How Domestic Gas Production Can Help Mitigate South Africa's Energy Crisis
South Africa is facing an energy crisis on a very large scale. It's not for nothing that President Cyril Ramaphosa took the unprecedented step of declaring a "national disaster" in February.
The country's fuel and energy sector is truly in trouble, with power shortages and blackouts worse than ever before.
There are some hopes for relief, including efforts to find new sources of fuel for thermal power plants (TPPs).
On the one hand, South Africa possesses large offshore natural gas reserves in the Outeniqua basin and may be able to find more in its section of the Orange basin and elsewhere.
On the other hand, it shares borders with other two future gas producers – Namibia and Mozambique, both of which have sizeable reserves and smaller populations than South Africa – that may be willing to export some of their bounty under the right conditions.
Nevertheless, these solutions are still some distance away, given that it will take years to bring gas from these large-scale projects to market.
In the meantime, South Africa should not lose sight of the fact that it has other solutions at hand.
It is true that the solutions I'm talking about are considerably smaller in scale and humbler in nature than the massive projects I've already mentioned.
They don't target new deepwater frontier basins, and they won't require multi-billion-dollar investments. But they do have the potential to offer crucial support to Africa's second-largest economy at a time of severe crisis.
I'd like to talk about two companies that are in a position to offer this kind of support.
Kinetiko Energy: Onshore Gas Supplies to Local Power Stations
One of them is Kinetiko Energy, an Australian company that is working to develop conventional gas reserves in southern Africa. Its primary focus is the Amersfoort-to-Volksrustregion, which focuses on a large gas deposit in the Mpumalanga province, southeast of Johannesburg.
Kinetiko is still working to determine exactly how much gas its licenses contain, but it is optimistic in light of the fact that the area has long been known to hold very high-quality methane in shallow sediments and coal-beds, and it has estimated its 2C resource at 4.9 trillion cubic feet (138.8bn cubic meters).
On January 30, 2023, the company issued a statement extolling the "record breaking" results achieved from a new core well, 271-23C, during logging and core-sample testing after the completion of a three-well drilling program.
The statement included some insights into the well's geology, but it also quoted Kinetiko CEO Nick de Blocq as saying that 271-23C was in a favorable geographic location.
Specifically, he drew attention to the well's position in Block ER271, close enough to the Majuba TPP to represent a field which could supply it with gas in addition to coal, its usual fuel.
Meanwhile, de Blocq also drew attention to 270-03C and 270-06C, the other wells drilled during the three-well drilling campaign.
He pointed out that the Lily Pipeline runs through all of Kinetiko's current blocks, including Block ER270.
This is South Africa's largest gas conduit, which transports gas from Sasol's Secunda plant to coastal cities and to industrial consumers in the KwaZulu Natal region.
"The proximate location of our southernmost boreholes in ER270 to the steel-smelting and manufacturing centre of Newcastle could mean a simplified logistical solution to get the gas to an increasingly hungry thermal industry market," he stated.
Of course, it is true that Kinetiko is still working to finalize its plans. It has yet to determine exactly when it can begin commercial production, having started the activities required to evolve their Exploration Right into a Production Right, and it is busy negotiating with midstream players who bring downstream offtakers and financing.
But it is optimistic about its ability to launch small-scale development quickly — and about its ability to make a local power-generating entity one of its very first clients.
This is the sort of initiative and drive that has the potential to benefit South Africans greatly on a local level while larger-scale solutions come together, and I hope to see more of it.
Creative Ideas and Environmental Considerations
Indeed, if South Africa was willing to take steps to open up more of the onshore basins that might hold gas — such as the Karoo basin— it would be giving investors a signal that it was ready to entertain new solutions to a problem that has persisted for far too long.
Of course, when I call for new solutions, I don't mean it's time to give free rein to polluters and forget about environmental concerns entirely.
If South Africa is going to develop an onshore gas industry, the government ought to be making plans to develop the regulatory regime accordingly, and investors ought to be keeping environmental concerns front and center as well.
But there's good news: Some of them are already doing so.
Renergen: Demand for Gas Beyond Power Generation
And that brings me to my second example: Renergen, the native South African company that is carrying out the Virginia gas project.
Renergen has been working to develop three conventional gas fields in Free State – Theunissen, Virginia, and Welkom, which are collectively estimated to hold nearly 407 billion cubic feet (11.53 million cubic meters) of conventional natural gas in proved and probable (2P) reserves.
It is keen to monetize these fields because they contain relatively high levels of helium — a commodity that is both valuable and rare — as well as gas.
As such, it has worked to transform its initial compressed natural gas (CNG) initiative into a larger-scale and considerably more ambitious liquefied natural gas (LNG) project.
In September of last year, Renergen started up its onshore gas liquefaction plant, becoming South Africa's very first producer of LNG.
The company touted its environmental credentials in a Twitter post announcing the launch, noting that the plant's output would help reduce the country's carbon footprint by making a new type of fuel with lower emissions intensity than diesel available for trucking and other commercial uses.
It was referring to a deal signed in the summer of 2020 with Total South Africa, a subsidiary of the French major TotalEnergies, on joint marketing and distribution of LNG.
Under that deal, Renergen agreed to deliver some of the LNG from the first phase of its plant to Total-branded filling stations along the N3 road, a major highway connecting Durban and Johannesburg, for sale as a long-haul trucking fuel.
It also pledged to make more LNG available for distribution and sale via Total stations along other key highways once the second phase of its plant came online, saying that expanding the use of LNG in the road freight sector would help curb the rise in carbon emissions.
But Renergen has not confined its efforts to transport. It has also targeted industrial customers, and in August 2021 it signed a five-year supply agreement with Ardagh Glass Packing (previously known as Consol Glass), a supplier of glass packaging materials based in Johannesburg.
Then in February 2022, it followed that with another five-year deal — this time, with Ceramic Industries Group, based in Vereeniging.
Both Ardagh and Ceramic Industries are subsidiaries of Italtile, based in Cape Town; Ardagh has said it intends to use the LNG to replace liquid petroleum gas (LPG) at its Belville operation in the Western Cape area, while Ceramic Industries will use LNG to supplement the gas supplies it receives via pipeline.
Renergen made its very first shipment of LNG to Ardagh's Belville site in December 2022 after setting up turn-key delivery facilities per the terms of its contract.
At that time, the company said it had received expressions of interest in its LNG from multiple South African businesses, including independent power producers (IPPs), large-scale industrial manufacturers, and heavy logistics operators.
It did not name any potential new clients, and since then, its efforts to drum up new business may have been overshadowed by the escalating energy crisis.
Nevertheless, Renergen's efforts to establish a foothold in the industrial and transport sectors are important. They demonstrate that there is ample room for natural gas in South Africa – that there are opportunities for gasification in the country that are not confined to the power-generating sector.
Yes, South Africa urgently needs gas to help resolve its energy emergency. Gas will help South Africa find ways to produce the additional electricity it needs to provide all of its citizens with reliable and secure power — both in the longer run as new offshore fields come online and in the shorter term as companies such as Kinetiko and Renergen develop onshore resources.
But South Africa could also use gas for other purposes. It could use gas as a substitute for diesel in long-haul trucking — and thereby reduce emissions in the transport sector.
It could introduce LNG as a fuel for industrial customers — and thereby reduce emissions in that part of the economy, while also reducing the drain on the national transmission grid.
It could create markets that can be sustained and made profitable even beyond the time when (I hope) the current crisis will be nothing but a memory.
So let's give South Africa's smaller-scale gas producers a chance to grow.