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Stepping On The Gas: Mantashe’s Not Giving Up On His Vision Just Yet

Mineral Resources and Energy Minister Gwede Mantashe has a vision for South Africa’s future – one powered by trillions of cubic feet of gas extracted from our oceans and from beneath the Karoo.

On 14 December, just as South Africans were beginning their annual summer holiday slow-down, the Department of Mineral Resources and Energy (DMRE) published a Gas Master Plan “base-case report” for public comment. South Africans were given until 31 January, this coming Monday, to provide comments.

The 100-page report paints a shiny picture of a gas-powered future reliant on our supposed vast offshore and onshore gas deposits, but is light on detail and barely touches on the risks.

According to the report, we could:

In reality, these ideas come with many risks. One of the most obvious is that gas is traded in dollars and prices fluctuate wildly, driven by demand in China and Europe. South Africa has offshore gas prospects, but according to gas exports, it is likely that gas extracted from beneath our oceans would be liquified, put onto ships and sold into the international market where we would have to buy it back, but priced in dollars.

Asked why the report failed to identify this as a risk, the DMRE said in a written statement: “That is the purpose of this public consultation exercise. To solicit further inputs from the public.”

If so, the decision to release the report over the holiday season was hardly ideal, given that amaBhungane understands it has been in the pipeline for some time.

The Gas Amendment Bill, currently being considered by Parliament, calls on the minister to develop a gas master plan, “an indicative, forward-looking plan for gas supply and demand”.

“The Gas Masterplan, once developed, will serve as a policy instrument, providing a roadmap for taking strategic, political, and institutional decisions, which will guide industry investment planning and coordinated implementation,” the DMRE said in a covering letter attached to the report.

None of the energy experts amaBhungane spoke to was clear on how the base-case report and the eventual Gas Master Plan will mesh with other government policy instruments.

The preliminary base-case report is supposed to “[set] the scene” for the Gas Master Plan by describing the gas landscape how much gas exists and where and a realistic picture of future gas development.

Instead, it reads more like a pitch from the gas industry.

AmaBhungane has established that while the DMRE put the report to the public under its own name it was largely written by consulting firm EPCM Holdings, who were commissioned by iGas the state-owned gas development company to produce the report, starting in 2019.

EPCM’s technical expert Diaan Roode told amaBhungane: “The purpose of the report, the mandate, was to investigate the possibilities and opportunities. The first intent was to notify stakeholders that this is something that the government is looking at. The second intent was to outline where the process is the government wants to compile a roadmap, but this is a very preliminary report. The third intent was to obtain comments from stakeholders. To dive into the risks would be putting the cart before the horse. There is not enough detail yet.”

He added: “This is not gospel, it’s a very preliminary report, a possible roadmap.”

AmaBhungane understands that the EPCM version of the report had included disclaimers about relying on the assumptions it makes, but these do not appear in the version of the report that the DMRE put to the public.

However, a section in the report titled “limitations” was retained: “At the time of finalising this report the Department was yet to procure a suitable modeling tool to model the current gas sector in the country as well as to develop immediate sector expansion scenarios… This work … will be published in due course, together with natural gas demand projections.”

Despite this, the base-case document makes bold claims about the wonders of a gas-fired future.

The report claims that adding gas to the energy mix would “rejuvenate an overburdened, outdated energy infrastructure”, “reduce energy shortfalls” and “stimulate the economy by allowing business and industry to lower their energy and operational spend while also creating significant numbers of new jobs”.

The DMRE, in response to a question about how it concluded that gas would lower electricity prices, said: “The gas masterplan is not intended to do an analysis of electricity prices. There is a lot of publicly available information on South Africa’s electricity prices.”

Although price comparisons are difficult to make, the most recent public estimates of price come from the Karpowership bids which came in at between two and four times more expensive than the latest round of renewable energy projects.

