South Africa is facing two parallel cliffs, the ‘Gas Cliff’ and the ‘Power Cliff’, as by the 2030s a majority of State-owned power utility Eskom’s fleet generation will be 50 years old and either decommissioned or nearing decommissioning, says financial services provider Standard Bank gas sector lead Paul Eardley-Taylor.

The ‘Gas Cliff’, Eardley-Taylor notes, pertains to the organic expiry of chemicals and energy company Sasol’s sales to third parties of natural gas and methane rich gas.

Consequently, South Africa is taking an electricity-focused approach to justify investment in gas import infrastructure, citing two planned lead terminals: Matola, in Mozambique, which will connect to gas pipeline company the Republic of Mozambique Pipeline Investments Company (ROMPCO); and the Zululand Energy Terminal (ZET), in Richards Bay, KwaZulu-Natal.

“This is important for several reasons. First, existing gas customers will get a choice of replacement gas, albeit at a higher price,” he states.

Additionally, Matola and the ZET will make more gas available for the Gas-to-Power (GTP) procurement programme, allowing South Africa to, for the first time, use gas-fired generation for baseload, mid-merit and peaking power, while extending access to parts of the country that, historically, did not have access to gas-fired generation.

“More significantly, there will be an increase in what is a zero baseline for small-scale liquified natural gas (LNG),” Eardley-Taylor points out.

Small-scale LNG will be available for delivery to mines and factories in addition to providing an alternative to users that have traditionally relied on other fuels, such as diesel and heavy fuel oil.

Moreover, Eardley-Taylor points out that the electricity sector in South Africa “has never had access to natural gas”, which has resulted in significant amounts of diesel consumption over the past decade.

“From a fuel price perspective, LNG may be more expensive than Sasol’s piped gas, but it is 40% to 45% cheaper than diesel. This means there is an opportunity for parts of the industrial and electricity sector to [switch to] small-scale LNG,” he explains.

He notes that, with LNG import terminals planned for Matola, Richards Bay, Coega and Durban, customer access will determine which projects ultimately reach financial close and become operational.

He cites the “front runners”, Matola and the ZET, adding that Matola will likely serve the Gauteng industrial market. Additionally, there are two power projects in the GTP procurement programme that have bid to use Matola as their fuel supplier.

With the ZET, two projects have bid to use the terminal because its coastal location means that it is “ideally suited for GTP” and will potentially provide the cheapest option in South Africa.

“While some parts of the sector will be paying more for gas, other parts, particularly logistics, trucking and mining, will have the opportunity to use small-scale LNG for the first time and save on diesel costs,” he concludes.