The International Institute for Sustainable Development has warned in a new research report that developing from scratch just 3,000 MW of gas-to-power capacity in South Africa by 2030 would cost at least R47 billion – money that could ultimately be wasted as gas is squeezed out of the global market by cheaper, low-carbon alternatives.
The government seemed to be betting on finding major oil and gas deposits in the sea off South Africa or in the arid Karoo – or importing more gas from new discoveries in Mozambique.
But the Canada-based research institute says there is no guarantee that a sufficiently large or reliable domestic gas supply will be found, while establishing a new gas reticulation network would require outlays. in significant capital.
The institute’s report follows a similar review by local scientists last week, who called the government’s enthusiasm for the gas “myopic, nationalistic, environmentally irresponsible and morally indefensible”.
In the new ‘Gas Pressure’ report released on March 31, researchers Richard Halsey, Richard Bridle and Anna Geddes suggest that disruptive changes in renewable energy technology and energy storage are challenging the idea that gas is still needed for a “low carbon” system. energetic transition.
“Given these recent changes, an objective reassessment of the suitability of using natural gas for power generation in South Africa is now required.”
Apart from the impacts of the climate crisis induced by fossil fuels such as natural gas, there were other strategic and economic reasons to re-evaluate the gas dream championed by Energy Minister Gwede Mantashe and lobbyists from the fossil industry, including the risk of technology lock-in and stranded assets. .
“If gas assets are built and then locked in, they can continue to operate even when cheaper and superior alternatives are available because capital is already flowing.
“This type of lockdown can lead to pressure from workers, investors and businesses on the government to introduce subsidies to protect incumbent industry. These subsidies divert funds from other projects with better socio-economic measures and sustain an industry even when it is not economically viable.
Without a domestic gas supply, South Africa would become increasingly dependent on imports.
The Pande and Temane gas fields in Mozambique were running out and attention was now focused on the Rovuma Basin in northern Mozambique as an alternative.
“But even if Rovuma is further developed and the minimum pipeline length (1,460 km) is built, there is still a risk of supply cuts due to the insurgency. This possibility was demonstrated in April 2021 when Total was forced to close its gas operations, withdraw personnel and declare a case of force majeure at its Afungi site in the Rovuma basin area.
Relying on a single pipeline vulnerable to damage or sabotage was a significant risk.
The Gas Pressure report also highlights the high risk of price volatility associated with gas imports.
Liquefied natural gas (LNG) imports by sea to Richards Bay, Coega or Saldanha had lower investment needs and shorter lead times compared to the development of domestic offshore gas or regional pipeline gas imports. However, LNG imports to South Africa would be vulnerable to unpredictable fluctuations in exchange rates and global LNG prices, so there was no certainty as to whether the imported gas was affordable.
“To illustrate the possible extent of price volatility risk, in October 2021 Asian LNG spot prices reached over $56 per million British thermal units, an increase of almost 900% in eight months since February 2021.”
The impact of these gas prices could push the controversial tariff for Karpowership projects to around R6 ($0.41) per kWh, more than 10 times that of renewables – but transparency on tariff structures would be needed to properly understand gas price sensitivity.
The spike in energy prices caused by Russia’s recent invasion of Ukraine provided another important lesson about the risks of relying on imported gas.
The institute’s report suggests that wind and solar farms in South Africa are now 57% cheaper than gas-fired combined cycle plants for bulk electricity supply, while three-hour battery storage was 30% cheaper than simple cycle gas plants to cover peak electricity demand (when calculated on levelized cost of energy analysis metric).
Based on the system analysis, a major investment in converting gas to electricity would be “a costly mistake”, said Cape Town-based lead author Richard Halsey.
“We are convinced that a moratorium should be imposed on the development of the gas-to-electric sector, and that further research should be carried out to better understand how advances in alternatives to gas will affect the optimal energy mix.”
This least-risk strategy would also allow enough time for new technologies, including green hydrogen, to mature enough to play a role in the electricity sector after 2035.
They note that Eskom is in the midst of a financial crisis, with massive debt and no clear solution to this problem, which makes the electricity utility particularly vulnerable to any project that might add unnecessary financial risk.
“There remains some uncertainty as to what the future will bring, which is why a decision on future balancing needs should be postponed. South Africa should focus on low-risk and future-proof strategies to put end to load shedding and curb increases in electricity prices.
“The short-term objective must therefore be centered on a rapid addition of renewable capacity at lower cost coupled with storage, and on increasing energy efficiency. The energy sector is in a disruptive phase due to rapid advances in technologies that compete with gas functions. Given that gas is both high risk and not needed in the electricity sector before at least 2035, a decision on a future need for gas should be reconsidered around 2030 depending on the technologies and costs available at that time. that time. DM/OBP
the International Institute for Sustainable Development describes itself as an “independent think tank working to accelerate solutions for a stable climate, sustainable resource management and equitable economies”. It has over 120 employees in Canada and Switzerland, and over 150 associates and consultants in other parts of the world. The institute’s 15-member board is chaired by Michelle Edkins, managing director of the BlackRock investment management group.