The national oil company, PetroSA, is confident that it will be able to negotiate an affordable price for the liquefied natural gas (LNG) it intends to import from 2018.
If PetroSA is able to clinch a good deal when it places the import tender in August or September, as envisaged, South Africa will be one of the few countries that is able to source affordable LNG, because prices in markets outside the US have been pushed up by increasing demand for natural gas.
Last week PetroSA announced its plans to build an LNG terminal for its Mossel Bay plant, which could cost up to $510 million (R5 billion). The company said it would make its final investment decision in the last quarter of 2014.
Although PetroSA’s LNG importation project, which the company has been evaluating since 2008, would be the first in Africa, LNG is a commodity that is traded around the world. Its prices reflect the imbalance of undersupply and large demand.
“The prices are high but we believe that by 2018 the prices will have changed, because there are many big projects coming on stream,” Carlo Matthysen, PetroSA’s manager of the LNG project, said.
At present, prices of LNG imported by countries in the Far East are very high, with Japan paying the most for LNG because of high demand from its industrial sectors. The US has the cheapest prices after its recent shale gas discoveries.
“When we put out a tender, we can build a case why we should get good prices,” Matthysen said. “Our central location puts us at an advantage because the transportation costs involved will not be too high. I don’t think we’ll get the US prices but I also don’t expect Japan prices.”
PetroSA began exploring the options for importing LNG because the feedstock for its gas-to-liquids (GTL) refinery in Mossel Bay has been depleted and is enough to sustain the plant only to 2020.
The company designed the project to import LNGsix years ago and has estimated that through the initial import tender it could sustain the life of the refinery until 2025. It hoped shale gas supplies would have come through by then.
The Mossel Bay plant is operating at 50 percent of its capacity, producing 45 000 barrels a day, because its offshore gas resources are dwindling.
The company would build an LNG terminal so that ships bringing in the gas would be able to dock. The gas would be pumped to the GTL plant.
LNG is sourced by tapping into gas fields, while liquefied petroleum gas (LPG) is a by-product of oil refining.
South Africa had the highest LPG price among the 18 countries featured in a recent survey by independent consulting group NUS Consulting, so the price at which PetroSA sources and supplies LNG is a critical issue.
But Matthysen said the price PetroSA charged would be regulated. LPG and LNG prices could not be compared because the two commodities were very different.
“LNG is not cheap but it offers a lot more benefits. It’s cleaner and more efficient than diesel,” Matthysen said. Carbon tax would not be charged, so “the price really becomes affordable in the long run”.
When PetroSA evaluated LNG import opportunities between 2008 and 2010, it was looking to import gas only to sustain its Mossel Bay operations. The GTL plant is the second largest of its kind.
But now the importation of LNG is bigger than PetroSA; it has become of national interest. The Department of Energy’s natural resource strategy has outlined LNG as a key resource in diversifying the country’s energy mix. The National Development Plan also lists LNG as a strategic project for the country.
“We see LNG as an enabler of shale gas in the country. If you look around the world, there are two main components that need to be in place for shale gas: the gas market and gas infrastructure,” Matthysen said.
PetroSA said its LNG importation project, called Ikhwezi, would create a platform to build these two components ahead of finalising South Africa’s shale gas policy.