The Gas Industry in South Africa 2022

Introduction

Several large offshore gas discoveries in South African and Namibian waters could be positive for the development of the local and regional gas industry. Renergen, which began production at its onshore Virginia block in September 2022, is the country’s only natural gas producer after PetroSA’s Mossgas refinery recently ran out of local gas feedstock. Challenges include a lack of supply and insufficient gas infrastructure. The Department of Mineral Resources and Energy wants to anchor gas demand on gas-to-power projects which can help address the electricity shortage and help create a gas industry.

However, the sector faces an increasing number of challenges from environmental activists.

Opportunities

Transitioning low-income earners from coal, paraffin or wood as an energy source, to LPG.

Development of LNG-fuelled vehicles and vessels. Importation of LPG and LNG. Offshore gas exploration. Onshore exploration for shale gas and coal bed methane. Recent Namibian finds may boost South African oil and gas sector services. The availability of sizeable reserves of natural gas in neighbouring countries presents increased opportunities for regional collaboration, including pipeline development. The development of alternative sources of clean energy, such as biogas, including the establishment of landfill-to-biogas plants. The discovery of new gas resources in the southern Cape and the Karoo may attract investment into the sector. The increase of LPG and LNG imports through newly-constructed import terminals with sufficient storage facilities.

Outlook

Recent oil and gas finds off the southern Cape coastline, Mozambique and Namibia and shale gas in the Karoo are promising for the gas industry’s future. However, the industry faces various challenges, including a shortage of supply, a lack of enabling policy, unsustainable pricing for industrial customers and a shortage of infrastructure such as pipelines and import terminals.

Gas demand could grow if gas-to-power projects come online. Despite government’s support for gas, the growing number of environmental challenges will likely make it difficult for the country to take advantage of new finds.

Report Coverage

This report on the gas industry in South Africa provides comprehensive information on production, demand, prices and trade statistics of various forms of gas and developments including exploration, discoveries and corporate actions.

There is information on gas infrastructure and pipelines, gas to power and the role of gas in energy transition. The report includes profiles of 13 companies such as state-owned PetroSA, major players such as Sasol Gas, local producer Renergen and wholesalers such as Afrox.

Strengths

Existing gas infrastructure (the ROMPCO pipeline and ExxonMobile’s floating gas plant) is available in proximity to Mozambique and Tanzania.

Gas could provide a cleaner power alternative to produce electricity as South Africa reduces its reliance on coal. Gas is relatively safe and clean-burning. It has a multitude of domestic, commercial and industrial uses. Multiple unexploited indigenous gas reserves available. Political support from the DMRE and Operation Phakisa for gas market development. Transporting gas via pipeline is relatively safe, cost-effective and reliable.

Threats

Economic pressures could impact adversely on industrial consumption and on the availability of exploration funding.

Environmental challenges. Environmental risks, such as seismic activity. Intense competition from traditional fuel sources and renewable sources. Large upfront capital requirements for new gas projects or converting existing operations. Policy and regulatory uncertainty. Shale gas exploration companies face stiff opposition from affected land-owners and environmentalists. The escalation of geopolitical tensions, which could threaten global gas supplies. The increased competitiveness of other forms of energy, such as renewables.

Weaknesses

A lack of government policy on gas. A lack of infrastructure for importing and transporting gas. A shortage of professionals with the requisite technical skills. Economies of scale - to enable competitive pricing, a minimum scale of new entries are required. Exploration and development costs are prohibitive and players are highly exposed to the volatility of commodity prices and exchange rate fluctuations. Minimal gas infrastructure and distribution channels. Gas infrastructure is concentrated around demand nodes in Gauteng, Mpumalanga and KwaZulu-Natal. South Africa must depend mainly on imports for LPG as most of its refineries are not operating. Uncertainty over the recoverability of local reserves.