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The demand for natural gas is increasing in the long term as natural gas replaces dirty coal in industrial processes and electricity generation the world over. So, to meet this demand more natural gas reserves need to be explored and are also increasing due to the strategies adopted by exploration companies. The problem arises with natural gas distribution to customers because of its gaseous state, due to which it requires pipelines from well to site of use. Currently the lack of natural gas transportation capacity is a major stumbling block in the development of the market where 94% of natural gas is sold in markets local to its extraction location.
The case of regasification terminals is particularly pertinent in the current market for South Africa. The current low prices for natural gas present SA with a historic opportunity to wean itself from its over-reliance on coal to supply electricity.
Natural gas prices remain largely linked to those of Brent crude oil and, as a result, are at similarly low levels as national economies grind to a halt. Seaborne liquefied natural gas (LNG) prices are currently at multiyear lows of about $4.50 a gigajoule, compared with $16 in 2012. A gas price of $4.70 a gigajoule competes with Eskom’s coal-fired power price on a variable cost basis.
There are at least three potential opportunities for regasification terminals using existing port infrastructure. The first two involve the utility’s open-cycle gas turbines in the Western Cape, which currently run on costly diesel as peaking plants. With a small investment, they can quickly be converted to run on natural gas, which can be brought in by LNG ships (known as floating regasification terminals).
The turbines’ capacity can also be increased by 60%, to provide as much as 3,200MW of low-cost, base-load power. The third opportunity involves repurposing Eskom’s underground coal gasification ability at the Majuba power station in Mpumalanga. The unused plant, built at Majuba in 2007, has the potential to replace coal, producing 1,500MW from natural gas.
Less than 20km of gas pipeline development is needed to connect a third floating regasification terminal in Richards Bay to this power station. Such a terminal could also supply the underserved natural gas market in Gauteng and even Sasol’s Secunda, which is on the hunt for new gas supply.
The opportunity is made more attractive by the fact that floating terminals are available at competitive prices. This would allow SA to lock in cheap natural gas for the next five years from the US market, which has all but collapsed, and create a cheap, reliable supply while SA develops local natural gas fields.
Now SA has the opportunity to make small upgrades to Eskom and Transnet infrastructure that will give more power than its Medupi Coal Fired Power Station, (which is the fifth largest power station eve built, running at full capacity, in just 18 months, at an eighth of the cost.