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South Africa should urgently move on gas monetisation to solve its energy problems (By Amina Ali)

By Amina Ali, International Energy Fellow, African Energy Chamber (https://EnergyChamber.org)

As Southern Africa’s leading economy, South Africa should evaluate the development of gas-to-power projects to address climate change, increase its power generating capacity, and stop load shedding, which represented an estimated loss to the South African economy of R338 billion over the last ten years, according to Business Tech. Such power projects could be fuelled by liquified natural gas (“LNG“) considering sub-Saharan Africa’s significant natural gas resources, which remain underexploited. Such projects could be the key to transformative change, by making available reliable energy for growth and industrialisation at affordable rates, something that South Africa has been looking for a long time.

However, this will not be an easy task as South Africa’s demand for affordable and reliable energy is expected to multiply multiple fold, considering its relatively young population, standing at a median age of 27.6 years and rising urbanisation. The South African government needs to elaborate energy plans for the next 50 years to keep the economy growing and meet the anticipated growth in demand. If that does not happen, South Africa will not only fail to stop load shedding, but the system may deteriorate under the weight of ever rising demand, leading to longer blackouts.

In his book Billions at Play, Mr. Ayuk describes Qatar, Equatorial Guinea and Trinidad and Tobago as an excellent example for the rest of the continent as they have “demonstrated a leadership position on the importance of utilizing its natural resources for the benefit of its people and neighbours. Its use of natural gas for LNG exports, for gas-to-power facilities, for compressed natural gas, and further down the road…provides a reference point for the rest of the continent“. This could serve as a “template for how African countries holding a wealth of natural gas can share their resources and work with their African neighbours on building gas import infrastructure.” Following that example, and others in the continent, South Africa could also look at LNG as an essential source to drive its economic growth.

Gas to power can help South Africa reduce imports, grow exports, expand access to electricity, improve its economy, and fund social development.

Load-shedding concerns.

South Africa has mainly utilized coal power plants as its primary energy source; however, meeting the supply has been challenging to the government as the demand for energy increases. Regularly scheduled mandatory load shedding started in 2007 to allow maintenance periods of power generators and recovery of coal stockpiles before the winter when electricity usage surges. It has been 13 years of the same problem with no practical solution on sight.

According to a Public Servants Association (PSA) document published in 2015, South Africa’s grid has inadequate capacity to operate within reasonable operating buffers due to overworking of aging power stations, triggering failures, and sparking load-shedding. The roots of the crisis lie in insufficient investment in new generation capacity.

What is the country doing?

With the introduction of load shedding in 2007, the government took swift action by announcing a costly overhaul of two power plants, Kusile and Medupi, which were meant to become fully operational by 2015; however, the construction was set back by spiralling costs, delays, and corruption scandals. Eskom informed the public, that the first unit of the Kusile power station was connected to the national grid in 2016, adding 800MW to stabilize the power system. Kusile unit 2 achieved commercial operation on 29 October 2020 and  Unit 3 in March 2021, while Medupi Unit 1 will achieve commercial operation by July 2021. According to Eskom, Medupi Unit 3 reached its full generation capacity (793MW) in April 2020. The unit has completed seven consecutive months of improved performance since.

The government launched the Integrated Resource Plan for electricity (“IRP“) in 2010, which was later replaced by an updated version in 2019. The IRP 2019 proposes to add 39 696MW by 2030 to the national grid, including power generation by independent power producers (“IPPs”). In such regard, the government launched the Independent Power Producers Procurement Programme (“IPPPP“) and the Renewable Energy Independent Power Producer Programme (“REIPPP“), with the target of producing 17 800MW by 2030. The REIPPP has procured projects from four bidding rounds, with the much-expected fifth-round launched in April this year.

Furthermore, under renewables, the government has also been exploring generating electricity using solar energy, which also falls under the REIPPP. According to government’s information, the program aims to bring additional MWs onto the country’s electricity system through private sector investment in wind, biomass, and small hydro, among others. However, as much as it serves as a tool to bring additional megawatts onto the country’s electricity system, it is unlikely to be the silver bullet, as photovoltaic devices die out after 20 years, need to be replaced and require a backup energy source for the grid.

