Gas is the way to go for South Africa

© Jim Parkin – 123RF.com

Current installed capacity and new coal plants, Medupi and Kusile, when fully operational, should cover the country's needs until 2020, but then what? By 2025 we estimate a power gap of 6GW to 10GW will emerge, equivalent to millions of households' electricity needs. The only solution that can close that gap within ten years, while South Africa finalises its long-term energy mix plans, is natural gas power.

Today, both coal and nuclear power are cheaper than gas, but this is changing. Estimates indicate new gas plants would cost R1.10 per kilowatt hour compared to coal at 73 cents and nuclear power at 86 cents. But by 2030, South African domestic coal prices are expected to rise by 87%.

Carbon taxes

The government is also imposing carbon taxes from 2016 that will affect coal prices more than gas. On the other hand, if regional gas options do prove feasible and are developed, the price of gas could drop, making it more competitive.

However, with only a ten year time-frame, cost will not be the main consideration. Timely power supply is South Africa's most urgent need. South Africa has 14.4GW of ageing power generation infrastructure that will be decommissioned after 2020.

Together with a population that is both growing and increasing its average standard of living, supply will come under renewed pressure. Gas as base-load generation, supplemented with additional renewable power, is the best option South Africa has to close the gap in the time available.

Advantages of gas

There are a number of advantages to gas that make it an attractive option to close South Africa's looming energy gap:

• Fast lead times - Natural gas plants need just two to four years from conception to construction due to their modular nature. This is much shorter than either coal or nuclear power. It will be an unusual feat to deliver new, fully operational coal and nuclear plants by the mid-2020s. These technologies remain options for longer time frames (nearer 2030).
  
• Lower capital expense - The initial capital expense of building a gas power plant is significantly lower than coal and nuclear plants.
  
• Environmentally sound - New combined-cycle gas turbine plants produce less than half the carbon emissions of new coal plants. And while nuclear energy technically has the lowest carbon emissions of all, it is also associated with radioactive waste and high disposal costs.
  
• Complements renewables - Gas is better positioned to support an ambitious renewables development programme; because gas can be switched on within an hour, it is the perfect complementary power source. Coal and nuclear power plants cannot ramp generation up and down in the same way.
  
• Gas-based industries - Utilising gas for power could allow South Africa to achieve the scale that would enable gas-based industries to emerge. For this to happen, significant domestic and regional production will have to be unlocked to allow prices to drop within the range where this becomes economical, at under $6 per MMBtu.

The biggest question facing gas power is where to source gas from. The Southern African region has many alternatives, but most of these have not yet been proven to be economically viable. A carefully thought out programme is needed to unlock this potential. Most likely, gas would be sourced by importing LNG to meet the immediate demand, while simultaneously completing an appraisal programme to prove the viability of the regional alternatives.

Cooperation is important

Cooperation with new partners in regional governments and private sector players will be important in unlocking regional gas, as both government and business have a role to play. The government could finalise regulations, issue permits for pilot well drilling, and complete necessary environmental impact assessments.

There is an option to consider guaranteeing the purchase of gas as an end-user for a number of years, given that early production costs are likely to be higher than imported gas. The private sector has a critical role to play in bringing expertise and investing in the opportunities. Depending on the scope pursued and the scale achieved, investments could reach R600bn to R1tn by 2030.

Gas is the way to go for South Africa, but given the ten year time frame the urgency to act on this opportunity is growing.