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South Africa urgently seeking gas as energy transition stalls

South Africa’s power sector plans envisage a big role for gas, but first the country needs to find the feedstock

South Africa is on the hunt for gas supply to realise its ambitions to shift its power sector from one based almost entirely on heavily polluting coal to a cleaner set-up relying largely on renewable energy supported by gas.

The country has few producing gas assets, but energy minister Jeff Radebe believes that Africa has "more than enough" to cater for the continent's growing energy demand.

The minister released details in late August of a long-awaited electricity plan, which sets the parameters for efforts to cater for South Africa's electricity demand to 2030, while reducing carbon emissions—the country is Africa's largest carbon emitter and has higher emissions levels than either China or the UK, according to the latest World Bank data, from 2014. He said he hoped the Integrated Resource Plan (IRP) would be finalised before the end of 2018, following a further consultation period.

"Policy certainty is essential in the energy sector and through publishing the IRP, we intend to remove any impediment to investment in new electricity generation capacity," he told delegates at the Africa Oil and Power (AOP) conference in Cape Town in September.

Under the IRP, renewable energy would account for 26% of the installed power supply by 2030—primarily wind (15%) and photovoltaic solar energy (10%). Gas would provide 16% of the power mix, up sharply from around 4% today. The plan still envisages that coal will provide 34 gigawatts of installed electricity capacity, which is only around 9% lower than now, but its overall share of power generation, at 44%, would be dramatically lower than the current figure of around 93% of the total.

Coal down, new nuclear out 

With such measures, South Africa is making progress to meet a pledge to switch to cleaner energy sources and veer away from former president Jacob Zuma's enthusiasm for nuclear power.

Radebe emphasised the need for policy clarity and consistency to attract greater investment, and the need to "remove any impediments" to investment in new electricity generation.

The IRP envisages the decommissioning of state-utility Eskom's existing coal plants which are reaching the end of their life. But it still allows for the addition of 1GW of new coal-fired capacity in 2023-24 from two independent power producer (IPP) projects already procured by the government. That has sparked criticism on the grounds that it could jeopardise South Africa's ability to meet its climate change mitigation targets.

There are also doubts about the ability of Eskom—which supplies 90% of the country's electricity—to build new power plants cheaply, raising fears of higher consumer costs.

Electricity prices have outpaced inflation over the past decade, and there's more to come.

“Policy certainty is essential in the energy sector” - Radebe, energy minister

Ted Blom, a South Africa-based sector analyst, forecasts a further 30% hike in the 2019-20 financial year, followed by a 50% rise in the following year, as Eskom seeks to alleviate its substantial debt burden. Blom has written that no political party has the guts to "tackle the monster" Eskom, which, he says, has seriously damaged South Africa's economy not least by causing hundreds of business closures and job losses.

A decision to abandon a plan to build up to 10 new nuclear plants has been welcomed by many in the industry. The nuclear initiative, championed by former president Jacob Zuma, was heavily criticised for being too costly and difficult to finance.

South Africa is the only country in Africa with a commercial nuclear power plant. Eskom's Koeberg facility, which currently accounts for 5% of the country's electricity generation, is expected to reach the end of its life in the 2040s, based on a normal 60-year lifespan, according to the IRP.

Where's the gas? 

As part of the drive to boost gas use, the government has rebooted a stalled gas-to-power IPP programme. This was introduced in 2015, but took a back seat at the time, when the focus lay on nuclear plus renewables.

This emphasis on relatively clean gas to support renewables, rather than costly nuclear and dirty coal, has wide support. But sources of gas feedstock have yet to be secured.

Radebe said that countries in the Southern African Development Community (SADC) had a committee working on a gas master plan for the region. He was also due to meet with his Mozambican counterpart to discuss the agreements and whether the significant gas discoveries in the Rovuma Basin off northern Mozambique could supply South Africa. Eni, ExxonMobil and Anadarko are leading projects there worth tens of billions of dollars.

Source: IRP

Unlike the US, where huge shale gas production was easily accommodated by existing gas pipeline infrastructure, southern Africa has little, so getting the gas to regional markets won't be straightforward. However, Niall Kramer, head of the South Africa Oil and Gas Alliance (SAOGA) trade body, told journalists at the AOP conference that a plan to build a gas pipeline running from northern Mozambique to South Africa was very much back on the table.

Radebe highlighted prospects to produce coal-bed methane in South Africa, Zimbabwe and Botswana. Liquefied natural gas imports provide another route to supply the power industry.

South Africa also has shale gas reserves within the Karoo Basin, which occupies much of the central part of the country. However, its exploitation remains mired in controversy over the potential impact of the industry on an arid, environmentally sensitive region. Estimates of potential shale gas resources have been revised down in recent years. In 2017, the University of Johannesburg and other universities estimated resources could be around 13 trillion cubic feet, a fraction of some earlier estimates—in 2015, the US Energy Information Administration was talking of a "technically recoverable shale gas resource" of 390 trillion cf.

The energy minister also affirmed the commitment of President Cyril Ramaphosa's government to renewable energy. Eskom signed purchase agreements with 27 IPPs in April, after more than two years of delays. These are intended to bring in 56bn rand ($3.68bn) of investments over the next two-to-three years. He also said a new bid round for renewables agreements with IPPs would begin in November, potential attracting investments of up to 50bn rand ($3.28bn).

Oil and gas limbo 

Meanwhile, the oil industry remains in limbo as confusion persists over the fate of the country's Mineral and Petroleum Resources Development Amendment Bill (MPRDA). The bill proposes giving the state a 20% free interest in all new oil and gas ventures and enabling it to buy any unspecified additional stake at an "agreed price".

The bill has been caught up in various legislative wrangles for months, effectively putting

offshore licensing on hold. But mineral resources minister Gwede Mantashe said in August that he wants to axe the bill.

He also told parliament's resource portfolio committee that the current law governing the mining industry should remain in place and changes to oil and gas legislation should be dealt with separately. The final decision on whether to do this ultimately rests with the cabinet. Radebe told a media briefing at the AOP conference that oil and gas legislation would be transferred to the energy ministry at an "appropriate time".

SAOGA's Kramer said that the right conditions to attract experienced oil and gas investors would include commercial, contractual and stable legislation: "We need the A Team here. People who have done this before have the experience, the skills. We cannot do this alone."

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