New gas strategy report a start, but more clarity required for South African industry

The South African gas industry is at a critical juncture due to declining gas supplies from Mozambique, which is the country’s predominant gas supplier. This crisis is further compounded by the lack of gas import infrastructure and minimal progress in developing domestic gas production capacity. The strategy report is a blueprint for finding alternative sources to prevent a gas supply crisis.

The strategy report contemplates several objectives, including: 

• energy security and diversification by importing liquefied natural gas (LNG) from international and regional markets like Tanzania, Namibia and Angola and developing indigenous gas resources to ensure long-term security of supply. 
• infrastructure development, by investing in the development of gas infrastructure such as LNG import facilities and constructing extensive pipelines to improve pipeline connection with the ROMPCO pipeline from Mozambique, among others; 
• gas-to-power generation by providing for the procurement of new gas-to-power generation capacity both inland and Richards Bay over the next five years to satisfy growing energy demand; 
• gas, renewable energy and hydrogen integration by developing the gas, renewable energy, and clean hydrogen sectors in an integrated manner, and adopting a wholistic approach to expanding the country’s energy supply by using gas, renewable and hydrogen in a complementary manner. For example, gas can address the intermittent nature of renewable energy by acting as a reliable energy backup when there is a decrease in renewable energy production and gas pipelines can be repurposed to transport hydrogen as demand for hydrogen scales up; 
• finalising key regulatory and policy frameworks by coordinating regulatory and policy frameworks within the gas, renewable energy and hydrogen sectors to ensure alignment across the three sectors and accelerating the finalisation and implementation of critical policy frameworks like the Gas Master Plan and Gas Amendment Bill to provide prospective investors with a predictable, stable, and business friendly environment to reduce risk and boost investments. 

The publication of the strategy report is significant for several reasons; firstly, it shows that NERSA in its capacity as the national energy regulator is leading the charge towards developing the country’s gas industry, and secondly, the strategy report provides the private sector with the regulator’s perspective of what the road ahead looks like in terms of what must be done to create an enabling environment for investors, and thirdly, the strategy report demonstrates to investors the energy regulator’s intent and priorities and provides investors with the opportunity to provide feedback and collaborate with NERSA in the development and implementation of the strategy.

The strategy report provides a foundation for ways in which the public sector together with the private sector can create a thriving gas industry in South Africa, however, more needs to be done to incentivise private sector involvement in the gas industry.

The government now needs to articulate what the transactional framework is going to look like and how risk will be allocated between the public and private sectors, review and streamline regulations that impact lending to incentivise lenders to lend to the private sector by reducing compliance costs and administrative burdens, finalise the Gas Master Plan and Gas Amendment Bill so investors can familiarise themselves with the rules and inject investments into the gas market sooner rather than later and lastly, develop the necessary institutional capacity in the public sector to implement the gas regulations and strategies.

Gas-to-power projects may play a crucial role in avoiding the country facing a shortage of baseload power generation capacity, which will largely depend on Eskom’s plans with its aging coal generation fleet.

Co-written by Njabulo Gumede of Pinsent Masons.