LNG IMPORTS – FUEL FOR THE FUTURE?

By Nicola Nel Friday, May 06, 2016
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Last December,  and again earlier this month, international shipping publication TradeWinds reported that the South African Government planned to secure three liquefied natural gas (LNG) floating storage and regasification units (FSRUs) in order to help ease South Africa’s energy difficulties. An FSRU is a vital component of being able to import LNG without a land based terminal. This is a special type of ship which is used to receive and transfer LNG. In order to become viable, the LNG must be “regasified” on board the FSRU and then piped on shore where it can be stored or diverted where necessary.

South Africa is no stranger to the global quest for clean energy, especially in light of electricity woes which have been ongoing since 2008. Eight years on and the country still relies on coal for 96% of its electricity needs. With the clock ticking, it comes as no surprise that renewed efforts are being made by Government to create and implement energy procurement plans that will yield tangible results in weaning the country off its dependency on coal. While the country’s nuclear ambitions remain mired in controversy, it seems that the Department of Energy is setting its sights on developing and nurturing a gas-based economy through its Independent Power Producer “Gas to Power” procurement programme.

Natural gas is fast becoming a major global source of energy, currently accounting for roughly 22% of the world’s energy consumption. Although also a fossil fuel, natural gas is cleaner than coal when burned, releasing roughly half the equivalent carbon emissions. Natural gas is transported by sea on board specialist vessels in liquid form (LNG) to capitalise on space. This involves cooling the gas to minus 162 degrees centigrade after which  it is stored in cryogenic tanks for transport.

South Africa’s interest in natural gas is not new:  Large deposits of shale gas (a non-conventional form of natural gas) have been discovered in the Karoo basin and it is anticipated that there may also be healthy reserves in various offshore sites. One of Operation Phakisa’s “oceans economy” ambitions is to increase SA’s offshore oil and gas exploration and related infrastructure, where Saldanha Bay has been earmarked as a possible oil and gas hub. PetroSA has in the past been interested in establishing a natural gas regasification plant and import terminal at Mossel Bay – however, poor ocean conditions proved too much of a hurdle for that project. In its position paper on natural gas dated 3 February 2015, the Ethekwini Municipality has also recognised that “gas should be incorporated into an integrated energy plan taking into account the flexibility of gas as a baseload or peak power supply, as well as other utilisation options.”

The intention is ultimately for South Africa to evolve into a producer catering to its own natural gas needs, but putting the necessary infrastructure in place will be both time and capital intensive. A more immediate (and flexible) solution is the importation of LNG by sea, which could see results in less than two years.

The current aim is to procure three specialised FSRU vessels to be utilised off the ports of Richards Bay, Coega and Saldanha Bay.  The understanding is that Government will push the private sector to take the lead in procuring the FSRUs, which can cost upward of USD 250 million each. On the other hand, it is believed that a land-based terminal of comparable size would cost in the vicinity of USD 700 million.

In the context of shipping and ports, it will certainly be interesting to see what “road map” is adopted by the DoE following its report regarding the responses to the Independent Power Producer office’s Request for Information. If the FRSU option does in fact become a reality, the present regulatory regime may well need to be revised in order to cater for the unique relationship which will exist between the relevant private consortium owning or operating the FSRU vessel, the applicable port, safety and environmental departments, and of course the end purchaser of the natural gas (Eskom). The consortium investing in the FRSU would likewise need to investigate whether it would be appropriate to purchase these ships outright and register them here in South Africa, or rather to enter into a charter arrangement where the vessel is supplied together with all necessary equipment and a working crew.

This article first appeared in the Shipping column in the Sunday Tribune Business Section.