South Africa eyes Rovuma gas
President Jacob Zuma wants to kick-start the country's economy using Mozambique's offshore gas reserves. But do the numbers add up?
With dreams of nuclear power fizzling out, South Africa's government now has its eyes firmly on Mozambique's gas.
Mmamoloko Kubayi, the country's energy minister, told parliament in May—less than two months after her appointment—that a gas pipeline from Mozambique to South Africa will be a medium-term priority.
In August, President Zuma's first move as chairman of the Southern African Development Community (SADC) regional trade bloc was to announce the establishment of a regional Natural Gas Committee to ensure that bloc's gas benefits its member countries.
"The discovery and exploitation of natural gas within our region should constitute the backbone of our regional economic integration," Zuma said. Reading between the lines, it's clear that he wants to ensure that Mozambican gas benefits South Africa.
Mozambique said it had been taken by surprise by Zuma's announcement, but added that it nevertheless welcomed the initiative.
That makes sense; Mozambique has long insisted that it wants to use some of its gas wealth within the country to enable a gas-led industrialisation strategy, rather than just relying on income from liquefied natural gas export projects currently under development to finance economic development.
But, in practice, the development of a substantial domestic gas network may depend on South African backing for a 2,000km-plus pipeline running the length of Mozambique, from the Rovuma Basin's reserves in the northeast to the South African border in the southwest.
There are two such plans currently on the drawing board, both designed to supply gas to Mozambique's main urban centres and industrial facilities, such as fertilizer plants, along the pipeline route. There would also be potential for spurs from the pipeline to supply gas to other SADC members that neighbour Mozambique, namely Zimbabwe, Malawi, and Zambia.
"There are obvious reasons as to why the pipeline is a great option," says Grové Steyn of Meridian Economics, a Cape Town-based consultancy, which worked on a feasibility study for the GasNosu Mozambique pipeline project.
"You can supply gas along the length of Mozambique—it could be a game changer for agricultural projects, and make it possible to supply Zimbabwe and other areas. Big parts of Mozambique also don't have a proper electricity supply," he said. "You could run small gas-to-power projects along the route, which would even avoid having to build a big power transmission infrastructure. There was a lot going for it."
Now, however, Steyn fears South Africa may no longer be in a position to sign the large-scale, long-term offtake contracts that a project of that size would need. "The issue with such a long pipeline is that you need to get substantial volumes through the pipeline to get it viable," he said.
"We needed something like 5,000 megawatts of generation capacity in the south-maybe half in South Africa and half in Mozambique—to get the baseload to provide the justification for the pipeline."
On 30 August, South African electricity utility Eskom announced that Unit 1 of the Kusile coal-fired power station project was brought into full commercial operation, "adding 800MW which will help to further stabilise the national grid".
Chris Yelland, a South African energy sector commentator, put it in less flattering terms, saying Kusile Unit 1 was, "adding an extra 800MW of further surplus capacity to the grid".
Kusile is due to reach 4,800MW capacity by 2022, while Medupi, another 4,800MW coal-fired plant, already has two 800MW units online. Between them their output is ample to ensure South Africa can meet its energy demand in the short-term.
Eskom is "facing surplus capacity for quite a while," Steyn explains. Years of inadequate capacity led to rolling blackouts, at a time when Medupi and Kusile were seriously delayed, and that in turn reduced demand to the same level as 11 years ago—just as the new plants start coming online.
Another competitor that could have stymied the growth of gas as part of the South African energy mix was nuclear energy, but that may be less likely to be developed.
"There's a wide consensus that nuclear doesn't really make sense in our situation," says Steyn. "There are some vested interests in it, but we had a recent court case where the nuclear planning process has been thrown out. So there is more hope it won't happen—particularly given Eskom's dire financial situation."
Also under threat is South Africa's independent power project (IPP) programme, according to Steyn. "It seems like the penny is dropping (for Eskom) that there is a conflict between new renewable IPP energy versus existing coal interests and nuclear interests," he says. "The whole IPP programme is now under threat from all sorts of angles."
