SA is facing a critical juncture in its energy landscape, with a looming gas shortage, dubbed the “gas cliff”, threatening to disrupt industrial activity and economic growth.
The country’s gas crisis is not due to a lack of solutions. Rather, it is a challenge of co-ordination, infrastructure and political will. Various options are available, including importing liquid natural gas (LNG) through ports such as Richards Bay and Maputo, tapping regional reserves in northern Mozambique, developing local discoveries such as Brulpadda and Luiperd, and expanding gas-to-power plants.
However, each path comes with significant risks, including high costs, infrastructure bottlenecks and security concerns. And time is running out.
Business Day caught up with Jaco Human, CEO of the Industrial Gas Users Association of Southern Africa (Igua-SA), whose members span from steel and glass to automotive and fast-moving consumer goods — industries that rely heavily on gas, contribute more than R600bn to the economy annually and employ more than 70,000 people.
Tell us about Igua-SA.
Igua-SA has its roots in 2010/2011 when large industrial users began exploring regulatory issues around gas pricing.
We formalised Igua about seven years ago, bringing together major industrial gas users across sectors like steel, ceramics, glass, and mining. Our mandate focuses on gas energy security, pricing, and policy-related matters, representing the core manufacturing sector.
What led to the gas cliff and how is the shortage affecting your members’ expansion and growth plans?
It is essentially the result of policy failure at a very high level.
Companies are eager to expand, but the lack of gas energy security has put all plans on hold. The overall energy situation in SA is becoming untenable, with ever-increasing electricity costs adding strategic constraints on businesses. As a result, companies are exploring alternatives in neighbouring countries with better energy security.
The situation is urgent. If we run out of gas, we’ll face closures, which is why we call it the gas cliff. Unlike the gradual effect of load-shedding, a gas shortage would cause a large part of the manufacturing sector to shut down suddenly.
This would have a severe direct and indirect effect, not only on the manufacturers but also associated businesses that rely on them. The gas cliff would be felt mostly in KwaZulu-Natal, Gauteng, and Mpumalanga, and by businesses spanning sectors including chemicals, steel, glass, food and beverages.
It will affect our regional competitiveness and balance of payments. Ultimately, it will be SA consumers who suffer through higher prices and reduced employment opportunities, unless the government and industry can work together on an appropriate solution.
Speaking of solutions, what options do you believe are viable?
They are threefold. First, SA industry needs to transition from a fragmented market to a consolidated one that is efficiently structured. To accomplish this, industry has created a company, GasHub, a nonprofit aggregator that consolidates gas volumes, enabling transactions between the supply side and infrastructure development.
The second is on the transactional side and it depends on collaboration with the government on risk-sharing. The private sector can’t do it alone; government collaboration is essential for the projects necessary to secure a long-term supply of gas to come to fruition.
The third is the technical aspect: where to build these projects? This will depend on discussions with stakeholders, but we believe that the Matola terminal in Mozambique is the logical entry point.
Sasol has announced a short-term solution involving redirecting methane-rich gas (coal-to-gas), produced at its Secunda operations, to maintain gas supplies from mid-2028 to mid-2030. What bearing will this have on the gas cliff?
Sasol’s announcement buys us time, and technically it extends the deadline by about six to nine months, which gives us time to conclude alternative LNG contracts. But it doesn’t solve the underlying problem.
The solution also comes with significant cost implications, as Sasol will need to forgo liquid fuel and chemical production to supply gas. This is costly on their part as they need to protect their margins. Switching LNG for methane-rich gas will also have decarbonisation implications.
Sasol hasn’t confirmed that this solution is final and there’s still a lot of work to be done at a commercial and technical level. GasHub will collaborate closely with Sasol and other potential suppliers to secure energy supply for the hub’s shareholders, protect SA’s economic stability and retain critical jobs.
What mechanisms or incentives are needed to attract capital into gas infrastructure and exploration?
We need collaboration with the national government to look at risk-sharing in these projects. The main conversation in the coming months will be around how to package these projects in the national interest.
We also need clarity on the demand side, particularly in terms of power generation. The gas independent power producers procurement programme and integrated resource plan decisions are still pending. We need certainty on gas-to-power demand from Eskom to package these projects as part of the broader transactional solution.
Beyond immediate solutions to the gas cliff, what are the key challenges SA faces in developing its gas economy, and what needs to be addressed to unlock its full potential?
SA needs a comprehensive gas energy policy and a clear gas master plan. We advocate for exploring sources of domestic gas, particularly on the West Coast, and developing midstream infrastructure to bring gas to industrial hubs. There are significant opportunities in this regard.
Developments in neighbouring Namibia show how SA could unlock them, but this depends on establishing clear policies around midstream infrastructure. We have access to significant potential gas supplies and we have proven industrial, manufacturing and commercial demand.
It is the midstream components of a gas value chain that we lack. This area invests and assumes the risks in developing infrastructure, which is key to unlocking the gas economy.
What are the main policy challenges hindering the development of SA’s gas infrastructure?
We need a more effective policy framework that balances environmental concerns with economic development. SA’s gas sector faces significant delays in project development due to environmental objections.
We need a policy shift that allows for responsible decision-making and clear ministerial directions to facilitate gas-related projects.
Presently, overlapping responsibilities among the ministries of environment, energy, and related portfolios can create bottlenecks and uncertainty.
What message would you send to policymakers who may underestimate the urgency of this crisis?
The urgency has been communicated. What’s needed now is active collaboration.
If the present trajectory doesn’t change, what is your outlook for SA’s manufacturing sector?
Failure to address the gas cliff would have dire consequences for SA’s economy, employment and industrial capacity. The manufacturing sector can operate until about June 2028, possibly June 2030.
Beyond that, in the absence of bankable solutions, it would shut down. In most cases, there are no economically feasible fuel-source substitutes in the industries we represent.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.