AMABHUNGANE
Gwede Mantashe’s vision for South Africa’s energy future is powered by gas
Shell’s seismic survey may have been halted, but Energy Minister Gwede Mantashe is pursuing an ambitious vision to reshape our energy future, powered by gas.
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 comment.
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:
- Convert six of Eskom’s older coal power plants to run on gas,
- Convert trucks and taxis to run off gas instead of diesel,
- Build thousands of kilometres of new gas pipelines.
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 experts, it is likely that gas extracted from beneath our oceans would be liquified, put on to ships and sold into the international market where we would have to buy it back, but priced in dollars.
When 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 report and contact details can be accessed on the DMRE’s website.
The consultants behind the report
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 Master Plan, 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 were clear on how the basecase report and the eventual Gas Master Plan will mesh with other government policy instruments.
The preliminary basecase 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 government is looking at. The second intent was to outline where the process is — government wants to compile a roadmap, but this is a very preliminary report. The third intent was to obtain comment 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 modelling 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 basecase 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 Master Plan 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 comes from the Karpowership bids which came in at between two and four times more expensive than the latest round of renewable energy projects.
SIDEBAR: 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 basecase report ignore the environmental consequences of gas, it 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 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 basecase 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.
When asked if the basecase 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 basecase report, but there is a question mark about how meaningful this consultation was.
When pushed for details, Eskom would only say: “[C]omments on the report are due to the DMRE on the 31st 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 departments 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, 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 powerships to operate in the ports of Saldanha, Richards Bay and Coega. It has appealed but Minister Barbara Creecy is yet to rule.
But the basecase 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 basecase 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 basecase report then identifies two potential clients: the RMI4P, which is dominated by Karpowership, and the upcoming gas IPP round, which aims to procure 3,000MW of gas-fired power by 2024.
Echoing Mantashe’s frustration with environmental laws acting as a handbrake on coal and gas development, the basecase report warns that “adherence to environmental regulations … can form a barrier to entry as the requirements are time-consuming and expensive to fully comply”.
When 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 a country’s economic growth.”
To hell with Shell
But so far, things have not gone in favour of gas.
Two weeks after the basecase 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. DM
Become an Insider
This government is underhand on so many matters especially tenders and government positions. So seldom do we just get the honest straight forward story. Instead we get an emotionally loaded distortion of reality. These are men that trade in toxic emotions sticking their fingers in wounds trying to heal. As Men this kind of behaviour is embarrassing and why there is so much violence towards women.
I agree, we’re not able to trust anyone in government any longer
To make major decisions at this level on complex matters such as energy, the private sector will insist on many years experience and the proper technical qualifications. This guy just spits out bs simply because he is an ANC member.
The second last paragraph clarifies the whole argument “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.” This is not about getting the energy mix right. This is not about creating jobs. This is not about cheaper electricity and stimulating the economy. This is about mega-riches for friends, probably with big kick-backs to fill the ANCs depleted coffers. Making it about racism and an international conspiracy shows the ANC using the WMC and racial hatred tools from the EFF toolbox.
How much money goes in GM pockets for his bright plan?
After Zondo’s report and PPE report we can not be less than suspicious
The EFF toolbox and those who carry it are products of the ANC.
Nailed it!!!
Geoff, it is HCI’s involvement that to me raises a large red flag Apart from Mantashe and the ANC’s doing their utmost to destroy SA’s coastline. HCI is of course also the majority shareholder in eTV, the terrestrial TV station. This basically boils down the fact that the largest terrestrial TV stations (all SABC and eTV) are basically in the hands of those wanting to damage the environment of SA. It would have awesome if a major protest could have been organised (like in the Shell case) in front of the offices of eTV.
“South Africa’s economic development is oppressed in the name of the ANC” if Gwede Mantashe is concerned that he believes a foreign-funded campaign was intentionally targeting him, driven by “predominantly white liberal media” and civil society groups. He should be more concerned that Susan Comrie is casting her beady eye over this subject, Watch this space I am sure there is more to come.
No prospecting necessary – the gas emitted by the ANC could power the country quite easily – or is it all hot air?
Gwede Mantàshe can take his gas dreams to Russia,where old style communists might suck on his pipe dream!!!South africans won’t fall for this,just like we opposed Shell, and any other company from abroad that wants to rape our country, while stuffing cash in the back pockets of the kleptocratic so called goverment that we have.Learn to ask sa citizens first,if we are happy something can go ahead,an d we will use the courts and marches to oppose you every inch of the way as regards your pipe dream!!!
