South Africa announces first step towards imported LNG

In response to chronic power shortages, South Africa’s Department of Energy (DOE) plans to expand total generating capacity by 40 GW by 2025, with a mix of more environmentally friendly fuels such as renewables, hydro, nuclear power and natural gas. The case for gas power over alternative fuels rests largely on its cost, environmental friendliness and flexibility since gas – fired plants can provide base load, peak and stand-by power.

South Africa is leading the continent’s shift towards gas-to-power and private sector independent power production. Starting with a public-private initiative, in May the DOE invited expressions of interest for the construction of a new 600 MW gas power plant at either the port at Saldanha or Richards Bay with the time for responses closing in record time as early as June. However, under the major gas-to-power Independent Power Producers (IPP) programme, gas power will rise from its current 1.35 GW to 3.1 GW by 2025, facilitated by increased imports of Mozambiquen piped gas and the start of Liquid Natural Gas (LNG) imports.

South Africa could buy $530 million of LNG

As part of the Department of Energy’s gas – to-power programme, the newly established Gas Industrialisation Unit (GIU) will oversee, on behalf of South Africa’s power plants, the expected annual import of at least 3 million tonnes of LNG as soon as 2018. Trevor Sikorski, an analyst with Energy Aspects in London expects South Africa to import at least $530 million worth of LNG reports, Bloomberg May 2016. This makes South Africa ideal for using floating LNG regasification technology (FSRU).

South Africa’s first FSRU

Ideal for smaller markets, an FSRU costing upwards from $300- $550 million to build, or half as much as an onshore import terminal, and up and running within 1.5 to 2 years, is a cheaper and quicker way to import LNG and help alleviate the power shortage deficit than onshore facilities reports Bloomberg, September 2015. Of several potential LNG import locations, Saldanha Bay port on the West coast, seems the current favourite, based on its proximity to existing power plants and Eskom’s planned 1500 MW IPP plant, the ArcelorMittal steel works and the five million plus residents of Cape Province.

Cheniere Energy likely source of LNG imports

Local media have been replete with reports of foreign and local investor interest in new LNG-to-power plants and associated import infrastructure including US energy investor Altresco, American LNG exporter Cheniere Energy, Shell, Japan’s Mitsubishi Bank, local chemicals and energy producer Sasol and FSRU owner, Excelerate Energy L.P.  As to potential sources of LNG – whilst the world is South Africa’s oyster – opinion seems to favour the new US Atlantic market LNG exporter Cheniere Energy Inc., rather than Qatari or Australian LNG which, are traditionally destined for the premium markets of Asia. If things go to plan, the first imports of LNG could arrive within three years and if Mozambique’s ambition to become the world’s third largest exporter of LNG is realised by the very early 2020s, energy – hungry South Africa could prove a lucrative market.