The announcement of an audacious plan by Electricity and Energy Minister Dr Kgosientsho Ramokgopa to invest R2.23 trillion to build 105 000MW of new generation capacity between now and 2039 is commendable, however the envisaged contribution of gas of 11% to the country’s envisioned energy mix by 2039 seems unrealistic and unfeasible, says Nokwanele Qonde, Founder and Chairperson of WASAA Group.
Minister Ramokgopa was outlining South Africa’s energy roadmap in a policy blueprint dubbed Integrated Resource Plan (IRP) which was approved by Cabinet last month. WASAA is an independent, black women owned, controlled, and managed petrochemicals company with interests in logistics, LP gas, commodities, and chemicals.
Qonde says while the quest to reduce reliance on polluting fossil fuels like coal, diesel and illuminating kerosene is laudable, the substantial contribution of gas to the energy mix within the stipulated timeframe is impractical as it assumes that an expansive infrastructure network that is required to operationalise the deployment of gas – whether in its natural form (natural gas) or liquified (LNG) – is in the offing.
“The IRP plan makes no mention of the envisaged role that LPG can play in the energy mix anywhere in their policy documents, whether under ‘fossil fuels’ or ‘gas. This is problematic because it overlooks the significant contribution that LPG can make, and is already making, as an alternative energy source that is environmentally friendly, cost-efficient, and reliable. The omission of LPG in the IRP disregards the fact that this energy source is increasingly being used for large-scale power generation in other parts of the world, especially in remote areas and developing regions that cannot be connected to the natural gas network,” says Qonde.
She points out that South Africa can draw important lessons from its BRICS partner, India, where government’s flagship Pradhan Mantri Ujjwala Yojana (PMUY) programme, which provides deposit-free LPG connections to low-income households, had already expanded the country’s LPG residential penetration to 99.8% by 2021, the latest available data show, up from 62% in 2016. PMUY beneficiaries stood at 103mn as of July, up from 89mn in 2022, according to figures from Argus Consulting.
“The reality is that there are no immediate plans for the rollout of an expansive natural gas network or the construction of LNG terminals and regassification plants to mitigate against the gas cliff, that will be deployable early enough to achieve the 11% contribution by 2039. If historical precedent is anything to go by, the construction of a network infrastructure of this magnitude will likely be hobbled by procurement and bureaucratic delays and entangled in protracted, prolonged, and drawn-out processes that would defer the timeous completion of the project,” she adds.
Referring to Minister Ramokgopa’s admission to the prospect of South Africa facing a “gas cliff” by 2028 when its main source of natural gas supply in Mozambique nears depletion, Qonde says the shortages would be exacerbated by uncertainty regarding the new gas projects commencing production around 2030 as forecast considering the challenges facing the country.
French energy major TotalEnergies announced a few weeks ago that it will delay the $20 billion LNG project in the northern province of Cabo Delgado province in Mozambique until 2029, citing security concerns.
“So, it is baffling that the IRP is based on the presumption of availability of supply that we don’t readily have and must import from other markets that have committed themselves to long term supply agreements with countries that already have the requisite infrastructure in place, such as India for example, whose natural gas network already spans 25,100km in 2024, while the current construction project that is underway is expected to add an additional 10,700km of piped network which will blanket 88% of India’s territory with expansive gas network coverage by 2030.
Cabinet has approved a strategy that is anchored on the availability of natural gas and formulated an energy policy that supports and advocates for a resource whose supply is very uncertain,” she says.
In addition to lacking the requisite infrastructure to make natural gas a viable alternative in the energy mix, Qonde says South Africa lacks the infrastructure and the molecules required to drive an LNG economy. “The vision is there but a Herculean task awaits us to get to a point where this vision is translated into reality,” she says.
“The options before us are limited – the absence of natural gas requires massive import volumes from major natural gas exporters like the United States, Australia, Russia, and Qatar that have signed long term contracts with major importers in the European Union and Asia regions to meet their energy demands.
As role player in the oil and gas space, we have first-hand experience of being informed by natural gas producers that they cannot guarantee supply in the timelines the Minister is talking about, more so when there is a notable absence of an infrastructure that can support this supply,” says Qonde.
She points out that natural gas is a commodity that is traded by global oil conglomerates and international trading houses to different countries that are light years ahead of South Africa in terms of available gas and energy infrastructure. These countries and regions in the EU and Asia are their top priority markets.
“These traders will not compromise available stock based on yet-to-be-executed plans and comprise supply to countries that have heavily invested in infrastructure to utilise this resource. An unintended consequence of sourcing natural gas in the absence of an infrastructure network to support it will have the unintended consequence of driving up the cost of imports as exporters hedge their pricing to mitigate the risk. This is likely to add to the cost of production and inevitably further push up the price of electricity, making it even more unaffordable to consumers and for commercial and industry application,” Qonde says.
She adds that the envisaged adoption of gas in the energy mix presents policy makers and government with a chicken or egg paradox. “Exporters and traders in LNG are concerned about the availability of a market that will absorb their supply. So, even if the network infrastructure would be in place on time, we still need to demonstrate the availability of a large-scale captive market that will absorb this supply and anchor the huge investment required. This is the conundrum that government is facing. The state is unable to cultivate the market for natural gas in the absence of a viable infrastructure that supports it on the one hand, and on the other hand government runs the risk of constructing an expansive network at massive costs only to be met by negligible market uptake. It’s a chicken and egg story: which comes first? Market availability or infrastructure?
You can develop the market up to a point based on available resources but the uptake of this alternative form of energy is dependent on the economics and alternatives that consumers, business and industry have developed and invested in during the impasse, and these vary from renewables to other sources. The indecisiveness to roll out natural gas in the face of intermittent power suppliers has compelled residential, commercial, and industrial users to invest in alternative sources of energy. Waiting was a luxury that no one could afford,” she says.
On the flip side, Qonde says the decision by Eskom to utilise natural gas as one of the energy sources to power generation bodes well for plugging this gap and creating a market for natural gas. Without an anchor like Eskom that would utilise the supply of natural gas for power generation, Qonde points out, the model doesn’t work.
“It is great that Eskom is coming on board, and they have to because somebody has to take the lead, and there is no worthy entity than the government. The ubiquitous availability of LPG provides government with an excellent opportunity to plug the energy gap and include this clean source of power as a viable part of the energy mix, particularly for residential areas and remote locations where the rollout of transmission lines is not commercially feasible. LPG is a clean energy source that is readily available and negates the capital investment of building a pipeline network like natural gas,” Qonde says.
She notes that the Department of Trade, Industry & Competition has positioned LPG as seeding the market for natural gas but looking at the market now, LPG is carving a niche for itself as a permanent and complimentary energy source that can be used in conjunction with renewables. “At WASAA, we believe that in transforming South Africa’s electricity landscape, the Minister should give due regard to LPG as a viable part of the energy mix alongside natural gas. It is not and should not be a zero-sum game between LNG and LPG – both energy sources complement each other,” Qonde concludes.
