South Africa is blessed with a variety of natural resources. But the one resource that would assist it in becoming more energy efficient, and more environment friendly, namely natural gas, is in scarce supply.

Government, alongside various exploration and gas companies, including Sasol and PetroSA, is continuously seeking natural gas reserves to assist the country in building its gas economy. But there has, to date, been only modest success.

Nevertheless, the Department of Minerals and Energy sees gas as core to the current national electricity emergency response plan and to efforts to diversify away from coal.

“This will be a long journey that will start with liquefied petroleum gas (LPG), go through imported liquefied natural gas (LNG) and, hopefully, end up with natural gas from our own shores or our neighbours,” Minister Buyelwa Sonjica said in June in reference to introducing natural gas into the South African economy for thermal applications.

“Over the past year, PetroSA has developed this opportunity to a point where there are plans to import LNG for power as well as fuel production. This initiative will reduce Eskom’s reliance on diesel as a fuel for the power stations in the Cape and, obviously, make more fuel available for transportation purposes. The implementation of this initiative will go a long way towards establishing a viable gas industry in South Africa,” she said.

Limited Reserves
But PetroSA vice-president for new upstream ventures Everton September says that the main constraint to gas playing a bigger role is the country’s limited gas reserves.

“South Africa is primarily a coal-based economy, with abundant cheap coal reserves and other energy sources struggling to compete,” September laments, adding that, within the current pricing regime, natural gas is relatively uncompetitive.

“The current high prices of gas and the absence of infrastructure, such as transmission and distribution, make it difficult to introduce natural gas into the South African economy,” he points out, adding, however, that exploration efforts should be accelerated.

South African National Energy Association chairperson Brian Statham agrees, adding that the country’s options in primary energy appear limited to coal or nuclear, primarily owing to the abundance of coal and uranium and the scarcity of oil, natural gas and water.

But he says the equation is altered somewhat if South Africa’s energy economy is seen in a regional context. “Viewing South Africa’s energy prospects as a regional issue brings new energy systems into play, but it also brings along with it political issues.

“For example, it is not an easy task to import natural gas from Mozambique into South Africa. To be able to do this, one needs to establish intergovernmental, customs, royalties, and profit distribution agreements, and the second one starts making it an international trade, it starts becoming somewhat more difficult and complicated.”

Statham believes that energy is a national security issue, and a country’s willingness to be dependent on other nations to supply it with resources is not an easy decision to take. “If we have no natural gas in South Africa and we want to build energy infrastructure based on natural gas, we will become dependent on imports, but once the country becomes dependent on imports, it becomes dependent on the whole system of trade mechanisms and relationships that exist on that basis, and the longer the supply chain, the more it is at risk of third-party intervention.”

Statham explains: “For example, if South Africa starts to import gas from the Middle East, it is faced with the risk of war in that area, which, in turn, makes a country extremely vulnerable, because, if by some means an attacker blockades the main shipping lanes, South Africa will be left with no means of transporting the natural gas through that supply channel.

”That said, owing to South Africa’s current electricity supply crisis, many companies are seeking to establish open-cycle gas turbine (OCGT) plants – combustion turbine plants fired by liquid fuel – in this instance, by turning a generator rotor that produces electricity.

Sasol is one such company. Its current intent is to install gas turbines at its synfuels plants to generate 200 MW of electricity.

The downside, however, according to Statham, is that, even if one wants to order a gas turbine, there is an “extremely” long lead time, which means that this is not a short-term solution.

September adds that there is also not enough gas to displace diesel in OCGTs, because there currently are insufficient gas reserves to supply large-scale gas-fired power plants. “PetroSA is, however, in the process of evaluating the viability of importing LNG as a short- to medium-term solution for its own requirements and for power generation.”

The Role of Gas
So, is the establishment of a gas economy in South Africa a realistic aspiration?

There is no question that natural gas, which is relatively clean and easy to use, would add a positive dimension to the local energy equation if it was available.

If South Africa was able to establish a means of supplying citizens with this energy option, “it will provide the country with a great environmental benefit”, Statham says. It is also a more efficient process than coal. Burning coal in a conventional power station has a 40% efficiency and a gas-fired power station runs at 65% efficiency.

The third benefit is the additional option with more diversity of options for the consumer. The technology is a lot simpler, because of its ‘plug and play’ nature, owing to the already developed standard models of gas turbine plant produced by manufacturers.

Sasol spokesperson Johann van Rheede concurs, saying that having natural gas as an energy option is beneficial. But he adds that it does bring with it complications.

“Gas is more environment friendly than coal. However, the economics for gas-based power generation are very dependent on the landed cost of natural gas. In general, the economics of coal-based power generation beat gas-fired generation by far.”

September, however, believes that there are opportunities for power generation along the coastal regions of the country. “Gas provides opportunities to establish generation capacity away from the traditional coal deposit areas. Gas-fired power generation plants can also be established in a much shorter time than the equivalent coal-fired plants.”