Karpowership bids
Currently, Eskom has no gas-to-power projects. The best guess of price comes from the three Karpowership South Africa bids, made during last year’s Risk Mitigation Independent Power Producer Procurement Programme (RMI4P), which would have delivered electricity at R1.46/kWh, based on 2021 gas prices. This is cheaper than the privately owned diesel-fired Open Cycle Gas Turbines, which cost upwards of R6.87/kWh, according to Eskom’s Multi-Year Price Determination (MYPD) submission, but more expensive than the latest round of renewable energy projects, which came in at between 34c and 62c/kWh (although the MYPD model prices these projects at 79c/kWh). The upcoming gas-to-power IPP round has been budgeted at R2.47/kWh, according to Eskom’s MYPD submission.

Pie in the (methane-rich) sky

What is largely missing from the report is any kind of sober assessment of the potential risks:

  • Natural gas is comprised almost entirely of methane, a potent greenhouse gas that is far more damaging to the climate than carbon. On the few occasions the report touches on climate change, it focuses on decarbonisation and how the switch from coal power to gas power will help South Africa to fulfil its commitments to reduce its carbon footprint. Gas is treated as a cleaner fossil fuel than coal because it does not come with air-polluting emissions, like particulate matter and sulphur dioxide, and because burning gas emits about half the carbon of burning coal. However, research has shown that if one takes the entire gas lifecycle into consideration – extracting, condensing, shipping, etc. – gas is only modestly better for the climate than coal.
  • Not only does the base-case report ignore the environmental consequences of gas, but it also ignores the fiscal ones too. Methane is recognised as a greenhouse gas and classified as a carbon equivalent, meaning that it is subject to carbon tax initiatives being introduced from next year. Products produced with gas-fired power may also face higher tariffs when exported in future.
  • The report does not grapple with the increasing volatility of gas prices and how this will impact the price of electricity. Instead, the report cites a Standard Bank presentation from 2019 that suggests South Africa could take the risk of buying gas at spot price from Mozambique, Nigeria or Angola. Since that report was written, however, the price of Liquid Natural Gas (LNG) has experienced wild fluctuations. The presence of persistent shockwaves in gas prices should give the government pause: as our rail network deteriorates and more goods are moved by trucks, is it wise for our supply chain to become more reliant on such a volatile fuel source?
  • Another potential blind spot in the base-case report is that it implies that having gas offshore equates to having a consistent supply of cheap domestic gas. As Australia has discovered, this is not the case: although vast amounts of gas are extracted from Australia’s offshore gas fields, most of it is exported to fulfil long-term supply contracts, meaning that despite the cost of shipping, Australian gas is often cheaper in Japan than at home. To counter this, the government has introduced regulations to throttle exports if there is not enough gas for the domestic market. This has guaranteed supply, but it has not protected Australians from rising gas prices.

Asked if the base-case report was simply meant to be aspirational, rather than a considered assessment of the peaks and pitfalls of exploiting our gas, the department said it was relying on the public consultation process to raise questions about these risks.

Liz McDaid, strategic lead of sustainable development lobby group Green Connection, criticised this approach.

She told amaBhungane, “From our perspective, that’s what every plan should do, it should highlight the challenges … the climate crisis, the reliance on methane, the dollar-rand exchange rate, the risks of stranded assets these are things that are obvious. The public participation might reveal other, not obvious risks that the public might have picked up… But the DMRE should do its homework in the first place, and identify the obvious risks.”

Keeping Eskom in the dark?

It is unclear how much influence the eventual Gas Master Plan will have in determining a new energy trajectory for Eskom and the country. Asked if the plan would be prescriptive, the DMRE said: “[The] Gas Master Plan will guide government’s decision making, including government entities.”

The DMRE told us that both Eskom and the National Treasury had been consulted about the preliminary base-case report, but there is a question mark about how meaningful this consultation was.

Pushed for details, Eskom would only say: “[C]omments on the report are due to the DMRE on 31 January. We are currently working on comments that will be submitted to the DMRE by that timeline.”

