The South African government has published its Integrated Resource Plan (IRP) with the aim of setting out the country’s future energy mix.
The IRP was intended to “execute our mandate of ensuring security of energy supply, using all available resources. Now that the energy mix has been outlined, we must work with the necessary speed and resolve to ensure its implementation,” said South African Minister of Mineral Resources and Energy Gwede Mantashe.
The case for a thorough evaluation to be planned and executed for South Africa’s energy mix has been underscored by recent load shedding from state-owned – but functionally bankrupt – utility Eskom. The company has around 450 billion rand ($30.7bn) and is reliant on the government for bailouts in order to continue operations.
The government has set out plans to divide Eskom into three parts, but ratings agencies remain concerned about its complicated debt load.
The first IRP was set out in 2010 and a number of changes have occurred since then. Tariffs are increasing, driving some users to shutdown, while Eskom’s unreliability has also forced some to seek alternative supplies. Coal will continue to be the major source of power for South Africa in 2030, at 59%, the new IRP has said, while the shift to increased renewable generation will continue.
Gas has a fairly limited role, with Mantashe saying this would provide the flexibility required to cover shortfalls in renewables and peak demand. The government’s plan also said it would support a first LNG hub at Coega, in the Eastern Cape.
“The IRP has given some degree of policy certainty for South Africa. Previously, the lack of clarity had been a major challenge,” South Africa Oil and Gas Alliance’s (SAOGA) executive director Niall Kramer said. “The new policy may not be the certainty that everyone was hoping for, but the broad thrust is that coal will provide around 60% of South Africa’s annual energy in 2030, renewables will grow strongly but gas – and diesel – will provide only 1.8%.”
The amount of gas called for in the IRP has been reduced, Monetizing Gas Africa’s head of corporate development Ebrahim Takolia told Energy Voice. “In the original draft IRP, the government set the target of 8 GW of power from gas. This revised version, of 3 GW by 2027, is much more manageable. It’s about 1.5 million tonnes per year of LNG from 2023 to produce 1 GW and another 3mn tpy from 2027 to produce 2 GW, with the additional LNG imports used for more than just power generation.”
Securing those volumes of gas as LNG should not be a problem, Takolia continued, as long as high-level offtake contracts are secured and given the expected increases in market supply. There are also options for private sector investments in importing gas, he said, including bringing it in from Mozambique on trucks, rails or another pipeline.
LNG supplies from northern Mozambique are expected to get under way in earnest around 2024-25, with Kramer predicting deliveries via small-scale shipping. “As the Permian expands, in the US, more gas will become available and my impression is that US gas can be landed in South Africa cheaper than supplies from Mozambique,” he told Energy Voice.
Kramer was confident that gas would come to take a larger role in South Africa’s energy mix than the IRP has set out. Coal plans face challenges, not least in securing financing, with a number of banks having said they will no longer provide support for such projects, owing to carbon concerns.
There are options for shoring up gas supplies from South African territory, with Total’s Brulpadda discovery announced early this year, in addition to the spectre of potential shale exploitation. Progress has been slow, in the offshore and onshore, largely owing to long-running regulatory uncertainty as the government went backwards and forwards on proposed changes to the Mineral and Petroleum Resource Development Act (MPRDA).
Earlier this year, the government began taking steps to split off the petroleum aspect of the bill from the mining, a move welcomed by those in the industry.
“There’s a sense that more clarity is coming to local exploration,” Kramer said. “The bill needs to be signed into law and it has to have the right terms to attract A-list explorers and demonstrate stability. The new bill is in a final draft stage, so hasn’t been submitted to parliament, but it is imminent – we can’t afford for it not to be.”
Takolia described the country as having moved at a “snail’s pace” on the MRPDA, comparing it to the progress seen in Mozambique. “In the time that South Africa has been meandering around the MPRDA, [Mozambique] has managed to attract more than $100 billion of investment into its gas sector,” he said. While the new bill is a move in the right direction, companies are biding their time and will consider South African options in comparison with other areas on offer.
Drilling offshore has the potential to secure further volumes of gas for South Africa’s domestic needs, including PetroSA’s Mossel Bay gas-to-liquids (GTL) plant, which has struggled to secure feedstock. Gas from Brulpadda would be a “godsend” for the GTL facility, “but there are some engineering challenges about linking the discovery up to the FA platform”, Kramer said. It would only require a fairly short pipeline, at around 70-80 km, but “it’s in a fairly hostile environment with tough currents. That can be accommodated but it’s going to be a question of at what cost.”
The International Energy Agency (IEA) has estimated South Africa may hold 485 trillion cubic feet (13.7 trillion cubic metres) of shale gas, although development has proved to be painfully slow. The IRP has said exploration of shale should be “pursued” and supported.
The SAOGA official said potential shale developments would depend on the details of the proposed petroleum bill. When the bill becomes law, and the current technical co-operation permits (TCPs) are converted into exploration licences, “those companies will have to decide whether this will be part of their strategy or not. This may provide an opportunity for farm-ins.”
The future is unknowable, but the government’s IRP certainly serves as a signpost for how the energy mix might shake out. In the nearer term, given Eskom’s continued difficulties, Mantashe said the energy ministry would soon issue a request for information on “supply and demand side options available that can be brought online in the shortest possible time at reasonable cost”. The race is afoot.