Updated IRP essential for local players to exploit opportunities in the gas sector
The South African engineering consulting industry has positioned itself to harness opportunities in the gas sector, but a clear gas master plan is required to convince investors and other stakeholders to put their weight behind the country’s energy plans.
At the 21st Congress of Parties (COP21) held in Paris last year, South Africa committed to reducing its carbon footprint by introducing more gas into its energy mix. However, since being drawn up in 2010 and published in draft form in 2013, the country’s Integrated Resources Plan (IRP) has not been updated or finalised. An Integrated Energy Plan was drawn up at the same time as the IRP2010, but did not receive the requisite status and attention from the Department of Energy.
Similarly, the Gas Utilisation Master Plan (GUMP), which has been on the drawing board since 2012, has not been finalised.
While there have been rumours of the IRP being considered later in 2016, time is running out for any significant process to be completed. An update of the IRP is crucial to show the demand projections and the most desirable blend of technologies to meet with these demands.
Ideally, the IRP should be updated annually to accommodate the rapidly changing cost of generation environment and uncertainty around future electrical power demand.
Certainly, if South Africa is serious about transitioning to a low carbon economy and harnessing opportunities presented by the gas sector, a master gas plan is critical and it needs to be shared with all industry players as a matter of urgency.
To move gas from source to demand, significant infrastructure is required, be it in the form of pipelines or rail and port capability. This is a space in which the engineering consulting industry can play a significant role, especially in countries such as South Africa, which has no large-scale gas-fired power and negligible residential piped gas.
A recent Frost & Sullivan report, commissioned by GIBB, which interrogated the risks and opportunities in gas pipeline infrastructure development in sub-Saharan Africa, focused on the source of the gas, reserve potential and demand. It highlighted the enormous potential of the gas sector in countries that have large commercial gas reserves and a master gas plan in place.
The current gas infrastructure in Africa is not sufficient to handle with the growing demand of gas on the continent. Notably, the country to country or transmission pipeline network in Africa is more developed than the city to city or distribution pipeline network. This suggests significant investment will be required to establish pipelines that can meet the demand of gas on the continent, an investment that the report quantified at US$212-billion.
In addition, the report identified countries which offer the largest gas opportunities (ranked from one to six) as being Nigeria, Mozambique, Tanzania, Ghana, Côte d’Ivoire and South Africa – with growth in cities such as Lagos, Johannesburg, Dar es Salaam and Nairobi driving the use of domestic gas.
While South Africa, Angola and Cameroon lack legislative certainty, Mozambique, Ghana and Côte d’Ivoire enjoy a greater degree of certainty, which makes these countries more attractive to investors.
A worrying trend is for government to look exclusively to international companies to deliver on large infrastructure projects. They tend to overlook local expertise: local companies which have the capability, but perhaps not the experience, to partner with international companies.
State-owned enterprises such as Transnet, which may have a significant role to play in developing or upgrading gas infrastructure and contributing towards economic development in the country, need to conitinue to take the lead in terms of the developmental agenda in order to maximise the local benefit.
In this respect, the industry needs stronger signals from government and a firmer indication of the timeline for the projects. Engagement with all stakeholders is also required to establish what local capacity exists and to ensure local companies are readied for the gas boom when it lands.
A factor that is often overlooked is the significant lead times and development cost associated with such projects. Paul Fitzsimons, GIBB’s general manager for power and energy, says these projects require about 4 or 5% of the total capital cost to get to a full investment-ready status, this coupled with the associated lead time of necessary approvals, etc. In addition it is often forgotten that such projects usually require a significant investment in advance infrastructure. This implies that without a degree of certainty in the policy, investors will be cautious about providing the necessary enabling investment.
The gas price is reportedly at its lowest in 14 years. When the gas price corrects and gas projects in South Africa and on the continent start to boom, the local industry must ready itself to be at the frontline.