Treasury did not respond to our request for comment, but the DMRE told us that there would be “further internal government department’s consultation” with Treasury once a modelling exercise had been undertaken.

A question of timing

The question is, why release the report for public comment if, by the DMRE’s own admission, it has yet to model either the current gas sector in the country or its potential expansion scenarios?

And why release it quietly, just before Christmas?

One possibility is that the release of the report is less about long-term planning and more about influencing decisions that will be made this year.

Mantashe has been vocal about what he sees as “unrelenting attacks on the oil and gas development in South Africa”.

After an initial interdict failed to stop Shell from conducting a seismic survey to look for gas off the Wild Coast, the minister called a press conference where he took vitriolic aim at environmental groups that oppose gas.

“South Africa’s economic development is oppressed in the name of environmental protection,” he said, reading out a prepared statement. “I cannot help but ask myself, are these objections meant to ensure the status quo remains in Africa, in general, and South Africa, in particular? That is, the status quo with regards to energy poverty, high unemployment, the high debt-to-GDP ratio at country level, and economies that are not growing and, in some cases, jobless economic growth.”

He added: “We consider the objections to these developments as apartheid and colonialism of a special type, masqueraded as a great interest for environmental protection.”

Mantashe has been particularly frustrated by the delay in the Risk Mitigation Independent Power Producer Procurement Programme (RMI4P), which has been stalled by corruption allegations and environmental concerns.

In June, Karpowership was denied environmental permits for its three gas-fired power ships to operate in the ports of Saldanha, Richards Bay and Coega. It has appealed but minister Barbara Creecy is yet to rule.

But the base-case report contains a possible clue as to why Mantashe has given such vocal support to the Karpowership project.

The report notes, “A challenge in developing the gas sector is to bring gas demand and supply on stream at the same time… Without such localised gas demand, it is difficult to develop distributed gas supply and without such distributed gas supply it is difficult to develop localised gas demand,” the base-case report notes. “One way of breaking this impasse is to create significant ‘anchor’ gas demand through the development of a gas-to-power programme.”

The base case report then identifies two potential clients: the RMI4P, which is dominated by Karpowership, and the upcoming gas IPP round, which aims to procure 3 000 MW of gas-fired power by 2024.

Echoing Mantashe’s frustration with environmental laws acting as a handbrake on coal and gas development, the base-case report warns that “adherence to environmental regulations … can form a barrier to entry as the requirements are time-consuming and expensive to fully comply”.

Asked if the DMRE was proposing that environmental laws be relaxed for the gas industry, the DMRE suggested an extraordinarily low bar: “Compliance with environmental laws and processes should not be at the expense of country’s economic growth.”

To hell with Shell

But so far, things have not gone in favour of gas.

Two weeks after the base-case report was released, a coalition of environmental groups and rural communities successfully interdicted Shell on the same project. Although the interdict was temporary, Shell has shelved the five-month seismic survey for now, and on 4 January just before midnight, the 126-metre seismic survey vessel Amazon Warrior left for the Canary Islands.

Similarly, French exploration company CGG says it will also likely delay a multi-client seismic survey for gas that was scheduled to begin this month. CGG was intending to use Amazon Warrior’s sister ship to conduct the survey, but currently, the Amazon Conqueror is still off the coast of Angola.

Searcher Geodata, a UK company that decided to proceed with a planned seismic survey for gas off the West Coast, is now facing an urgent interdict application as well.

Meanwhile, the gas industry is pushing back. Politically connected empowerment company Hosken Consolidated Investments (HCI), which has an interest in the Eastern Cape offshore exploration rights alongside Shell, this week issued a stinging public letter claiming critics of seismic blasting are part of an international campaign to block oil and gas exploration.

Mantashe recently told City Press that he believes a foreign-funded campaign was intentionally targeting him, driven by “predominantly white liberal media” and civil society groups.

The battle for gas is far from over.

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