Furthermore, The Department of Mineral Resources launched the Risk Mitigation IPP Procurement Programme (“RMIPPPP“) in August 2020 to procure 2000MW of new generation capacity and connect to the grid as fast as possible. The RMIPPPP was a success as there were eight successful bidders, including three contracts awarded to Karpowership, a subsidiary of Turkey’s Karadeniz Energy Group, to supply power ships in the ports of Richard Bay, Saldanha, and Coega, under a 20-year Power Purchase Agreement. Energy will be produced from these powerships from LNG. Per Business Insider South Africa, the powerships, will feed energy back into the grid at a cheaper cost than Eskom’s current diesel-burn rate and produce a total of 1,220 MW across all three ports. While not optimal due to the length of the contracts, the power ships can reduce load shedding in the short term, giving the government some time to develop the gas industry trade and the option to explore or build regasification plants to boost its energy industry.

LNG-to-power can help South Africa meet its growing demand.

The aim of transitioning to LNG-to-power is to change our old way of generating electricity and change together with the rest of the world as we transition to a cleaner way of generating electricity.

LNG-to-power could be used in South Africa to generate cheaper, reliable electricity. As an abundant energy resource, natural gas may meet the demand for electricity of the growing population in the country. Natural gas can be used to generate electricity, as fuel for industrial processes, for heating, and as a raw material to produce chemicals, fertilizer, and hydrogen. It can also be used in the residential, commercial, and transport sectors in several applications.

LNG is the cleanest fossil fuel in the context of energy transition, it represents an excellent alternative to reduce greenhouse gas emissions and help combat global warming. As reported by ‘Elengy’- an LNG expert company, the combustion of natural gas does not emit soot, dust or fumes. It generates 30% less carbon dioxide (CO2) than fuel oil and 45% less than coal, with a twofold reduction in nitrogen oxide (N0x) emissions and almost no environmentally-damaging sulphur dioxide (SO2) emissions.

By way of comparison, a thermal power plant fuelled by natural gas rather than coal is associated with:

  • an 81% reduction in carbon dioxide (CO2),
  • an 8% reduction in nitrogen oxide (NOx),
  • a 100% reduction in sulphur (SO2) and fine particle emissions.

The lower impact of natural gas on the environment is such that if coal-fired power plants were replaced by thermal power plants fuelled by natural gas, the CO2 emissions of the European energy sector would be cut by 60%, and 20% on a global scale.

GreenCity Times stated that in the United States, over 30% of natural gas is generated using advanced combined cycle gas generation; and that share of the U.S. gas market for the lower cost, higher efficiency gas combined cycle plants is increasing. The United States actually has reduced its Green House Gas’s (GHGs) back to 1996 levels, or by more than 12%. Much of the credit for that accomplishment has been attributed to a significant shift from coal to natural gas to power major U.S. electrical utilities. Coal has fallen from supplying over 50%

of U.S. total energy output at the turn of the century, to under 30%. Natural gas has increased from 15% to over 30% of overall United States energy production in that same time period. Because natural gas burns cleaner than coal, this shift to more gas than coal combustion for U.S. energy has without a doubt been a factor in the reduction of carbon being pumped into the atmosphere.

According to an article published by Econometrix (an independent economic consultancy in South Africa), states that South Africa has a high value domestic energy market currently dominated by base load coal (80%) with limited diesel peaking. Any gas development is likely to comprise onshore and offshore components and would consist of three phases of development activities: construction, operation and decommissioning.

The South African government should focus on developing gas-to-power projects, especially considering the recent Brulpadda and Luiperd gas discoveries. According to Cliffe Dekker Hofmeyr, the discoveries of gas condensate fields during 2019 and 2020 are significant, and they have the potential to expedite the government’s much-touted energy transformation. While studies are still being conducted, early estimates are that the two gas fields may hold over 1 billion barrels of gas condensate each. If these estimates are accurate, these discoveries would be huge for South Africa as a non-producing country heavily reliant on oil and gas imports.

What needs to be considered when recommendations are made about gas-to-power is the potential it holds for poverty alleviation, reducing levels of unemployment and raising standards of living. Producing electricity at the lowest, efficient, cost-effective price with security of supply is the single biggest employment-generating decision policy-makers can make. Cheaper ways of buying electricity for the man on the side of the road means that he has extra savings left at the end of the month. That way there is  more disposable income to fund education, to buy food and to start a business. It is in South Africa’s best interest to develop its gas industry and reach the government’s much-acclaimed energy transformation from coal to a lower carbon emission source. With gas-to-power, the country can convert the country’s aging diesel and coal-fired power stations to gas plants and reduce greenhouse emissions.

