Eskom has signed heads of agreement with Zululand Energy Terminal (ZET) with the intention of becoming the ‘foundation customer’ for the liquefied natural gas (LNG) terminal that ZET intends building at Berth 207 in the South Dunes precinct of the Port of Richards Bay.

ZET is a joint venture between Vopak Terminal Durban and Transnet Pipelines, and was selected in 2024 as the preferred bidder to develop, construct and operate a new LNG terminal at the KwaZulu-Natal deepwater port. Vopak Terminal Durban is owned by Royal Vopak, of the Netherlands and the Reatile Group.

Eskom is proposing to build a 3 000 MW gas-to-power (GtP) project in the Richards Bay Industrial Development Zone, with re-gasified LNG to be the primary fuel source for a power plant that is expected to operate for 25 years with a mid-merit production profile.

At a signing ceremony in Pretoria attended by Electricity and Energy Minister Dr Kgosientsho Ramokgopa, ZET director Oliver Naidu said the agreement strengthened the commercial foundation for the project, which is poised to be South Africa’s first LNG terminal.

The project was in the early front-end engineering design phase and Naidu said the intention was to develop the terminal in two phases, with the first phase involving a 170 000 m³ floating storage unit and an onshore regasification plant with a yearly capacity of about 3-million tons.

This capacity would be increased to over 4-million tons under the second phase that will include an onshore LNG tank and additional regasification capacity.

The project includes a transfer hub within the industrial zone to supply both GtP and industrial consumers, and will also connect to the existing Lily pipeline between Secunda and Durban so as to extend supply to other industrial customers.

“As we move forward our focus is clear: to progress the project responsibly, meet all regulatory and environmental requirements, complete the technical and commercial work required for a final investment decision, and deliver infrastructure that supports South Africa’s future gas market,” Naidu said.

Eskom CEO Dan Marokane added that the agreement established the framework for a long-term strategic partnership to support South Africa’s GtP ambitions, which he said was needed to complement a higher penetration of variable renewable electricity.

“The availability of dispatchable power is at the very heart of the energy transition and industry cannot operate without it as it forms the backbone for renewable energy integration into the grid.”

The current edition of South Africa’s Integrated Resource Plan calls for 6 000 MW of GtP by 2030, with 3 000 MW to be procured under a gas independent power producer (IPP) procurement programme and 3 000 MW to be delivered by Eskom.

The deadline is seen as ambitious, partly because there is no infrastructure yet in place to facilitate the importation of LNG, while gas from Mozambique is set to drop materially from 2028.

Eskom indicated that it planned to begin producing electricity from the Richards Bay plant from 2031, with Marokane highlighting the need to order long-lead items, such as turbines.

The turbine market is currently overheated, largely owing to strong demand in the US where GtP plants are being built to support rapid data-centre growth.

The public procurement of GtP from IPPs has also faced delays, but the IPP Office confirmed recently that four entities had submitted GtP bids by the May 29 deadline, including: the 440 MW Khanyazwe Flexpower project, in Mpumalanga; the 990 MW Pictor GtP project, in KwaZulu-Natal; the 600 MW Kelvin Redevelopment project, in Gauteng; and the 800 MW Komatipoort Power, in Mpumalanga.

The IPPs pursuing the projects have all indicated that they will be based on imported LNG and the IPP Office expects to announce preferred bidders in August, after which the projects will have more than a year to advance to financial close ahead of a 36-month construction phase.

PRIVATE SECTOR PARTICIPATION

Marokane said that Eskom’s 3 000 MW project would be pursued through a Private Sector Participation model, which would enable Eskom to leverage strategic partners, project finance, and long-term power offtake arrangements.

“Eskom will now proceed with the partner selection for the private sector participation for the construction of the power plant itself and all associated work, including the re-submission of the environmental impact assessment (EIA).”

Last year, the Supreme Court of Appeal set aside Eskom’s environmental authorisation for the project, ruling that the EIA was illegal owing to a flawed public participation process.

In addition, Eskom wanted to begin placing LNG contracts that would be indexed to capture the forecasted downward trend in LNG pricing. While supply had been negatively impacted by developments in the Strait of Hormuz, Eskom noted that LNG export capacity could expand in future, particularly from sources in the US, Qatar and the rest of Africa.

Transnet CEO Michelle Phillips said the signing between ZET and Eskom represented a major milestone in the realisation of a decision taken by Transnet Pipelines and the Transnet National Ports Authority (TNPA) in 2022 to advance the development of LNG import infrastructure at the Port of Richards Bay.

“This agreement sends a strong commercial signal to the market. It demonstrates confidence in the project, strengthens its bankability and brings South Africa closer to establishing its first LNG import terminal,” Phillips said.

In late May, TNPA also signed a 25-year terminal operator agreement with Ukwanda LNG, to develop an onshore LNG regasification facility at the Port of Ngqura, in the Eastern Cape.