February 2021, Vol. 248, No. 2


South Africa’s Gas-to-Power Plan to Boost Pipeline Market

By Shem Oirere, Contributing Editor, Africa

South Africa is eyeing the generation of at least 3,000 MW from various gas-to-power technologies by 2027. This trend is likely to increase investments in natural gas exploration, indigenous production and liquefied natural gas (LNG) imports.

Indigenous gas production and LNG imports is expected to trigger an expansion of the country’s gas pipeline market as more pipelines would be installed to gather and distribute both the raw gas and imported LNG under the Integrated Resource Plan (IRP). The plan was updated and approved by the cabinet in July 2019.

“Gas-to-power technologies will provide the flexibility required to complement intermittent renewable energy and meet demand during peaking hours,” said Mineral Resources and Energy Minister Samson Mantashe during the November 2019 Africa Oil Week held in South Africa’s city of Cape Town.

“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,” he said.

The International Energy Agency estimates demand for gas in South Africa to rise to 5 TWh in 2025 as government and private sector invests in gas-fired power stations and more coal-fired projects are decommissioned. Hence, raising the demand for gas will revamp the operational efficiency of the country’s state-run Mossel Bay gas-to-liquid (GTL) facility.

For South Africa to meet this anticipated rise in gas consumption, the government is banking on expansion of the ongoing natural gas exploration and finalization of an LNG import strategy by Petroleum Oil and Gas Corporation of South Africa Ltd (PetroSA), the country’s national oil company. These initiatives are expected to catalyze the growth of South Africa’s oil and gas pipeline market as more new pipelines are installed to transport domestically produced gas or the imported LNG to end users, such as the power generating plants, industrial establishments and residential consumers.

Currently, South Africa anticipates growth in volumes of both domestic natural gas production, now estimated at 18% of the country’s total consumption, and imported volumes that take up 82% of the national gas requirements.

Total South Africa, a subsidiary of French oil major Total, has recently made a gas discovery 175 km (109 miles) off the southern coast in the Brulpadda’s Block 11B/12B. This development likely will trigger increased upstream hydrocarbon operations and attract more investments in the upstream segment that could further boost the national gas pipeline market.

Total, with a 45% working interest, and its partners, Qatar Petroleum (25%), CNR International (20%) and Main Street, a South African consortium (10%), are in the process of acquiring 3D seismic ahead of drilling up to four exploration wells on the license that covers 19,000 square kilometers (7,336 square miles) in water depths ranging from 200 to 1,800 meters (656 to 5,906 feet). Block 11B/12B raises hopes for more indigenous production.

Moreover, South Africa did approve in the last quarter of 2019 permits for three companies to explore for shale gas in the Karoo basin under the country’s Mineral and Petroleum Resources Development Act.

Successful exploration and extraction of shale gas resources, which is estimated at around 485 Tcf albeit with no determination yet of the economically recoverable reserve, is also expected to promote the laying of several gas gathering pipelines, hence, expanding the country’s current pipeline network.

According to Mantashe, “Indigenous gas-like coal-bed methane and, ultimately, recoverable shale and coastal gas are options we are considering.”

The inclusion of natural gas in the IRP presents the biggest opportunity for the growth of gas piping in South Africa, alongside the approved construction of infrastructure to import LNG for the power generation program.

The LNG-to-power plan would, according to South Africa’s Department of Energy, “anchor establishment of a gas market in South Africa,” a trend expected to support growth of the country’s oil and gas pipeline market.

Key to the push for a gas-driven power generation is South Africa’s desire to lower the country’s carbon emissions, especially from coal and fossil fuels that contribute to global emissions.

The envisaged gas-to-power projects are to be located at the ports of Saldanha, Coega and Richards Bay where preferred bidders will “develop, finance, construct and operate gas-fired power generation plants.”

During the first phase, 1,000 MW would be generated at the Coega Industrial Development zone in the Eastern Cape province and an additional 2,000 MW at Richards Bay.

The Saldanha location has been excluded from the first phase due to what the Department of Energy says is the need for “substantial work (needed) on the port and on the grid infrastructure, servitudes for the pipelines and transmission lines and the location for the power plant.”

“The LNG-to-power IPP Programme will provide the anchor gas demand on which LNG import and regasification facilities can be established at Coega and Richards Bay,” the Department says.

The LNG imports would be delivered in special ships to terminals at both Coega and Richards Bay where it is to be re-gasified into natural gas before being distributed via new gas pipelines to consumers such as power generation plans, industries and residential properties.

In addition to the planned Coega and Richards Bay LNG-to-power projects, it is also envisaged that PetroSA would soon finalize a plan to import LNG for its Mossel Bay GTL refinery.

The refinery has been running production at minimal scale due to the critical decline in indigenous gas feedstock supply, according to South Africa Parliamentary Committee on Mineral Resources and Energy.

Inadequate gas supplies to the Mossel Bay GTL refinery has been exacerbated by the stalling of the $950 million (14.8 billion rand) Project Ikhwezi after several delays linked to technical challenges and complexity linked to the extraction methodology used at the facility.

A forensic report by PetroSA to management cited low gas volumes realized contrary to earlier production projections.

“This can be attributed to a poor or lack of understanding of the reservoir risk involved in drilling the F-O Field,” the report said. The offshore F-O gas field is operated by PetroSA.

“The gas volumes were estimated to be 242 billion cubic feet and yet now the forecast of the gas reserves is 25 billion cubic feet‚ a 70% reduction,” the report added.

Project Ikhwezi entailed, among other works, the installation of a 25-mile (40-km) pipeline from the offshore F-O gas fields to the company’s offshore gas production facility (FA Platform), which feeds natural gas to the GTL refinery.

Initially, Swiss global offshore pipeline installer, Allseas, had been picked as the preferred contractor for the supply, fabrication, welding and installation of PetroSA pipeline.

Currently, South Africa’s chemical company Sasol imports natural gas via a 537-mile (865-km) pipeline from the Temane and Pande gas fields in Mozambique, which have an estimated 2.6-Tcf proven reserve capacity.

Sasol says the pipeline’s capacity is around 240 million gigajoules (GJ) annually with about 120 million GJ used every year by the company in the GTL and chemicals plant in Secunda. The balance is distributed to commercial and industrial customers via a pipeline network covering more than 1,243 miles (2,200 km) in the Free State, Gauteng, Mpumalanga and KwaZulu-Natal.

Elsewhere, South African state-owned rail, port and pipeline company, Transnet, signed a $2 million cost-sharing agreement with the World Bank in mid-2019 to study future use of Transnet pipelines for the development of inland natural gas transmission and the establishment of “virtual” LNG pipelines. These facilities are earmarked to become operational by 2024, according to Transnet.

Growth of South Africa’s gas pipeline market is likely to depend on how soon the government fast-tracks the pending amendment of the country’s Gas Act, pricing for natural gas in the global market as it may impact ongoing exploration, production of indigenous gas and resolution of the standoff in the development of shale gas resource in Karoo Basin.

Furthermore, development of South Africa’s other renewable energy sources under the ambitious Renewable Energy Independent Power Procurement Programme (REIPPP) could impact growth of the gas-based electricity generation and subsequent investment, or lack of it, in the country’s gas pipeline network.  

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