South African gas supply risks highlight transition’s baseload challenge

By Jon Marks , Ajay Ubhi , Tonderayi Mukeredzi | 7 minute read

South Africa faces a potential natural gas supply crunch, just as it is planning to increase the role of gas-to-power (GTP) schemes to offer a cleaner alternative to coal and provide the baseload essential to underpin the expansion of renewable energy (RE).

Warnings that production from the Pande and Temane gas fields in neighbouring Mozambique could soon start falling due to declining reserves pose a significant risk to the gas market and the GTP schemes that are expected to play a significant role in South Africa’s transition to a more sustainable fuel mix.

The signals are mixed. Sasol has been working to maximise its reserves: last July, following drilling that increased its well inventory from 19 to 24, the South African operator commissioned a new gas facility on its Mozambican production-sharing agreement area to supply the Central Termica de Temane (CTT) venture and Sasol South Africa. Sasol last year also reported a gas discovery in its PT5-C acreage, adjacent to Pande and Temane in southern Mozambique.

Johannesburg Stock Exchange (JSE)-listed Sasol, with partners Globeleq and state utility Electricidade de Mo?ambique (EdM), is making considerable progress on the 450MW Temane Phase 2 project which, as well as providing big new gas-fired generation capacity, would double the transmission system from the plant and could also involve a carbon capture and storage (CCS) element.

Questions about whether gas output can meet regional demand in Mozambique and beyond – including from the huge northern Mozambique liquefied natural gas (LNG) schemes (AE 500) – add to the pressures on gas supply at a time when South Africa, Nigeria and other producing countries are seeking to increase their domestic gas use and other consumers (including commercial clients in big minerals producing countries like Guinea) are planning to import LNG.

Another factor is the need to compete on pricing with export-oriented projects that sell gas into more lucrative markets like Japan and Europe. There are also concerns that local business environments too often remain inimical to GTP and other projects that seek to monetise domestic gas resources.

African Energy’s recent Africa Investment Exchange (AIX): Energy in Transition event, held in London on 25-26 April, heard that Nigeria remained a glaring example of above-ground bottlenecks to investment – despite positive developments such as the passing of the 2021 Petroleum Industry Act (PIA), a shift towards cost-reflective tariffs and other recent reforms by President Bola Ahmed Tinubu’s administration, which in March introduced further measures to encourage upstream investment.

New upstream gas projects that are focused on domestic supply, rather than exports, are still rare across the continent, although projects of varying sizes have long operated in Cameroon, Senegal and Tanzania.

Another example is likely to be Morocco’s Anchois field development, which is expected to supply state utility Office National de l’Electricité et de l’Eau (Onee)’s strategically important Tahaddart and A?n Beni Mathar combined cycle plants and, potentially, future units across the kingdom (AE 497).

Anchois’ developers, operator London Stock Exchange- and Tel Aviv-listed Energean and London AIM-listed Chariot, are working in a business environment seen as competitive but investor-friendly (AE 501). Other international oil companies (IOCs) such as AIM-listed Sound Energy also plan to supply Onee, while the Moroccan government has revived plans to build one or more LNG regasification plants, as well as promoting its most ambitious long-term goal: the Nigeria-Morocco gas pipeline development (AE 504, 464).

Live Data highlights gas’ strategic role

Data presented by African Energy Live Data to the AIX: Energy in Transition event showed the important role of natural gas: projects adding nearly 1.7GW to the continent’s power generation mix from 2024-29 were announced in Q1 2024. That is though eclipsed by the 4.3GW of solar PV capacity that Live Data expects to be added (a figure which could grow substantially larger, given the shorter lead teams involved in developing solar projects).

Overall, the signs are that, unless there is unexpected upturn in investment, natural gas use will remain limited in providing baseload power over the next five years and probably beyond. This is despite the robust arguments about the essential role of gas as a ‘transition fuel’ that will allow African economies to replace dirtier fuels like diesel and coal and counter the environmental and health costs of burning wood for cooking.

