One of the more established truisms within the African context is that Africa is resource rich but energy poor. When one considers the Southern African Development Community (SADC) context, we see this quite evidently in countries such as Mozambique whose natural gas resources are of world scale potential, yet a country that suffers from poor energy access.

Energy is a foundational driver for economic development and growth; for energy is, quite simply, required to do work.  The greater our capacity to do work, the more possibility exists to create products of value through the work that is done.  Limit our energy availability and our ability to do work is limited.

Further to this, we are currently undergoing a global period of dramatic change in the structure of energy systems themselves through the introduction of renewable energy sources. This has largely been driven by our shared and profound need to decarbonise. Key characteristics of renewable energy includes intermittency and variability, which requires greater flexibility to manage for system stability.  That is, to balance supply and demand, flexible dispatchable power is required for system needs to be met.

It should also be recognised that electricity is not the only form of energy. For heating applications, in particular, electricity is often an ineffective energy source as it is a secondary energy source and therefore a more expensive energy source. Industrial heating applications have generally favoured hydrocarbons, including coal, LPG, and natural gas as it is used directly to heat.

A key question then that must be answered for countries seeking to advance economic growth to reduce poverty and create prosperity is how best to balance the energy trilemma in a way that does not structurally disadvantage them.  How do we solve our unique challenges of reducing energy poverty, increasing energy access for industrialisation, securing energy supply for economic functioning while also contributing to our decarbonisation agenda.

If one considers this from an integrated energy perspective, that is not just from an electricity point of view but also considering our total energy needs, we see that natural gas makes a very compelling case as a transitionary fuel.

Developing a natural gas market however is not as straightforward as a liquid fuels market in that the nature of the gas molecule, with its low energy density and gaseous profile, makes handling more complicated. This requires infrastructure to be developed at scale.

If the scale economics work, natural has a structural cost advantage to alternative fuels on a molecule basis. If one considers the pricing of natural gas to be inclusive of:

  1. a tariff element which is a return on infrastructure development, and
  2. a molecule price, which is a return on the gas production.

We would find that as the unit economics for infrastructure development improve with scale, the molecule price would structurally favour natural gas over alternative fuels at larger scale, while favouring liquids at lower scale.

In this regard volume and price are intrinsically linked and for us to catalyse a local gas market, we need to ensure that we have the necessary scale to make the unit economics work.

Within the SADC region there is one country that has the market size that can unlock infrastructure development regionally. This country, South Africa, is undergoing a well-publicised period of electricity shortages which will shortly be compounded by a period of gas shortages.

South Africa has a history of regional energy integration having traded power on the Southern African Power Pool as well as critically, procuring gas from Mozambique’s Pande and Tamane gas fields through the ROMPCO pipeline.

Domestically, or regionally produced gas has a price advantage over international LNG. Depending on the scale of the gas, the pricing mechanism either can be a cost plus, an LNG netback or fuel alternative. For South Africa, Pande and Tamane gas was significantly cheaper than alternatives which made it an extremely attractive energy source. Ironically, the gas was not used for electricity, rather for chemical and industrial applications.

Pande and Tamane however, as with all good things, must come to an end and this end is beginning very shortly. The gas market in South Africa and Mozambique creates tens of thousands of jobs making its decline a significant threat to South Africa’s already teetering industrial sector.

Further to this, South Africa has limited domestic gas sources which is ready and available to meet the decline anticipated.

For this reason, the case for regional gas integration becomes compelling. The region has an abundance of gas that can provide a cost advantaged source to South Africa, which in itself can facilitate gas, energy and electricity infrastructure projects as a bankable off taker.

That is, regional energy integration can be the win/win/win situation for all countries within this development community.

It should however be noted that market development does not just happen. An enabling environment must be present to facilitate this, and this has been lacking within this context. Our focus has been on national or sovereign objectives, at the expense of collaboration, which could provide a more competitive structure when considering alternatives.

Regional and integrated energy planning, with harmonised regulations and policies, together with regional institutions that can facilitate energy trade (such as SAPP) moves within the broader alignment of the African Continental Free Trade Agreement (AfCFTA) and ensures a common future with commonly aligned interests and goals. Achieving this, would go some way in ensuring energy prosperity for the region while contributing towards our collective decarbonisation efforts. Most important it would enhance our competitiveness as a region by securing our energy future.

Gas Southern Africa Energy Electricity Regional Gas Masterplan
Hasnayn Ebrahim

Feb 2024