Despite the government’s bold plans for the gas sector, the industry has to deal with huge hurdles and a catastrophic threat.
By Larry Claasen
SOUTH Africa’s efforts to foster the growth of liquefied natural gas (LNG) and the Green Hydrogen sectors are bold, but face significant hurdles and a worrying threat.
The government says it is committed to supporting the sectors, but a possible LNG shortage and hindrances at the projects it is backing have hampered it.
For example, it has backed high-profile Green Hydrogen projects, such as the 5000MW one at Boegoebaai in the Northern Cape and the 850MW project at the Saldanha Bay Industrial Development Zone (IDZ), but they have yet to reach significant milestones.
The idea behind Green Hydrogen is to create hydrogen to be used as a fuel for export. The hydrogen is considered green because it is created through the electrolysis process using renewable electricity as a power source.
Long lead times
Rystad Energy, an independent energy research company based in Norway that tracks energy projects worldwide says only two of the five green hydrogen projects it is tracking in South Africa are expected to start production before the end of the decade.
Rystad Energy said these projects have to overcome significant hurdles, such as the lack of offtake agreements, frequent blackouts, and underdeveloped infrastructure for hydrogen storage and transportation.
They were also at a very early stage of their development. “Most projects are in the nascent stages of development, with minimal progress, similar to other countries on the continent,” it said.
Rystad Energy said South Africa also had to deal with intense competition from Namibia.
“The rise of Namibia’s renewable energy sector and hydrogen ambitions presents a competitive threat to South Africa’s hydrogen industry.”
The projects’ lack of offtake agreements questions their viability, as it essentially means they have not yet found offshore buyers to acquire their hydrogen. Concluding these agreements would cement their viability, as it would make it easier for producers to obtain financing.
Aside from the lack of offtake agreements, the viability of the projects are also hampered by the lack of government incentives, says Rystad Energy.
The coming shortage
The LNG sector is also facing difficulties despite the government’s commitment to building gas import terminals and developing the local gas industry. There are now concerns that there will be a gas shortage once Sasol’s operations in Mozambique stop supplying the country in June 2026.
Industrial Gas Users’ Association Southern Africa (IGUA-SA) executive officer Jaco Human says the country only has about a year to conclude long-term off-take agreements to avoid a gas shortfall crisis.
“We’ve got to take and conclude long-term off-take agreements by May next year. Any time beyond that will result in significant risk in terms of gas availability to the country. That is absolutely key.”
IGUA-SA is so concerned that the government has not implemented concrete plans to offset the fall-off in supply, it created a gas-aggregator company GasCo, which will act as a vehicle to drive long-term gas infrastructure development and secure supply.
This move, however, comes with some risk and is looking to state to help offset it.
“These initiatives include taking on significant risk, business risk, typically in areas where the government should be taking a risk in the national interest. So, what we’re asking the government to do at this juncture, is to assume some of the underlying risks in these long-term transactions and infrastructure developments.”
A looming crisis
IGUA-SA fears that the inability to secure supply would endanger South African industrial gas users, which directly employ 70 000 people and contribute between R300-billion and R500-billion annually to the economy.
“A cessation in the gas supply will result in multiple plant closures and a significant reduction in manufacturing output across KwaZulu-Natal, Gauteng, and Mpumalanga,“ IGUA-SA warns in its 2024 annual report.
Aside from the threat to the country’s industrial heartland, the annual report notes that the Cape already lacks the capacity to provide adequate supply.
“The Western Cape region suffers from the largest gas supply shortfall.”
Some encouragement
IGUA-SA’s concern over energy supply comes despite the government publishing its Gas Master Plan in April, which is meant to chart the industry’s future.
The plan acknowledges that the supply from Mozambique is coming to an end but also said development of gas terminals at Richards Bay, Saldanha Bay and the Port of Ngqura will facilitate the importation of liquefied natural gas.
Human says the plan does not adequately address the supply issue in the short term.
The looming gas shortfall comes as the government splits the Department of Mineral Resources and Energy into the Department of Energy and Electricity and the Department of Mineral and Petroleum Resources.
This move sees Kgosientsho Ramokgopa becoming the Energy and Electricity minister.
Though Ramokgopa has only recently taken over the gas portfolio, Human says the initial engagements with him have been “very encouraging.”