Statham remarks that the viability of gas in South Africa depends on where it is going to come from. “If it is coming from a deep-sea well, it will be more expensive than if it was, for example, readily available in the vicinity of Pretoria in terms of the infrastructure necessary to extract it, clean it up and deliver it to where people are going to be using it. It is important to consider the ‘ease’ of access to it, compared with the abundance of low-grade coal South Africa is blessed with, which cannot easily be exported.”

He adds that it would be “fantastic” for South Africa to have various energy generation options, but “if we haven’t got it, we haven’t got it”. “In the bigger context, it is may not be God’s answer for South Africa.

“The region needs to find and produce significant amounts of competitive natural gas, before it can attempt to establish it as an energy option,” says Van Rheede.

Statham hypothetically compares natural gas to a Ferrari. “It is exotic, it is expensive and, quite frankly, a complicated car. Ferrari only makes a limited number of cars a year, and only a few are allocated to the South African market. And, believe me, those few Ferraris are definitely going to go to the rich and famous. The ordinary man on the street can beg all he wants to have it, but the chances he will get it are zero. Coal is equiva-lent to a Volkswagen. It is readily available, and easy to use and maintain, and relatively affordable.”

Carbon Rich and Energy Poor
The world has become more environmentally conscious and is seeking ways to reduce pollution by steering away from carbon emissions. However, there is a gap, in Statham’s view, between what “can be done now” and what “can be done in the future”. The pressure to reduce carbon emissions comes from developed countries that do not understand the energy poverty challenge faced by developing economies.

“Whether South Africa will decide to move away from coal as a primary energy source will depend largely on how the developed world behaves,” says Statham.

“If the developed world trading partners start saying that they will not import steel and aluminium from South Africa, because it has been produced by using ‘dirty electricity’ (coal), the country will be faced with an economic collapse. South Africa’s primary industry is commodities based and if we get environmental sanctions against us, we will have a huge problem.

“We continuously argue through the World Energy Council that this is not a constructive way to move forward. The developing world is struggling with energy accessibility and poverty. It has to burn coal, because it is a simple matter of survival. The First World ‘greenies’ should stop complaining and start helping the developing world to obtain technologies that will allow them to burn coal more efficiently and effectively and assist them in conducting carbon capture and carbon sequestration.”

Two-billion out of six-billion people worldwide do not have access to any type of commercial energy and that reality has to be taken into account when dealing with the desire for lower carbon solutions, of which gas is one.

What if?
South Africa has over the years explored multiple methods of bringing natural gas into the country. Recently, talks with Qatar were undertaken by Eskom and Shell to import natural gas into South Africa from that country.

But if South Africa does sign a deal with Qatar, it will, no doubt, come at a price. South Africa will have to synchronise the importation of the natural gas with developing a port, infrastructure and a power station, which will take a long time.

“We need to make a strategic decision on whether we can afford it,” Statham says.

If a deal is struck, natural gas will be transported in liquefied form, which is compressed into large specially designed steel containers. For a vessel carrying LNG to dock, it needs to do so under extremely calm weather conditions, otherwise, it has to stay far out at sea. With any vessel containing LNG, the biggest danger is a catastrophic explosion.

While the vessel is manoeuvring into the port, no other vessel is allowed to be moving. It also has an exclusion zone around it. High security is needed at the port once the vessel has docked and while pipes are being connected to it. Further, only a small number of people are allowed to work and live within a stipulated radius around the port, because of the highly flammable and explosive liquid. All of this adds up to tremendous costs.

But what if South Africa discovers a large gasfield off its coast? Will it be able to create a gas economy from natural gas?

Statham does not think so. “The conversion cost that consumers will have to pay to change their current appliances for gas-powered ones will be significant, and most people will not do it. Even people in Johannesburg who used to have town gas will have to go through a conversion. There will need to be a subsidy for people to convert from town gas to natural gas as it has a different composition.”

He says that there is a lot of idealistic thinking to convert for the sake of the environment, but when push comes to shove, the answer changes.

But what about LPG? Here legislation could be key in driving market demand. “For example, if legislation says that one is not allowed to have an electric stove, but has to have a gas stove, then consumers will have no choice but to change.

Therefore, there will be a market to increase supply capacity, and that would allow suppliers of LPG to invest in increasing LPG availability, but the consumer will have to pay. At the moment, LPG producers need to consider what people’s choice will be, and estimate their share of the energy market before they decide to increase production capacity,” he says.

The Regional Dynamic
The one dimension that has to be taken into account, though, is the fact that South Africa’s neighbours, principally Mozambique and Namibia, do appear to have significant gas reserves.

Sasol, which imports gas from Mozambique, already markets pipeline gas principally as a fuel for industry and for its own needs. It currently supplies over 570 industrial customers in Gauteng, the Free Sate, Mpumalanga and KwaZulu-Natal with natural gas.

