Sasol gas pipeline in Mozambique.Photo by Sasol

Johannesburg - Sasol will, from tomorrow, be subject to price regulation for its piped gas.

Its agreement with the governments of Mozambique and South Africa concerning the Mozambican gas pipeline expires today.

This will force the petroleum firm into a pricing regime prescribed in the Gas Act.

Sasol, which dominates the piped gas market in South Africa, has been exempted from regulated pricing for the past 10 years as the provisions of the agreement have prevailed over the Gas Act since 2004.

It is not possible to say categorically who will pay more under the change in Sasol’s pricing regime.

Nomfundo Maseti, the National Energy Regulator of SA (Nersa) member responsible for piped gas, said: “It’s not that easy to quantify who is at risk of [a] price increase.”

Sasol has been using a market value pricing (MVP) approach.

This approach looked at “what energy source you were using. If you were using coal, your MVP was lower than that of customers using liquefied petroleum gas… [who] were paying up to R250 a gigajoule,” Maseti said.

Nersa had received numerous complaints over Sasol’s use of MVP, which based the price of gas on the type of energy industrial users were using before they switched to piped gas. For instance, someone converting a coal-fired boiler paid substantially less when converting it to a gas-fired one than someone converting from diesel.

“While it is highly likely that customers who were previously using coal are the ones that will experience increases, not all of them [will face hikes],” Maseti said.

To do away with the MVP approach, Nersa had to find the value of piped gas by comparing it with the cost of other fuel sources.

In March last year, the regulator approved a maximum price of R117.69 a gigajoule for Sasol Gas. But Nersa encouraged gas customers to negotiate prices below the ceiling.

Sasol said it realised that those customers that had enjoyed lower prices in the past would experience some short-term financial impact.

By yesterday, Sasol Gas had concluded 93 percent of its contracts, or 320 contracts, based on the new pricing methodology with its customers. Fifteen of its customers had elected not to conclude a new gas sales agreement yet.

“A quarter of the high-volume customers will see their prices decreasing, while the rest of those customers who have enjoyed a particularly low price will experience prices increases,” Sasol said in response to queries.

The expiration of the Mozambique gas pipeline agreement means that other privileges fall away, such as the licence limiting access to Sasol’s pipelines for other market players.

“Anyone can use the pipelines if there is spare capacity if they have gas, whether new entrants or existing gas importers,” Maseti maintained.

Other users could contract with Sasol on a commercial basis, paying a fee for using its infrastructure.

According to Coenraad Bezuidenhout, the executive director of the Manufacturing Circle, about 50 percent more gas could be put through the Mozambican pipeline once a few compression machines were added to it.

Bezuidenhout said that as more gas was expected to come from gas fields in the north of Mozambique in the medium term, opening access to companies that did not have a share in Mozambique’s existing gas resources would result in new piped-gas players emerging. This would increase competition, as Nersa intended.

On the pricing change, the Manufacturing Circle expected an end to “discrimination” towards big industrial users.

“While the majority of users are paying cheaper prices for Sasol gas, bigger guys are penalised. They have to subsidise the other users.”

Bezuidenhout said the big users consumed 59 percent of the gas Sasol supplied to the domestic market.

Maseti also indicated that larger customers were expected to receive lower prices with the restructuring.

In industrial areas, where Sasol had not used its right to be the first to lay gas pipelines, other companies would be able to put down infrastructure.

But even though stripped of its privileges, Sasol Gas’s obligation to supply a minimum of 120 million gigajoules of gas to the South African market for 25 years would remain.

Sasol shares added 1.1 percent to end at R575.40 yesterday. - Business Report