The Live Data 2024-29 project pipeline shows a diminishing number of gas-fired generation projects over the period.

Live Data also shows how gas is still a major contributor to the energy mix in South Africa and some other countries. In big gas producers like Algeria, it is the dominant fuel.

The limited number of GTP developments are not due to governments’ lack of enthusiasm for exploiting their gas reserves, but rather the impact of western development finance institutions and other investors pulling back from funding projects. Domestic policy failures also play a role, with several gas procurement programmes – including South Africa’s LNG import schemes – having stalled.

Conflicting signals amid a range of options

Demand for gas in Mozambique and South Africa is rising. The Pande and Temane fields have supplied gas to South Africa for 20 years through the 865km Republic of Mozambique Pipeline Investments Company (Rompco) pipeline, accounting for around half of Mozambique’s total gas output (AE 446).

However, those fields will soon be in decline, according to one gas expert who spoke at AIX: Energy in Transition, although the timing of any slowdown is hard to predict. “That is going to happen,” the expert said. “It might happen in 2024, might happen in 2028.”

This implies the need for a significant shift in the South African gas market, away from domination by Sasol to a more diverse supply mix, in which other international sources will need to be tapped, including LNG imports.

“It used to be about local supply,” the expert told AIX. “It will be about international supply. In the short-term, international LNG will be most credible source of material new supply to [meet] existing demand and to underpin gas-to-power”.

One option could be to take advantage of the northern Mozambique export LNG projects. Further work by Sasol in the Pande and Temane upstream could also provide more feedstock.

Also in Mozambique, France’s TotalEnergies is expected to make a final investment decision (FID) by September on the Matola LNG import terminal, at Matola Port in Maputo province, which is aimed at supplying local and regional markets (AE 456, 405).

Mozambique’s offshore Mamba gas field, which is being developed by a joint venture of Eni, ExxonMobil and China National Petroleum Company, is another possible source; first production from Mamba is expected in 2024. Meanwhile another option could emerge from gas plays in Zimbabwe, where Australian Securities Exchange-listed Invictus Energy has reported progress (AE 505, 498).

South Africa itself has several natural gas projects in the pipeline, most of which are offshore and which are assumed to have many technical challenges. French major TotalEnergies discovered two significant natural gas deposits off the coast of South Africa in 2019 and 2020, including the Brulpadda-Luiperd field, which holds an estimated 3.4tcf. The Brulpadda-Luiperd project has reached the approval stage, with FID possible later this year, in which case commercial operations could start by 2026.

Another project is the Sunbird Energy-operated Ibhubesi gas field, off the coast of Northern Cape Province in Block 2A within the Orange Basin. This is in the front-end engineering design phase and commercial production is expected to begin in 2025.

Gas can support energy transition

Like many countries in southern Africa, South Africa’s energy mix is heavily reliant on coal power generation, which accounts for around 72% of total installed capacity, according to African Energy Live Data. Natural gas provides less than 1% of total generating capacity, with 405MW in a system whose total installed capacity is 63,797MW.

Renewable energy is predicted to account for about 30% of the generation mix by 2030, but the authorities are looking to increase the use of gas-fired plants. Advocates of this approach say GTP is a proven technology that provides dispatchable generation at scale which can complement renewable energy and help solve South Africa’s electricity challenges.

Floating storage and regasification unit (FSRU) infrastructure will be a critical element in these developments, provided sufficient private investment can be mobilised – there is a consensus within the industry that the solution to South Africa’s gas crunch will not come from government.

“There are private sector solutions out there that are being worked out. There is an aggregator that is well in the works, that understands the deadlines very clearly and understands the requirements, such that if you wish to attract an FSRU that FSRU needs a certain amount of scale, a certain amount of revenue certainty,” one industry executive at AIX concluded.

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