“The pipeline infrastructure evolved over the past 43 years and now comprises over 2 084 km of pipelines,” says Van Rheede.

He adds that there is low-hanging fruit South Africa can benefit from. “Smaller-scale gas-based cogeneration plants (for example, pulp and paper industries) can produce electricity and steam at higher efficiencies than an OCGT. Sasol is currently supplying pipeline gas to two facilities in KwaZulu-Natal, one in Newcastle and the other in Richards Bay, both of which produce both electricity and steam. Sasol will pursue similar projects where gas availability allows.”

September adds that PetroSA is pursuing increasing the exploration for indigenous gas resources, importing LNG from international suppliers, importing compressed natural gas from Southern Africa and piping gas from resources within South and Southern Africa.

He notes that, for South Africa to be able to build a gas economy, the increases in the electricity price should be such that the current high cost of gas as energy feedstock will justify local and foreign investment in the establishment of gas-fired power plants.

Scaling up Exploration
Although discoveries have been few and far between, PetroSA is one such company that has been involved in exploration for many years.

It has embarked on a massive drilling programme since February, which will cost, over two years, more than R5-billion. The State-owned oil company’s board has approved Project Jabulani, a drilling programme aimed at appraising existing gas- and oilfields south of Mossel Bay, taking in four wells.

“At the PetroSA board of directors meeting on February 15 this year, approval was given for PetroSA’s upstream division to drill the E-M West and F-O gas wells as well as the E-AR5 oil well,” September announced in February. “At the same time, the board also granted approval for maintenance work on the F-BE01 gas well, currently a non- producing well in the FA field.

“Our chance of success in E-M and F-O was calculated to be about 83% and 72% respectively, according to our team,” he added.

Recently, PetroSA announced that it had discovered a new gas well off the Southern Cape coast.

The well spudded on March 19 and was drilled to a total depth of 2 856 m, with 40 m of the upper shallow marine section being penetrated, with 28,4 m of gas pay.

The drilling programme now shifts to the E-AR5 well in the Oryx field to test for an accumulation of oil not produced from existing wells.

PetroSA will be using the gas for its own requirements. It is also currently involved in the process of evaluating the hydrocarbon potential in concession areas along the West Coast of South Africa and Namibia, and holds equity interests in other exploration acreage in Mozambique and other countries on the African continent that have known natural gas reserves, such as Egypt.

The opening of the Egypt office follows PetroSA’s acquisition of the South East Warda Block that is located in the Gulf of Suez, in 2005.

“One major imperative for PetroSA is to ensure security of supply of liquid fuels for our country. Within that directive lie responsibilities to search for, explore, find and repatriate to South Africa fuel-making ingredients to ensure such security of supply. These supplies could be in the form of crude or natural gas,” says Sonjica, who applauded the partnership.

Sasol, on the other hand, is already bringing in gas from Mozambique and is expanding the infrastructure to increase its imports.

But it will use the bulk of the additional capacity for its own production needs in order to reduce its reliance on Eskom.

“The chances of Sasol diverting that back to electricity for consumers are probably low, unless we get another jump in electricity tariffs. But again, there is only a limited amount of gas in the field,” says Statham.

“Sasol is further exploring for additional natural gas off the coast of Mozambique through its Sasol Petroleum Sofala subsidiary, which is a joint venture between Sasol Petroleum International and ENH,” says Van Rheede.

In Namibia, exploring for natural gas off the coast has met with mixed success.

Irish company Tallow Oil is currently exploring the Kudu gasfield, which was discovered in 1968 and has not yet come on stream. Soekor, PetroSA’s predecessor, spent a lot of money doing research at Kudu, and, after the company retreated, Eskom, Shell, Chevron and Engen also drilled wells with no success.

“They all walked away from the project because the economics do not make sense. The investment you have to make to exploit a deep-sea gasfield for a little bit of gas to sell into a market that cannot afford to pay top dollar just doesn’t make it work,” adds Statham.

Currently, the proven gas reserves at Kudu only support 1 000 MW, although many believe the potential exists for much more, particularly as the economics change in line with South Africa’s rising electricity price trajectory.

“The main reason why explorers keep going there is that the Namibian government wishes to be independent of South Africa and wants to exploit this resource. They invite companies to come and explore, but so far these companies always end up walking away,” he adds.

There are many other exploration projects also in progress: Forest Oil is exploring off the South African West Coast; Pioneer is exploring off the Southern Cape coast and Phillips is exploring off the Richards Bay area.

Van Rheede remarks that the potential for offshore gas explor-ation has not been fully evaluated because exploration activity to date has been limited.

“Companies are faced with a ‘chicken and egg’ situation. When the prices are high, it provides an incentive for them to explore and research, but the problem remains, however, that the South African market will not be able to afford it once it is found. Even if explorers find gas now, at current prices, there might not be a market close by for it,” Statham concludes.