The gas-fired component of the IPP programme—should it go ahead—would add about 3,000 MW of capacity, which is significant, but not enough on its own to support a pipeline.
Gas could also have a role to play in balancing out erratic generation from South Africa's growing portfolio of intermittent renewables. However, a multi-billion dollar pipeline project needs baseload demand to ensure its future, rather than unpredictable demand from peaker plants.
Nevertheless, it appears that there is the political will on the South African side to match Maputo's desire for a pipeline running the length of the country.
And there is a precedent. A pipeline from Sasol's wells in Inhambane province, southern Mozambique, has recently been expanded to send more gas back to the company's home market in South Africa, as well as fuelling a growing portfolio of gas-fired power plants in Mozambique.
Some of that gas is also bought by the Matola Gas Company, which pipes it to homes and businesses in the southern city of Matola. That company is a subsidiary of South African company Gigajoule, which is the promoter of the GasNosu project—the first of two proposals for a pipeline from the Rovuma Basin to South Africa.
The GasNosu developers submitted a bid for an allocation of Mozambique's offshore gas reserves that the Anadarko-led Area 1 consortium has agreed to give the government. It was not one of the winners, but Matola Gas Company managing director Marco Morgado told local media that his company would not be deterred from pursuing GasNosu.
The rival project is the African Renaissance Pipeline, which is not pursuing the domestic gas allocation, saying rather that it will negotiate directly with Anadarko, as well as Eni and Exxon—the joint operators of the other major Rovuma offshore project—for their gas.
The African Renaissance Pipeline suffered a setback last year when the original promoter, South Africa's SacOil, declined to sign the key contract for the project. SacOil was then replaced in the line-up of partners by the little-known Progas Investment Group (Pty) Limited and a company in Mozambique owned by General Alberto Chipande, a former defence minister and close confidante of the country's president Felipe Nyusi.
You need to get substantial volumes through the pipeline to get it viable
That project does have Chinese state backing in the shape of the China Petroleum Pipeline Bureau (CPP), a subsidiary of China National Petroleum Corporation—which is the third largest shareholder in Eni and Exxon's offshore Area 4.
South Africa remains central to any pipeline's viability, and the country is set for political turmoil over the next few years. Jacob Zuma will be replaced as president of the ruling African National Congress party in December 2017, either by his deputy, Cyril Ramaphosa, or his wife, Nkosazana Dlamini-Zuma. The new head will lead the party into national elections in 2019, with no certainty that the ANC will win.
Nevertheless, regard for the importance of developing the "gas economy", as Zuma calls it, is unlikely to be threatened, according to Darias Joncker, a former South African diplomat, who now covers South Africa and Mozambique for political consultancy Eurasia Group.
"On the one hand, the development of the gas economy in South Africa is part of the overall economic and industrial policy plan of the ANC government," Joncker said. "And thus it will continue to be part of government policy as long as the ANC is in power, at least until 2019."
He added: "They see gas from Mozambique as being relatively cheap given the low transport costs, so they see the Mozambique gas sector as playing a key role in supplying the SA gas economy, as they are calling it."
Joncker is also convinced the gas economy "will also be important for whoever wins in 2019, be it the ANC or a coalition". But he says it will be particularly attractive to the ANC as a new sector, which can "create new opportunities for black industrialists—and new opportunities for patronage and corruption. So there are opportunities there, and risks."
Zuma's rhetoric of economic nationalism has certainly been echoed by his wife—and his SADC speech suggests it is taking on a regional dimension.
In unscripted comments, reported by the Daily Maverick website, Zuma 'blasted' international gas companies for depriving African countries of much of the benefits of their own gas discoveries. He reportedly said the region's gas-producing countries should not continue to allow their gas to be exploited on terms favourable to international gas companies, "just because they discover it".
There is a level of hypocrisy there—South Africa's own Sasol has been exploiting Mozambican gas on terms very favourable to the company since the start of the millennium. But if South Africa can justify the building of a pipeline through Mozambique, it could be a win-win for the region as a whole.