One only has to look at Nigeria, Angola, Equatorial Guinea. The corrupt government gets a percentage, the oil company exports the resource, the country buys the resource on the international market. A communist and a natural resource is the worst combination venezuela and oil Russia and gas. There is something about communism that goes hand in hand with corruption then there’s the African steal elections dictator set up.
To HCI – your stinging public letter that critics of seismic blasting are part of a campaign to block the oil and gas industry. Hello, of course they are, because they care about climate change above profit. This is a global movement and it will succeed, because civil society is on the move. HCI, time to change your strategy on where your future profits may come from. Bring your company out of the dark ages.
All the major oil companies have started renewable projects already, because they can see the writing on the wall. The transition will take decades, so oil will be needed in the foreseeable future, this should give companies time to change.
To Mr. Mantashe – using Bell Pottinger techniques in press releases does not work on South Africans anymore. If you had spent this amount of time, money and energy on solar, we could have had instant electricity in every household, school, hospital, clinic by now, without the need for unaffordable infrastructure to be installed. All the manufacture, installation and maintenance would have created many thousands of jobs by now, right in the areas that need them most. Stop doing this to South Africans, you can change, it is never too late.
Excellent post, thank you very much!
Every single process that the Minister and the DMRE punt is incompetently handled, half-baked, and not soundly based in research, and generally they try to sidestep legal requirements, especially relating to consultation and environmental impacts. This is yet another example and it is so patently underpinned by pre-determined agendas and ulterior motives. These agendas are resulting in constantly poor and irrational policy and project choices, which are extremely damaging when what we really need is a very well thought out, throughly researched and consulted, rational and coherent approach to the energy crisis and the energy transition that needs to take place. Instead we get corrupt agendas and shouting and demonising of civil society and complete disregard of energy experts who happen to disagree with his agendas.
I think it is important to understand that natural gas in itself, and when extracted, processed, and treated correctly, is a far better option than coal. However, I agree that the modus operandi of our mumbling friend, the processes followed, and the role players involved reak of suspicion. Gas can be a valuable resource if it is handled with the requisite care and responsibility.
I agree with everything written by Susan. She just left out your paragraph, Heinrich.
A communist can’t change its a religion. No matter what people put before him the response is never innovative.
Even given the comparison that natural gas is somehow better than coal, I think it disregards the financial dimension which is that South Africa does not have a significant natural gas industry of its own. This means that, once again, we would be selling our raw materials only to buy the finished product back at a significant cost (unless we somehow manage to get the USD/ZAR rate back to reasonable levels). Encouraging and supporting the burgeoning South African solar and wind power industries still feels like a win-win solution.
South Africa’s energy future cannot be powered by gas. Gas may be needed but not as primary energy, – not at all if/when batteries become cost-effective. Electricity generation should obviously be primarily from lowest cost, which is solar and wind. Expensive dispatchable gas or batteries is needed to fill in the gaps. Having gas as primary energy source with a twenty year contract, let alone from a ship anchored offshore, makes no sense at all unless it is to provide a source of income for some entity.
If we did have a great gas field and they put its profits in a sovereign wealth fund that captured the “saving” versus our regulated energy prices and export prices we can talk. This scheme will just make Shell and it’s ANC party shareholder rich because downstream Shell would have low cost and high (regulated) selling prices.
This resource belongs to everybody so pay a fair service fee per cubic meter for extraction and retain the trading profits. Look how Norway runs their fossils. Norwegians are the wealthiest in the world because the public owns the sovereign fund of $1.4 TRILLION. It can only spend on infrastructure, can not be spent on government operating budget items.
Agree Johan. But so counter revolutionary, so counter central control.
Just about every country in the world sustains its industrial sector through gas which is far cheaper and far more environmentally “friendly” than our existing coal / heavy fuel reliance. This article is a bit of an oversimplification and while it correctly observes governments flip flopping on issues it completely misses the need for RSA to migrate to a gas economy for future sustainability. An interesting study conducted by the IFC on agro-processing sector is quite informative in this regard with thermal energy costs being significantly higher for producers while electrical energy costs are comparative with international counterparts.
Gas cheap are you kidding have you seen recently
Pointing out the risks should not be the lay public’s responsibility. To make a meaningful public participation process possible, a proper report should outline the risks in detail but simply. And the timing of the release and deadline is questionable. Minister Mantashe, take this report back to its drafters. We need more information on the risks involved, assessed according to current data and information from our top researchers in the energy and environmental fields – and presented in digestible formats by communicators who know how to bridge the gap between experts and laypeople.