Looming industrial gas crisis, government called upon to make haste

Connie Queline

Looming industrial gas crisis, government called upon to make haste

You can also listen to this podcast on iono.fm here.

ADVERTISEMENT
CONTINUE READING BELOW

JEREMY MAGGS: You might recall that Sasol, South Africa’s monopoly supplier of large-scale natural gas, announced in August 2023 that the supply of gas to industrial users would be suspended by June 2026. The unilateral decision, says our first guest on the programme, to cut off the gas supply poses an existential threat to South Africa’s manufacturing base.

Jaco Human, Industrial Gas Users Association of Southern Africa (IGUA-SA), a warm welcome to you. Remind me first, what was behind Sasol’s decision in the first place?

JACO HUMAN: The lead up to this particular point, let’s say over the last six or seven years, we were expecting that we are going to be subjected to a declining gas resource. Sasol took the decision last year around about August, where it announced that it will not be able to supply the South African market with gas. Now that is a new position that Sasol has taken and, of course, an abrupt one in our view, which certainly set the cat amongst the pigeons with regard to gas energy security.

Read: Gas crunch threatens to deepen SA’s economic crisis

Now, up to this point, we were all subjected to this declining resource, where Sasol indicated that we will share proportionately in this decline in order to manage this and mitigate the overall risk. Also, with regard to KwaZulu-Natal and Mpumalanga it is a different type of gas, it’s a byproduct of Sasol’s processes. Up to that point, Sasol assured us that the methane rich gas will flow until there are viable alternatives in place. So that has also changed.

So Sasol is pulling back on the methane rich gas and of course the natural gas, which is subjected to this declining resource. So we are exposed as an industry and the economy in South Africa.

JEREMY MAGGS: You talk about gas energy security, what do you then foresee as the immediate impact or consequence?

JACO HUMAN: The manufacturing sector, and it’s really the primary manufacturing sector we refer to here, you’re talking steel, aluminium, the construction, mining industry, all these types of industries are dependent on gas energy as a source. Now, in KwaZulu-Natal, if you take cities like Durban, Empangeni, Richards Bay, Newcastle, heavy industries, and also in Mpumalanga and Gauteng, these industries employ 70,000 people, contribute significantly to the manufacturing sector to the extent of about R500 billion a year and there are no feasible or discernible alternatives for energy to run these plants at this particular point in time. That is the biggest exposure that we face and the potential implication around all of this.

JEREMY MAGGS: So inevitably we are going to become reliant on imports, I imagine, and that becomes very onerous and expensive.

JACO HUMAN: We would’ve been reliant on imports in any event, the missing piece is the infrastructure to enable that. That is the key missing piece that we have.

LNG, which is the liquified natural gas alternative, of course, is more expensive, you are quite right. That is a cost that the South African economy will have to bear.

The alternative, of course, of not having LNG is much worse, as I’ve just indicated. But the infrastructure piece is the missing link, and that is the focus to enable that right now.

JEREMY MAGGS: But that’s going to take time and again, there’s a cost factor.

JACO HUMAN: Of course, there is a cost factor associated to that. So from a time perspective, we have about four months or so in order to commit to the developers.

ADVERTISEMENT
CONTINUE READING BELOW

The project we are focusing on is the LNG import terminal at the (Maputo-Matola port complex) in Mozambique. This project is the fittest project, it shovel-ready, the developers, it’s a project backed by TotalEnergies, for a long time now, looked at the feasibility, the pre-engineering, the contracting, it simply needs an investment decision. Then the project can flow.

The other project in Richards Bay, recently announced by Transnet, in partnership with Vopak, looking at the LNG terminal there, it’s still in its infancy. There’s no particular business case yet around this. It’s dependent on various other power programmes and power generation programmes. So it’ll take time to develop and it’s certainly unclear when that will happen.

Read: Port of Rotterdam, Vopak in race for $2.8bn hydrogen port in SA

So once we’ve made this commitment in the next four months, a financial investment decision can be reached and, of course, the developers and the investors in the infrastructure can move along.

We are looking at a construction period of about two and a half years, which will then bring us to the beginning of 2027. We already have this overlap, as you can see, in terms of gas energy security, and the gap. But in order to reach this financial investment decision, we need some commitment from government in terms of its future offtake of gas, backed by the power programme that is being envisaged by government.

JEREMY MAGGS: Has there been any word from government and particularly on how it might plan in mitigating the risks that you’ve outlined?

JACO HUMAN: No, the plans that we’ve outlined are not new. We have been in discussion with government on these plans for basically six years now and these plans, like I say, haven’t changed. They are still deemed to be the solution, but now of course it’s real.

The issue is not about one day anymore, it is now here, and we are looking towards government to say, but industry has about 50 petajoules of gas that it can bring to the table through a particular mechanism. Government, we are asking you to also make a commitment in order to build out this volume pot.

The moment you have the volume, it becomes efficient from an infrastructure perspective, it becomes feasible from an investment and development perspective, and we are looking to partner with government around this, but we don’t see the plans yet around this or the clarity that is required.

JEREMY MAGGS: Sixteen weeks is a very tight timeframe. Jaco Human, thank you very much indeed for joining me, from the Industrial Gas Users Association of Southern Africa.

SOURCE

Leave a Comment