Role of gas as a transition fuel in South Africa
Natural gas can play an important role as a transition fuel to replace more emissions-intensive fossil fuels like coal and diesel in South Africa, according to a report published by the National Business Initiative, Business Unity South Africa and the Boston Consulting Group.
“As South Africa decarbonises its economy, gas can, if affordably supplied, play a key role as a transition fuel to replace more emissions-intensive fossil fuels like coal and diesel, and provide flexible capacity to enable a rapid scale-up of renewables, until alternative energy storage solutions and greener fuels become affordable,” the report says.
The report argues that new investments in gas infrastructure should consider the future repurposing of the assets for the usage of green gases like green hydrogen blends or green hydrogen.
“For South Africa to achieve a net-zero 2050 target, gas will need to be substituted with greener alternatives and phased out by 2050,” it states.
At present, South Africa consumes about 180 petajoules/year of gas, predominantly in the synfuels and the industrial sector. Most of the gas demand is located in Gauteng, Mpumalanga and KwaZulu-Natal (KZN), supplied by gas from Pande-Temane in Mozambique via the ROMPCO pipeline and from Sasol operations to KZN via the Lilly pipeline.
Potential demand drivers
South Africa’s potential future gas demand will be driven by four key sectors with proven use cases for gas as a transition fuel or lower emission feedstock. Those sectors are power, synfuels, industry and transport.
In the power sector the report recommends use of gas in gas-to-power (GTP) plants to enable a high penetration of renewable energy in the power system by providing the flexible capacity to manage the long-duration intermittency, which battery storage cannot currently address.
In the synfuels sector it argues for introduction of additional gas to enable the phase-out of significantly more carbon-intense coal feedstock in the production of liquid fuels.
The report says that the industrial sector could phase out higher emitting coal, and to a lesser extent diesel, with additional gas as an energy source for industrial heat generation and other processes.
In the transport sector gas can be used as an alternative to diesel, albeit at a small scale, for heavy-duty commercial road transport in the short- to mid-term while alternative greener technologies mature and become economically viable.
Although the potential is significant, the report says, South Africa’s actual future gas demand will be influenced by whether consumers can afford the delivered price of gas as an alternative energy source and feedstock.
As an alternative to diesel, the power sector can afford gas, for predominantly peaking capacity, at delivered prices of up to 300 rands ($20)/GJ, whilst the transport sector’s affordability threshold for gas is 100–300 rands/GJ.
These affordability thresholds are the highest because of the high price of diesel. Synfuels has the lowest affordability threshold, and the industrial sector’s affordability threshold is less than approximately 135 rands/GJ, given the relatively cheap cost of the coal alternative, the report argues.
Declining domestic gas reserves
The reserves of the Pande-Temane gas fields are declining, and supply is expected to be constrained from about 2025 onwards, presenting a supply risk if additional gas cannot be sourced at an affordable price.
The report states that this poses a risk to the decarbonisation ambitions of key sectors in the South African economy, which will rely on gas as a transition fuel or low carbon feedstock.
“A future with no additional gas could lead to more cumulative emissions in the long-run across the synfuels, power and industrial sectors, due to the extended use of coal and diesel in the absence of greener alternatives,” the report says.
Possible gas infrastructure pathways
The report looks into five possible pathways, including one of no additional supply at all. Other pathways include piped gas and exploration – Rovuma and Brulpadda; piped gas only – Rovuma only; exploration only – Brulpadda only; and LNG.
“A no additional gas supply pathway has the lowest infrastructure lock-in risk, but also the lowest socio-economic benefit, and leads to about 400–600 mt higher cumulative emissions in the long-run,” the report says. “Given the higher carbon-intensity of alternatives, this pathway could yield higher carbon tax burdens for consumers.”
The other three pathways, the report says, are only relevant in a high demand scenario and present a high risk of stranded assets and carbon lock-in, with large capital investments of around 70–200bn rand required.
“Rovuma piped gas, in particular, is highly complex with significant political and security risks to be addressed. Extracting gas from Brulpadda and Luiperd may also be technically complex, which could further increase the cost of these pathways,” the report adds.
LNG, the optimal pathway
The report says that the LNG pathway is optimal for South Africa given the flexibility it provides, due to shorter lead times as demand ramps down post-2040 to achieve net-zero, and due to the positive socio-economic benefits it brings. The negative impact on the trade balance will need to be offset by new green export industries, such as a South African e-fuels industry, it adds.
Within the LNG pathway, the report assesses a multi-hub approach with floating storage regasification units (FSRUs) in Matola, Richards Bay, Coega and Saldanha. In addition to Matola as a supply option, developing all three South African FSRUs in parallel emerges as the optimal supply scenario for South Africa, the report adds, given the higher socio-economic impact and increased bargaining power for consumers, which will potentially yield a more competitive delivered LNG price.
A scenario where Richards Bay is not developed restricts and locks the inland market into supply from Matola and should, therefore, be avoided. Developing the three FSRU hubs in parallel will require limited capital expenditure (capex), focused on the FSRU and port modifications, with a maximum FSRU of 50bn rands across scenarios.
“Critically, should an alternative greener technology for peaking support arise beyond 2035, the net present value of the investment at risk in a low demand power scenario is about 7bn rands. This value at risk is relatively low, compared to the 14–28bn rands in opex saving arising predominantly from cheaper gas prices relative to diesel prices, and should not inhibit technology switching, particularly in the context of a higher carbon price,” the report says.