South Africa urgently needs to make a decision on developing its first liquefied natural gas (LNG) receiving terminal, but political and economic support is needed, says global professional services firm KPMG Southern Africa oil and gas director Alwyn van der Lith.

KPMG global infrastructure and projects group associate director Mohsin Seedat points out that South Africa does not have a large-scale LNG receiving terminal, although much work has gone into studies to develop one at the Coega Industrial Development Zone, in the Eastern Cape, and other coastal sites.

Engineering News reported in December last year, that South Africa’s national oil company, PetroSA, had appointed global professional services provider WorleyParsons to conduct a feasibility study and a front-end engineering design study into a proposed LNG import facility at Mossel Bay, in the Western Cape.

PetroSA plans to make an investment decision on the potential $400-million facility that will enable the oil company to import LNG during the second half of this year.

Van der Lith states that there is significant opportunity for gas in Southern Africa, with massive natural gas finds in Mozambique.

“The Mozambique government, US petroleum firm Anadarko and integrated energy company Eni are proposing to initially export all the LNG they produce in Mozambique in the future, but no investment in a pipeline from northern Mozambique to South Africa is planned for the medium term,” he says.

Compared with a pipeline, an LNG terminal is more flexible in the face of an unstable supply, as a pipeline does not present options if supply from a source is interrupted.

According to the US Central Intelligence Agency’s World Factbook, South Africa’s natural gas imports have increased from zero cubic metres in 2005 to 3.2-billion cubic metres in 2008 and Seedat says this reflects energy and chemicals group Sasol’s gas imports from the Pande and Temane gasfields in Mozambique.

Sasol is exploring other potential offshore gas-producing areas in Mozambique, while several international companies, such as Anadarko and Eni, are also exploring for and have found gas in offshore areas in northern Mozambique.

Seedat notes that natural gas can be used to stimulate the broader economy and could become an energy alternative to electricity, coal, petroleum and biomass in South Africa.

However, for gas-to-power to be feasible, it will have to compete against other baseload power generating technologies, such as coal, nuclear and imported hydro.

Further, it will also compete with piped natural gas and shale gas, should South Africa decide to pursue these.

Van der Lith concedes that gas-to-power has an important role to play as part of the South African government’s aim to increase renewable-energy capacity.

He notes that renewable energy, such as solar and wind, is intermittent and that, when compared with adjusting the coal baseload, which is inefficient, gas-to-power is more flexible and can play an important role in energy generation.

Further, Seedat points out that South Africa is, besides investigating local offshore natural gas and LNG importation options, also considering unconventional gas production, such as shale gas, coalbed methane and underground coal gasification, as well as pursuing further piped natural gas imports from Mozambique and neighbouring countries to build the local gas industry.

Investment and Market Development
Despite the value of the South African gas industry increasing, there is insufficient investment in infrastructure for the transmission and distribution of natural gas, while electricity networks are being developed across the country, Seedat says.

The South African gas market also needs to become more competitive to initiate development. Regardless of the few large players that dominate the gas market and centrally regulate prices, South Africa needs to move towards a fully competitive gas market.

However, Seedat says this is dependent on the level of competitiveness that can be achieved across the supply chain, which may take decades.
Meanwhile, Van der Lith notes that future investments made by industry players will place KPMG in a good position to provide independent advice and assurance.

“The advice side entails assisting in feasibility studies and financing, besides other aspects, while the assurance side entails assisting with reviewing, overseeing and controlling capital spending. “This service, called major project advisory, has previously been success- fully delivered to Sasol and PetroSA,” he says.