TIMOTHY FOXEN: SA must fast-track offshore gas production for power generation
Simplicity of arrangement and its advantages for the country scream for action
SA decisionmakers must now see the clear path towards natural gas-fuelled power generation to the Mossel Bay area from Total’s Luiperd field.
It will take several long-term interrelated contracts to happen, and some naysayers may consider this too complex and risky. Yet the simplicity of the arrangement, and the great advantages to SA compared to alternatives, screams for attention and action.
Total Energies’ gas discoveries in SA waters are said to be producible by 2026 with relatively little construction and production risk. As a result, it is likely this major producer would be willing to go forward with its $2bn investment if firm gas purchase contracts can be put in place. But therein lies a dilemma, though as we argue here it is a false one.
First, the national power demand encompasses a base (minimum/round the clock) requirement of 20GW, while varying from there up to a peak of about 35GW. It is estimated that the initial daily production from the Luiperd field is equivalent to 1.5GW of efficient combined cycle around-the-clock electricity. There is thus ample room in the system for this new resource to fit within the operation of the grid. It is as simple as the following:
- Complete the gas field development plan, including its operating profile to establish the production rate and duration (probably mostly done already);
- Run the Eskom system operation model to determine transmission requirements out of the Mossel Bay area;
- Complete one or more power purchase agreements (PPAs) — some creativity can be applied here, such as allowing for wheeling of the power to end users to spread the offtake risk beyond Eskom;
- The PPAs will incorporate gas supply terms. Here is the driver for a win-win. For over a decade the industry has focused on liquefied natural gas (LNG) importation. Beyond stopgaps like Karpower ships for immediate needs, LNG importation is inferior to indigenous natural gas production, and the resulting price advantage will allow for acceptable gas and power prices coupled with substantial production royalties for the people of SA. Beyond lower cost, the arguments against LNG imports have been currency and commodity volatility risk, also eliminated from the indigenous gas option.
It has been reported that Eskom is in negotiations with Total, though it is not certain if Eskom has the will or capability to proceed with the above steps.
For example, Eskom is reported to be pursuing imported LNG out of Richards Bay because that location is closest to potential gas demand. Many other private developers are pursuing LNG imports for power generation at other port locations. Yet these LNG-based solutions are much more costly, riskier and entail imports of foreign fuels. They should follow, not lead, this indigenous gas solution.
The bottom line is that the department of energy, Eskom and private developers should complete the steps noted above. Fantastically for the country, there is minimal technical risk to these projects. Perhaps it is already happening, just unknown to this writer. But it is a beautiful solution to the power generation shortage and there is no reason to delay any longer.
• Foxen is an energy industry specialist with Cape Town-based Monetising Gas Africa.
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