 197 PJ, of which some 110 PJ is consumed by Sasol itself.
Sasol senior VP for alternative gas supply Ed Cameron says efforts are under way to bolster supply from Mozambique and indicates the so-called supply cliff is unlikely to materialise in 2023 as a result, with tapering occurring later in the 2020s.
GAS IS COMING
Nevertheless, Sasol is supportive of the initiatives under way to import LNG into the region both to mitigate the risk that supply from Pande and Temane might not be augmented as planned, as well as to enable Sasol to displace coal as a feedstock for synfuels and chemicals, as well as to produce electricity.
“Gas is going to come. We need gas, we want to bring in gas and we should bring in gas,” Cameron insists.
In the absence of coordination between the governments of South Africa and Mozambique, as well as the private sector, however, there is a risk that South Africa could follow a “low road”, whereby gas fails to play the role it could in both balancing renewable energy in the electricity sector as coal stations are decommissioned and in supporting further industrialisation across a range of sectors.
Under Sasol’s “high-road scenario”, yearly gas demand would grow to be between 300 PJ and 500 PJ in the coming decades.
IGUA-SA executive officer Jaco Human says that gas consumers are willing and eager to engage on the solutions and has called for greater urgency from all stakeholders in defining the supply solutions, the volumes and the pricing of imported gas.
“There’s got to be a short-term play that allows for LNG to come into the country. What is now required is to build the business case to make these projects feasible. We need about 50 PJ and then we can bank these projects,” Human says, while describing the short-term supply solutions as an insurance policy in the event the exploration efforts in southern Mozambique fail to yield additional gas.
“Industry is open for business as far as LNG is concerned, which is an important message so that we can start building scale while gaining an understanding of what is available, under what pricing scenarios and over what period of time.”