Post-Covid-19 will see a more robust influence on the global energy market and the phase of transition. Decarbonization will shift the energy mix at an expeditious pace and is expected to place gas ahead of coal by 2030 to become the world’s number two fuel, with oil remaining in the top position.

Where is the LNG coming from?

Among the magnificent discoveries over the past decade is Mozambique’s natural gas, estimated at over 180 tcf (trillion cubic feet), which has already unlocked the first three large-scale LNG projects. Together with project expansion phases and additional exploration, these projects can position Mozambique as the third-largest global LNG producer after Qatar and Australia by 2030.

Natural gas is becoming more significant to the region’s energy sector as Mozambique, Namibia, South Africa and Tanzania develop natural gas fields in their respective countries.

Being a neighbor to Mozambique, South Africa is perfectly positioned to transport LNG as the country’s short shipping distances from Mozambique to the Durban basin will help favourable delivery prices. In an article by Charne Hundermark, she highlights how South Africa may receive the LNG by developing a cross-border pipeline – the African Renaissance Pipeline Project – which aims to connect Mozambique’s massive reserves with South Africa’s growing energy demand. The pipeline will offer a direct export link to South Africa, capitalizing on the country’s demand and providing sub-pipelines to branch off of the main one and connect to other countries, such as Zambia Zimbabwe.

The SADC region contains 9.2 trillion cubic feet (Tcf) of proven natural gas reserves. The majority of the proven reserves are located in Angola (11 Tcf), Mozambique (100 Tcf), Namibia (2.2 Tcf), Tanzania, with 57.5 Trillion cubic feet (Tcf) and DRC (0.04 Tcf). Overall, the region contains approximately 1.9 percent of Africa’s natural gas reserves. Several projects are underway to expand utilization of natural gas in the region. Energy Ministers approved in 2018 the development of the SADC Regional Master Plan covering evaluation of the available gas resources and existing markets, gas utilization strategy, supply and demand analysis.

Mozambique and Tanzania gas resources, in particular, are well-positioned for cross-boundary development of gas pipeline infrastructure. Gas demand in the region must be serviced from regional gas resources to increase the opportunity for intra-African trade and economic collaboration. While the infrastructure for the transport of LNG is currently unavailable, its commissioning is the safest and easiest way to transport the natural gas once in place.

Challenges

One of the biggest challenges facing LNG projects in the continent is the lack of established infrastructure and logistics. According to the National Energy Regulator of South Africa, the limited transmission and distribution infrastructure for gas and the relatively limited availability of gas are responsible for a slow uptake in South Africa. Additionally, South Africa needs to develop the energy industry to boost the economy and eliminate energy poverty/insecurity by developing gas to power infrastructure.

‘Efora Energy Limited’ formerly known as ‘SacOil’ touted an R90 billion project in 2016 aiming to deliver gas to Johannesburg and the nearby towns by 2020. The aim was to promote a 2,600 kilometre, large-diameter natural gas pipeline from the Rovuma basin in northern Mozambique to Gauteng Province, which would have been a step in the right direction. Apart from unknown delays, Efora Energy’s CEO believes this initiative will improve Africa’s energy infrastructure landscape, support economic growth, increase the international competitiveness of southern African economies, create jobs, and improve living standards. Such projects, if realised will be a step in the right direction

Currently, the regulatory environment around the Petroleum Pipelines Act 2003 and the Petroleum Products Act 1977 has some rising issues under the South African legislation. The extent to which third-party access is required in regasification facilities and related infrastructure is essential, regardless of which party develops and operates these assets. This could serve as a hindering factor for the ‘gas-to-power chain or if the government is to venture into ‘gas-to-power. It will be imperative to clarify whether LNG regasification will be considered ‘produced’ under the Petroleum Products Act. The delay in implementing such a law could take time and could cause wide uncertainty amongst potential developers and lenders alike if not clarified.

Gas must play an important role in the energy mix going forward if South Africa is to meet its economic, political and social objectives of reducing poverty, reducing inequality and raising the standard of living of all its citizens. The global transition to cleaner energy, coupled with the oversupply of fossil fuels, price volatility, and cost pressure, have made private and public sector oil and gas players rethink their business strategies. It is in the country’s best interest to step up and jump in the moving train towards increased natural gas use.

Distributed by APO Group on behalf of African Energy Chamber.

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South Africa should urgently move on gas monetisation to solve its energy problems (by Amina Ali)
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