Executive Summary
Gas Pipeline
Gas to Power
Gas Utilization Master Plan (GUMP)
Current Market Needs
Recent Market Trends
Competitive Landscape
Best Prospects for U.S. Exporters
Market Entry
Regulations / Registration Process
Technical Barriers & Tariffs
Procurement & Tenders
Getting Paid / Trade Finance
Upcoming Trade Events
Local Industry Resources
Best Prospects
U.S. Commercial Service Information
Tab Options
Executive Summary
Gas Pipeline
Gas to Power
Gas Utilization Master Plan (GUMP)
Current Market Needs
Recent Market Trends
Competitive Landscape
Best Prospects for U.S. Exporters
Market Entry
Regulations / Registration Process
Technical Barriers & Tariffs
Procurement & Tenders
Getting Paid / Trade Finance
Upcoming Trade Events
Local Industry Resources
Best Prospects
U.S. Commercial Service Information
Executive Summary
he current development of regional gas-fields will lead to natural gas becoming a more important fuel in South Africa. With the availability of natural gas in neighboring countries, such as Mozambique and Namibia, and the discovery of offshore gas reserves in South Africa, the gas industry in South Africa is undergoing rapid expansion.
South Africa continues to pursue a diversified energy mix that reduces reliance on a single or a few primary energy sources as outlined in the Integrated Resource Plan . The decommissioning of the existing coal fleet due to end of design life, potentially provides space for a completely different energy mix relative to the current one in place. In the time period leading up to 2030, the system requirements are largely for incremental capacity addition (modular) and flexible technology needed to complement the existing installed inflexible capacity.
Gas to power technologies in the form of Closed Cycle Gas Turbine, Closed Cycle Gas Engine or Internal Combustion Engine provide the flexibility required to complement renewable energy. While in the short term the opportunity is to pursue gas import options, local and regional gas resources will allow for scaling up within manageable risk levels. Exploration to assess the magnitude of local recoverable shale and coastal gas are being pursued and must be accelerated. There is enormous potential and opportunity in this respect. The Brulpadda gas resource discovery in the Outeniqua Basin of South Africa, piped natural gas from Mozambique (Rovuma Basin), indigenous gas like coal-bed methane and ultimately shale gas, all have the potential to form a central part of South Africa’s strategy for regional economic integration within SADC.
Co-operation with neighboring countries is being pursued and partnerships are being developed for joint exploitation and beneficiation of natural gas within the SADC region. SADC is developing a Gas Master Plan, to identify the short- and long-term infrastructure requirements needed to enable the uptake of a natural gas market. Availability of gas provides an opportunity to convert to Closed Cycle Gas Turbine and run open-cycle gas turbine plants at Ankerlig (Saldanha Bay), Gourikwa (Mossel Bay), Avon (Outside Durban) and Dedisa (Coega IDZ) on gas.
Gas Pipeline
The South African Government through its South African Development Gas Company (iGas) forged a Public Private Partnership with the Government of Mozambique through its Companhia Mocambiçana de Gasoduto (CMG) and Sasol Holdings. The Republic of Mozambique Pipeline Company (ROMPCO) is responsible for operating the 865 km high-pressure Mozambique-South Africa Gas Pipeline connecting the onshore gas fields in Pande and Temane from Mozambique to Sasol’s operations in South Africa. Their aim is to continue to enable regional markets and gas monetization across the continent, as well as to expand the network in line with growing regional market demands.
In July 2020, Sasol Gas Holdings announced that it would be selling its 50% stake in the Mozambique-South Africa Pipeline to help reduce the company’s debt burden.
Gas to Power
The initial development period of South Africa’s gas industry is dependent on the demand provided by the Gas to Power Programme. The potential to link the Gas to Power Programme to supply a limited amount of gas, marketed in the form of a gas supply agreement (GSA), for industrial and other uses is also a key factor being explored in the country’s development of the gas industry.
The absence of available natural gas within South Africa, along with the pressure to ensure new capacity is delivered in timeframes commensurate with the objectives outlined in the medium-term risk mitigation project, makes it necessary to import gas, inter alia, in the form of either liquefied natural gas or compressed natural gas. As a consequence, the Gas to Power Programme design has the potential means to catalyze the importation of such gas.
It is anticipated that Eskom Holdings (SOC) Limited, in its capacity as the single buyer of electrical energy, will be the sole buyer of electrical capacity and energy generated under the Gas to Power Programme. Therefore, if a project developer anticipates providing a power generation solution that includes LNG or install capacity that exceeds 500MW, then it is anticipated that such a solution will provide mid-merit energy based on analysis of a number of least-cost dispatch scenarios for the South African power system for the years 2020, 2025 and 2030. The following annual average load factors may be expected:
Year
Installed Capacity
Load Factors
2020
3 000 MW or 1 000 MW
35% or 50%
2025
3 000 MW
35%
2030
3 000 MW
35%
Only small seasonal deviations from the annual average load factors (stated above) are expected. It is anticipated that monthly average load factors in the winter months will be slightly lower when compared to summer months. Intra-day flexibility is required, with lower load factors during night and higher load factors during the day and evening peak hours.
