South Africa's gas to power programme unpacked

South Africa is set to launch an IPP procurement for 3,000MW of new gas fired generation capacity.
Published: Thu 06 Oct 2016

As part of a plan to reduce its reliance on coal and to diversify its energy mix, South Africa is on a quest to develop natural gas as a power source alongside other options such as solar and wind. [Engerati-South Africa Develops its Energy Mix]

In August 2015 the Minister of Energy set a procurement of 3,126MW of new IPP gas fired generation capacity, to be generated from a variety of gas sources. Subsequently in March 2016, this was increased with a further 600MW. Of this, 3,000MW has been allocated to liquefied natural gas (LNG) development by independent power producers (IPPs), with the balance to other programmes including a domestic gas programme.

With the prospect of the imminent launch of the LNG IPP procurement, more information has now become available on its scope in a document which was released at EnergyNet’s ‘South Africa Gas Options’ event in Cape Town earlier this week.

LNG to Power programme

According to the Preliminary Information Memorandum (PIM) document, the LNG to Power programme will serve as “an anchor for the gas infrastructure required for the establishment of a gas market in South Africa.” It will be “conducted within the context of the wider objective of stimulating the exploration for, and production of, indigenous gas; the encouragement of imports from adjacent sources within the SADC region; and the development of gas utilisation in industrial, commercial, transportation and residential sectors.”

Specifically, the programme calls for IPPs to develop and operate gas-fired plants, along with the associated LNG supply chain, at each of two industrial ports on the south coast – up to 1,000MW at Coega, a new port close to Port Elizabeth in the Eastern Cape, and 2,000MW at Richards Bay to the north of Durban in KwaZulu Natal.

LNG will be imported and the electricity that is generated will be sold to Eskom through a 20-year power purchase agreement (PPA).  

A third port, Saldanha Bay on the west coast, was also considered. However, substantial work was found to be required on both the port and the grid infrastructure and it will fall to the second phase of the programme.

South Africa’s gas market

The South African government envisages that natural gas could become economically viable within the next 25 years, i.e by 2040, from sources including extensive expansion in natural gas from shale gas and production from deep water offshore fields and with the development of a regional natural gas pipeline network.

According to the PIM, for those areas where gas pipeline infrastructure already exists, primarily in the Rand area around Johannesburg, a significant number of industrial and commercial users of other fuel sources are expected to switch to natural gas once supply becomes secure and competitive. Gas use in transport is seen to be a further significant potential growth area. In other areas, gas market development will depend on the pace at which natural gas infrastructure can be developed or on the development of a ‘virtual’ pipeline using road and/or rail, as has been done in Europe.

Short (within 5 years), medium (5 to 10 years) and long term (beyond 10 years) estimates for demand are as follows:

• KwaZulu Natal – short 0.2MTPA, medium 0.6MTPA, long 3.1MTPA

• Eastern Cape – short 1.3MTPA, medium 1.5MTPA, long 3.9MTPA.

In the short and medium terms demand is dominated by power generation. In the longer term other demand, such as newly established GTL plants and minerals beneficiation plants could become more important, depending on the price of gas.

In addition, and depending on the availability of suitable gas transmission infrastructure. the gas market in Gauteng, Mpumalanga and Free State is estimated to be approximately 3.2MTPA.

In the foreword to the PIM document energy minister Tina Joemat-Pettersson promises that to complement the procurement programme, the energy department is “spearheading the integration of the required gas industry building blocks, from gas extraction to final demand.” She also highlights of particular importance the development of an investor friendly regulatory environment to support the initiative.

Further reading

SA Department of Energy: Liquefied Natural Gas (LNG) to Power Independent Power Producer Procurement Programme: Preliminary Information Memorandum

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