Study to consider proposed South Africa-Mozambique gas pipeline

Out-Law News | 16 Dec 2014 | 5:12 pm | 2 min. read

Oil and gas company SacOil Holdings has announced the launch of a feasibility study to consider the construction of a $6 billion gas pipeline between South Africa and Mozambique.

South African-based SacOil said it has signed a joint development agreement (JDA) with the Mozambican government's Institute for the Management of State Holdings (IGEPE) to “evaluate the technical and commercial feasibility of a trans-national terrestrial gas pipeline and distribution facility”.

The feasibility study will cover engineering, market development, gas purchasing, economic, financial, technical and commercial risk profiles as well as environmental, social and regulatory issues.

The pipeline would carry natural gas from Mozambique’s Rovuma fields into South Africa, “with off-takes to other neighbouring Southern African Development Community (SADC) countries, SacOil said.

SacOil said on 8 December that the JDA partners are setting up a technical working group to launch pre-feasibility studies. “A project company will be incorporated to ensure that total focus on the project is maintained and emphasis will be placed on local ownership of businesses along the entire value chain,” the company said.

“The gas market in South Africa, which is the industrial powerhouse of Africa, is driven by demand from the Saldanha Industrial Development Zone, the Mossel Bay gas-to-liquid plant, the Mossel Bay and Atlantis diesel-fired power stations, an array of ageing coal-fired power stations, which could be converted to gas, as well as possible new power stations in Coega and Richards Bay,” SacOil said.

If constructed, it is proposed that the 2,600-kilometre main pipeline from northern Mozambique to South Africa will, en route, deliver gas to key towns and settlements in all provinces of Mozambique. SacOil said this would “stimulate industrial growth in the country”.

“The indicative gas requirements of, as well as benefits to, Mozambique and South Africa appear to justify such a pipeline,” SacOil said. “It is the JDA partners’ expectation that the project will be transformational to Africa’s energy infrastructure landscape, as well as supportive of economic growth across the region. The Project will also seek to increase the international competitiveness of southern African economies, create many jobs and improve living standards for the people of the region.”

According to SacOil, the Southern African energy market “has been constrained by shortages for many years”. Natural gas accounts for “a very small portion” (3%) of the energy demand in South Africa compared to 21% globally, SacOil said.

The South African government’s plans for reducing CO2 emission levels and increasing the use of natural gas was set out in the 2012 'Gas Equation Report' (40-page / 12.9 MB PDF) by professional services firm PwC.

“The demand for natural gas is also expected to grow in Botswana, Malawi, Mozambique, Zambia, Zimbabwe and Africa in general,” SacOil said. The “main driver” of this demand for gas is expected to be from gas-fired power stations, vehicle and related downstream industries and domestic consumption, according to the International Energy Agency’s World Energy Outlook 2011 report.

An updated draft Integrated Resources Plan for electricity for 2010-30 (114-page / 10.3 MB PDF) by South Africa’s Department of Energy projected a possible fall in gas prices resulting from large-scale exploitation of shale gas, leading to a switch in electricity generation from coal and nuclear towards gas.