Where a project developer anticipates providing a power generation solution supplied from a gas source other than LNG or with an installed capacity of less than 500MW, then the developer is expected to state the anticipated power generation regime (i.e. whether this is baseload energy or mid-merit energy) and the preferred mode of operations (i.e. whether the plant is dispatchable or self-dispatched). This is actually how the RMIPPPP is drafted to ensure that Eskom gets into an agreement with the project developer that will avail a dispatchable plant from 06:00 to 21:00 as and when additional power is needed to supplement the grid.
In South Africa’s presently constrained power supply environment, the Department of Mineral Resources and Energy (DMRE) is interested in investigating early gas power generation opportunities. Given the current climate, the DMRE encourages project developers to provide potential solutions to deliver gas fired power generation as expeditiously as possible. The generation of such early power may come from reducing the timeframes to build out and develop the gas to power value chain, or it may come from an interim early power generation facility as part of the development of the longer term gas to power value chain.
The Gas to Power Programme commences with a formal Request for Information (the “RFI”). The RFI is intended to solicit information from participants in the gas to power industry. The DMRE intends to use the information provided in response to this RFI in designing an appropriate procurement framework and finalizing any regulatory amendments that may be appropriate. Accordingly, the DMRE urges every project developer who anticipates submitting a bid in the Gas to Power Programme to provide a response to the RFI for each and every proposed project that it intends submitting in the Gas to Power Programme. All information submitted will assist in the planning of the location(s), infrastructure, the Distribution System and/or Transmission System and other relevant infrastructure necessary to support the Gas to Power Programme and associated GSAs. The DMRE, in its sole discretion, anticipates engaging with the project developers who submit responses to the RFI to discuss their projects with a view to seek any needed clarity.
Whilst the Integrated Resource Plan indicates a requirement for 1000 MW in 2023 and 2000 MW in 2027, at a 12% average load factor, this is premised on certain constraints imposed on gas, taking into account the locational issues like ports, environment, transmission, etc. This represents low gas utilization, which will unlikely justify the development of new gas infrastructure and power plants– especially at the predicated sub-optimal volumes of gas. Therefore, consideration must be given to the conversion of the diesel-powered peakers on the east coast of South Africa, as this is most likely the first location for gas importation infrastructure and the associated gas to power plants. It must be noted that the unconstrained gas is a ‘no regret option’ because the power system calls for increased gas volumes when there are no constraints imposed.
Gas Utilization Master Plan (GUMP)
As the basis of supporting the objectives of the Integrated Energy Plan, the DMRE is finalizing a GUMP for South Africa. The GUMP is a roadmap for the development of a gas economy. It analyses the potential and opportunity for the development of South Africa’s gas economy, and sets out a plan for how this can be achieved. One of the key objectives of the GUMP is to enable the development of indigenous gas resources and to create the opportunity to stimulate the introduction of a portfolio of gas supply options.
A challenge in developing the gas sector is bringing gas demand and supply on stream at the same time, as well as spreading geographically to stimulate broader localized demand through South Africa. Without such localized gas demand, it is difficult to develop distributed gas supply- without distribution it is difficult to develop localized gas demand. One way of breaking this impasse is to create significant “anchor” gas demand through the development of a Gas to Power Programme. The demand from the Gas to Power Programme will provide a market for a potential supply of gas. It will also provide long-term gas demand sinks for future indigenous gas supplies.
The initial development period of South Africa’s gas industry is linked to the demand provided by the Gas to Power Programme. The intention of the Gas to Power Programme is not only to supply power, but to also supply a limited amount of gas, marketed in the form of a Gas Supply Agreement (GSA), for use of industrial and other users. In alignment with the GUMP, the Gas to Power Programme, will therefore help enable the development of South Africa’s gas sector.
Current Market Needs
Opportunities in the Gas market for South Africa have a positive outlook. The South African government has already included gas to it’s energy mix through the Integrated Resource Plan, published in December 2019. This allows the government to diversify away from coal, currently accounting for 80% of South Africa’s power. The government has committed to procure 3.126MW of new gas-fired power generation from two sites: Coega and Richards Bay on the South African coastline. The projects are waiting on the Department of Energy- the lead agency running the LNG IPP project.
