SANDILE HLOPHE: LNG is an obvious stepping stone to zero carbon

On its journey to zero carbon, SA first needs to transition to low-carbon energy sources such as liquefied natural gas (LNG) as a stepping stone to immediately reducing carbon emissions before tackling loftier aspirations. 

While zero carbon 2050 is an admirable and essential benchmark for SA — and much of the world — we need to be realistic in the shorter term and aim for more immediate carbon reducing “wins” to first make progress towards the ultimate goal. We cannot simply focus on an outcome 30 years in the future without taking smaller steps today to get there. 

One of the reasons is that SA is starting from a very high base when considering the carbon intensity of our major industrial and energy blocks. We are ranked 95 out of 180 countries in the 2020 Environmental Performance Index. 

SA’s electricity generation is largely dominated by coal, which makes up more than 70% of total primary energy consumption in 2022, and we will continue to rely heavily on Eskom’s coal-fired energy while we wait for low carbon energy generation sources, such as wind and solar. 

Enter natural gas. When burned it is one of the lower carbon-emitting forms of energy available and a practical complement to SA’s renewable energy programme.  

In its 2019 SA Energy Outlook the International Energy Agency (IEA) anticipated that local users will move towards natural gas in the transition to lower carbon intensity. Natural gas consumption in SA still lags far behind the rest of the world, accounting for just 2.9% of the energy mix. We forecast a significant shift in both SA’s primary energy demand and the country’s future electricity generation mix. By 2040 coal will have increasingly been replaced by renewables, gas and other low-carbon sources. 

Investment in natural gas requires time and capital; countries are increasingly adopting net zero carbon emission proposals and companies are setting milestones for gas to replace oil. SA should follow suit — transitioning to low carbon energy, a move from carbons to natural gas is seen as a stepping stone to renewable energy, driven by specific uses.

Encouragingly, the government’s Gas Master Plan has been designed to provide sustainable levels of natural gas. There is an abundance in Sub-Saharan Africa, specifically Mozambique and Namibia, which could provide medium- to long-term energy security to SA. 

However, supply has been constrained by a number of factors. There is a limited pipeline network and receiving network infrastructure, with the major pipelines covering only parts of the country. There is also limited natural gas supply from Mozambique via the Republic of Mozambique Pipeline Company, a joint venture company with three shareholders — namely, the SA Gas Development Company Ltd (iGas), Companhia Limitada de Gasoduto (CMG) and Sasol Gas Holdings.

A lack of LNG import facilities is another challenge; SA currently has none. However, Transnet is developing an LNG storage and regasification terminal at the Port of Richards Bay. The first consignments are expected to land in 2024.  

There is also a lack of domestic gas production; offshore output is limited and there is little onshore shale-gas production. However, Total has discovered significant reserves off the south coast. The first gas could be a minimum of five to seven years away, requiring a big work programme and capital investment. 

But despite the challenges there are reasons for optimism as SA embraces the inevitable changes in its energy mix. Average SA natural gas demand is expected to increase by 25% by 2030 and by 110% by 2040.

It is anticipated that the future demand for natural gas could be met by increased supply from Rompco, onshore shale, Total’s offshore gas find and the potential of PetroSA’s SA LNG importation project, which plans to import LNG into Mossel Bay. 

We expect a growing interdependency of the Mozambican and SA gas markets due to their geographical proximity, Mozambique’s ample supply and SA’s growing market.

Global LNG prices have surged on the back of Russia's invasion of Ukraine, but are expected to drop in the longer term due to over-supply, which presents a timely opportunity for SA as other sources come online. 

• Hlophe, an EY partner, is Africa region government & infrastructure leader.