Gas users face R11bn hurdle to secure LNG imports and avert a gas cliff

News24

08-05-2025

Gas users are working to avert a supply crunch, but the guarantees required are enormous.
Industry will engage with banks and the state in hopes of finding a solution.
Although Sasol has helped with an interim plan, industry needs to land LNG by 2030.
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A whopping R11 billion in guarantees currently stands between industrial gas users and their ability to import liquefied natural gas (LNG) to sustain their operations in the face of a looming gas supply cliff in South Africa.
Industrial gas users, who support some 65 000 jobs and contribute around 10% to national GDP, have come together to form GasHub, a nonprofit aggregator. GasHub aims to consolidate gas volumes to unlock LNG supply and secure the associated infrastructure development.
But the industry has found that the sum total of guarantees that need to be put on the table is simply enormous.
'In the next three months, that's going to be the absolute key conversation between us, the state and banks. How do we structure this guarantee?' Jaco Human, CEO of the Industrial Gas Users Association of Southern Africa (IGUA-SA) told News24 on the sidelines of the Natural Gas Symposium, which was hosted by Wits Business School on Wednesday.
'The reality is industry cannot bring it alone. It's too much, it's $600 million (about R10.9 billion) in guarantees … We need to find this solution because this is the only thing that's missing right now to enable a transaction.'
The urgent effort to secure LNG comes as the existing gas supply from Sasol's Pande and Temane gas fields in southern Mozambique is running dry.
The synfuels and chemicals giant originally warned customers that their supply would be cut off from 2026. It subsequently has been able to extend that deadline to 2028.
In the absence of domestic gas finds moving toward production, LNG is acknowledged as the only viable medium-term solution for industrial users.
Sasol has, however, now come forward with an interim solution for industry in the form of methane-rich gas which it derives from coal and uses to produce synthetic fuels and chemicals. Sasol is willing to divert some of it to industrial customers from 2028 to 2030, although this will come at a higher cost to compensate for the impact on its operations.
While the methane-rich gas option has brought with it some welcome respite, Human said it realistically only buys the industry an extra nine months to get the LNG solution in place.
'We are already behind in terms of schedule, so it's a compressed timeline that we now face,' Human said. So now, 'instead of concluding LNG contracts by the end of this year with international oil companies, terminal developers and pipeline companies, we now have a bit of breathing space to conclude it in the second half of next year.'
While there are two proposed LNG import terminals in the works – one at the Matola Terminal in Mozambique and one in Richards Bay – final investment decisions have not yet been made.
For now, Matola has emerged as the most practical solution for industry in the near term.
But volumes are an issue.
Traditionally, Sasol has been the major anchor customer, consuming two-thirds of the gas piped from Mozambique into South Africa. But without such a big user in the mix, the industrial gas users are at a disadvantage.
'If you don't have a lot of volume, two things happen to you. The risk profile in the project for the investors and the lenders increases, and the tariff goes up because you've got lower throughput. That's the struggle we're having at this point,' Human said. 'Right now, the industrial volume is not sufficient to bank this project.'
Gas-to-power is often considered an essential anchor customer for the economic importation of LNG, especially in emerging or developing markets. Such projects typically have long-term power purchase agreements and consistent demand for fuel for as long as 10 to 20 years.
Eskom has plans to be such an anchor customer.
Eskom's GM for gas and oil, Aubrey Mzobe, said the utility was serious about executing gas-to-power projects 'with speed and without cutting corners'.
The list of Eskom gas-to-power projects in the short to medium term amounts to between 5GW and 6GW, with a cumulative cost of more than R100 billion.
He said Eskom would apply the 'tough lessons' learnt from the new-build programme, which included the long-delayed and expensive Medupi and Kusile power stations.
While building gas-to-power plants is new to Eskom, Mzobe said the utility would work with industry experts. Eskom does, however, have expertise in operating and maintaining the open-cycle gas turbines, which are similar to gas-to-power plants, he noted.
The utility is committed to ensuring that the landed price of gas will be 'competitive and affordable', he said.
Beyond LNG, domestic gas is seen as the best solution in the long term.
The economics are notably different when it comes to domestic gas, which is projected to cost between $6 and $7 per gigajoule, whereas delivered LNG costs between $11 and $12.
But Ebbie Haan, a global oil and gas consultant, said South Africa was simply too late on developing its natural gas. The only way to address the gas issue now is to import supply, he said. 'Buy it from someone who has found it and is producing it – and pay the price for being too late,' he said.