Recent Market Trends
After consulting with international and local firms in the O&G industry, it seems the South African government is close to resolving long-standing uncertainty regarding regulations for investors in the upstream sector. These actions will in turn increase future foreign investment in exploration and production of O&G. Until then, should South Africa go ahead with the Gas-to-power projects, they will need short-term solutions for gas feedstock coming from imports.
Competitive Landscape
Currently, Mozambique has successful gas finds and is already importing. Should the demand increase (LNG IPP projects) there is a possibility to increase supply if the correct infrastructure is in place (new lines or increasing the pipelines already in place). Nigeria and Angola are also import options. Media reports have indicated the South Africa Government is in talks with Qatar to import LNG before the end of 2020. In such a deal, Qatar would be investing in the infrastructure needed to receive the gas.
Best Prospects for U.S. Exporters
The South African Government has indicated that they want to see more investors coming in to assist Government with putting in place a port terminal infrastructure for gas in Richards Bay and Coega. Investing in the LNG terminal infrastructure is an opportunity for U.S. firms. Once the LNG receiving terminals are developed, exporting gas at competitive prices for the South African gas-to-power market becomes a real opportunity. Increasing the capacity of the already existing port terminal infrastructure in Saldhana Bay is also an opportunity to be explored.
Market Entry
The South African market is sophisticated. Entry should be well-planned, taking into consideration the following factors:
The price-sensitive nature of most consumer demand;
A potentially volatile Rand-Dollar exchange rate (the rate tends to be very predictable over the medium term – its volatility can spike in the short term);
Distribution issues, given that large retail centers are concentrated in five metropolitan regions. However, there will be three potential entry ports regarding LNG imports (Richard’s Bay, Coega and Saldanha Bay);
A conservative market bias that tends to stick to known suppliers and therefore requires sustained market development;
South Africa’s position as a stepping stone for developing market opportunities in Sub-Saharan Africa (the marketing mix should anticipate this medium-term option).
However, the new-to-market foreign supplier will find markedly different conditions when venturing northwards. This lack of regional integration relates especially to financial services, trade documentation and road transportation networks and may have a significant impact on risk exposure and the cost of doing business.
A judicious selection of one of three low-risk entry strategies (representation, agency, or distributorship) is required by new-to-market entities. If you are selling to the government or government-funded organizations, any local partner should be B-BBEE-compliant and be aware of local procurement regulations.
Regulations / Registration Process
The IPP office has legislation and procurement frameworks in place with regards to the Gas-to-power IPP project. The Department of Minerals and Energy has formulated:
a) The Gas Act 2001, Act 48 of 2001 and the Government / Sasol regulatory agreement referred to in section 36 of the Act, which aims to:
Promote the orderly development of the piped gas industry;
Establish a national regulatory framework; and
Establish a National Gas Regulator as the custodian and enforcer of the national regulatory framework.
b) The Gas Regulator Levies Act 2002, Act 75 of 2002, which provides for the imposition of levies for the functioning of the national gas regulator and for matters connected therewith.
c) Piped Gas Regulations. After the establishment of the National Energy Regulator, the Department of Energy has promulgated the Piped Gas Regulations, 2007, to promote the orderly development of the piped gas industry.
View Part 1 of the Piped Gas Regulations, 2007
View Part 2 of the Piped Gas Regulations, 2007
Cofoza lapha ukubona Imitheshwane yenqubo yeGesi (Piped Gas) ehamba ngamapayiphi, 2007
Technical Barriers & Tariffs
The lack of LNG import terminals and regasification plants are two major technical barriers in the market.
Procurement & Tenders
The South African Department of Mineral Resources and Energy (DMRE) seeks to procure 2,000 MW of new generation/supply capacity from a range of energy technologies under the “Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP)”. RFP on the following link: https://www.ipp-rm.co.za/ .
Request for Information (RFI) for the conversion of the existing Open Cycle Gas Turbines (OCGT) units at Ankerlig Power Station and Gourikwa Power Station to Combined Cycle Gas Turbines (CCGT) compris-ing of construction of the Balance of Plant equipment and modification of the existing units. For more on the RFI, follow this link.
The IPP office has legislation and procurement frameworks in place. Please see their website details in local resources.
Getting Paid / Trade Finance
Bundled vs. Unbundled
An unbundled approach requires entities/consortia to bid for parts of the value-chain. Agreements with other parties are then needed to complete the value-chain. This is the preferred model.
Upcoming Trade Events
1. Africa Oil Week, February 1-5 2021, Cape Town International Convention Center, Cape Town
Best Prospects
The best prospects for the industry include:
Gas import infrastructure (import terminals & regasification units)
Gas imports
Gas-to-power infrastructure
Gas pipeline infrastructure
U.S. Commercial Service Information
Mlamli Mjambana, U.S. Commercial Specialist Assad.Barsoum@trade.gov
