The nuclear procurement programme was rejected in the High Court earlier this year and opens the way for greater advocacy around the gas-to-power programme, says oil and gas specialist Lizel Oberholzer.
“The focus on nuclear energy generation has come at the cost of the development of other alternative forms of energy generation. For instance, gas-fired power generation may be cheaper than coal-fired power generation and gas can be transported more efficiently.”
However, she notes that there are three major challenges in South Africa that impede the establishment of the gas-to-power industry. The first is political will, the second is legislative uncertainty and the third is commercial impediments to the private development of the gas-to-power industry.
“Regarding political will, it is common knowledge that nuclear procurement has been prioritised within government, to the detriment of alternative forms of power generation such as gas. Therefore, the rejection of the nuclear procurement programme in the High Court this year may favour the establishment of the gas industry. “However, it will take real political support to fully establish the South African gas economy. Whether this will happen may be more apparent after this year’s African National Congress policy conference and party election.”
Secondly, legislative uncertainty needs to be resolved through the finalisation of outstanding policy documents, namely the Gas Utilisation Master Plan, the Integrated Energy Plan and the Integrated Resource Plan, and through the harmonisation of existing legislation, ideally through the Gas Amendment Bill. These outstanding policy documents are designed to act as a roadmap for South Africa in developing a gas economy.
Thirdly, without the assured demand of an established gas-to-power programme by government as an anchor client, the excessive costs associated with establishing gas import facilities might inhibit private parties from investing in the South African gas market, she adds.
Oberholzer mentions that the development of a liquefied natural gas (LNG) import terminal, either floating or on land, would allow for the import of LNG. She notes that importing LNG has the biggest potential for growth in the industry in the short term, adding that, once a reliable, cost-effective source of LNG is available in South Africa, the industry will develop. In the medium to long term, the industry can transition to gas produced domestically such as shale gas, should it be commercially viable.
She says South Africa’s legislative framework was not designed for LNG. “The industry is primarily regulated by the Gas Act, designed to regulate piped gas. There is also an overlap between the Gas Act and the Petroleum Products Act, as well as possible challenges in obtaining import licences.”
Oberholzer speculates that policy delays could be attributed to two factors. Firstly, local economic growth has slowed dramatically, below the speculated 2.9% growth predicted last year. Lower economic growth corresponds with a lower demand for energy.
Eskom and the Department of Energy, in a report to Parliament’s Portfolio Committee on Energy last month on the future of the Renewable Energy Independent Power Producer Procurement Programme, stated that there is currently an oversupply of energy generation capacity in the country. Excess energy capacity, combined with State-owned power utility Eskom’s current financial and managerial woes, has forced government to reconsider current plans for future energy generation, says Oberholzer.
She concludes that, despite the challenges government is facing, it is vital in the medium term that, electricity generation capacity continues to be developed. If a much-needed investor-friendly environment is fostered in South Africa, the electricity demand will increase to match supply.