South Africa is facing an emerging energy supply gap after 2020, which can be bridged by adding natural gas to the country’s coal-dominated energy mix. These are the findings of a report entitled “South Africa’s Big Five: Bold Priorities for Inclusive Growth” published today by the global management consultancy McKinsey & Company.
“Gas could play an important role in South Africa’s energy portfolio, particularly in terms of meeting the country’s base-load energy needs between 2020 and 2030, before more diversified capacity comes into operation,” co-author Christine Wu told Mining Weekly.
According to the report, South Africa is expected to face a power shortage of up to 10GW by 2025, as nearly 14GW of aging coal plants will be decommissioned between 2020 and 2030 and as energy consumption continues to grow. However, with the introduction of natural gas into the energy mix, the country could gain 20GW of gas-fired power generation capacity, to provide flexibility to at least 10GW of renewables capacity and creating demand for 28.3bn cu/m of gas annually.
At present South Africa imports 77 percent of its natural gas from Mozambique, so if the country were to commit to gas-fuelled power generation it would have to complement its imports with shale gas exploration in the country’s arid Karoo region in the Northen Cape province.
The shift towards natural gas – while beneficial to the country in the longer run – is not likely to be without its challenges. The report cautioned that the development of South Africa’s unconventional resources was likely to be expensive in the early development phase. What is more, natural gas as a fuel is more expensive than coal.
The report argues that if the country broadens its supply options – through stimulating offshore and onshore exploration, as well as facilitating the importation of liquefied natural gas (LNG) and shale gas developments – it may result in bringing the gas price down even as much as 40 percent. This would not only make the power-generation cheaper, but offer additional opportunities to South Africa’s petrochemical and manufacturing industries. Should this happen, the report calculates that downstream opportunities in gas-based industries and the chemicals sector could add another US$9.5bn to the national GDP and create up to 230,000 jobs.
The findings of the report were seconded by South Africa’s ruling African National Congress party urging the government to approve the amendments to the 2002 Mineral and Petroleum Resources Development Act, which would create a more welcoming environment for the oil and gas companies. This is particularly crucial in a situation where the cost of developing a self-sustained gas industry in South Africa is estimated at US$87bn – a cost that is not likely to be met without a considerable investment from the private sector.
In an opinion article published in the Johannesburg-based Business Report on Tuesday, Enoch Godongwana, chairman of the ANC’s economic transformation committee, called for an “enabling environment” to help unlock investment in gas projects to ease South Africa’s energy crisis.
When it comes to the unconventionals, South Africa has the eight largest shale gas reserves in the world and the Karoo desert is believed to be holding up to 390 trillion cubic feet of recoverable gas reserves. Despite that, shale development in the country has been slow to get off the mark with unwelcoming legal climate and environmental opposition from organisations like Treasure Karoo Action Group.
On Wednesday 9th August, President Jacob Zuma announced that the government will soon begin issuing licenses for shale gas exploration and drilling, although an exact date was not given.
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