Written By: Faith Jemosop
South Africa is experiencing a growing demand for natural gas in its industrial and commercial sectors, a trend driven by the need for reliable electricity generation, industrial use, and the transition to cleaner energy sources.
Despite a robust financial climate for upstream oil and gas projects, the country has yet to make meaningful strides in building the infrastructure necessary to meet this demand. This infrastructure gap threatens to hinder the country’s energy future and its efforts to reduce dependence on coal.
Infrastructure Deficits Hinder Gas Supply Chain
South Africa’s natural gas consumption is projected to rise by approximately 4.0% annually, increasing from 5.9 billion cubic meters (bcm) in 2023 to 7.2 bcm by 2028. This growing demand stems from the need to diversify the country’s energy mix and reduce carbon emissions. Yet, the country’s infrastructure is not prepared to accommodate this surge. There are several critical areas where infrastructure is lacking, preventing supply from effectively meeting the demand.
Limited LNG Import Infrastructure
A key issue South Africa faces is the lack of infrastructure to import liquefied natural gas (LNG), a crucial resource for industrial use and power generation. The country’s reliance on local supply sources such as offshore fields and imports from neighboring countries leaves it vulnerable to supply shortages.
South Africa lacks operational floating storage and regasification units (FSRUs), which are essential for LNG imports. Without the necessary import capacity, South Africa’s industries are left with insufficient access to the gas needed for expansion and reliable service provision.
To address this gap, several projects are in the works, such as the Richards Bay LNG Terminal, set to commence operations in 2027. This terminal, a collaboration between Vopak and Transnet, is a significant step toward improving the country’s LNG import capacity.
With the terminal’s anticipated opening in 2027, it is clear that the timeline for establishing the infrastructure needed to bridge the gap is long, leaving industries dependent on a limited domestic supply for the foreseeable future.
Inadequate Pipeline Network and Storage
South Africa’s existing gas pipeline network is underdeveloped. The pipeline infrastructure is concentrated mainly in certain regions, leaving vast areas of the country without sufficient access to natural gas. This limitation makes it difficult to connect growing industrial centers with the necessary gas supply.
South Africa’s storage capabilities are insufficient to handle fluctuations in gas demand. Adequate storage is essential to manage periods of high consumption and ensure consistent supply during lean periods.
The country’s lack of substantial gas storage facilities contributes to an overall fragile energy system that cannot easily absorb shocks or scale with the increasing demand from various sectors.
Upcoming Infrastructure Projects
In response to these challenges, several infrastructure projects are underway or in the planning stages. However, despite the promising developments, South Africa’s progress in bridging the infrastructure gap is slow.
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Richards Bay LNG Terminal
One of the most significant developments in addressing the gas infrastructure issue is the Richards Bay LNG terminal. Expected to begin operations in 2027, the terminal will have the capacity to import large quantities of LNG.
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This terminal, in collaboration with Transnet and Vopak, represents a critical step in expanding South Africa’s LNG infrastructure. However, even with its expected completion, it is clear that the country’s infrastructure will not be fully prepared to meet growing demand until several years down the line.
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Coega and Saldanha Bay LNG Terminals
South Africa is planning additional LNG terminals at Coega and Saldanha Bay. These proposed projects, however, are still in the early stages of development. Their completion timelines remain uncertain, and the absence of a clear roadmap for their construction raises concerns about their ability to support South Africa’s long-term energy needs.
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LPG Rail Project
South Africa is also exploring alternative methods for distributing liquefied petroleum gas (LPG), with a new deal between Petredec and Transnet aimed at enhancing LPG distribution via rail.
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Set to be operational by 2028, this project is expected to improve the supply chain for LPG, a key component of the country’s energy mix. While it is a step forward, the project is still years away from completion, and it does not address the broader issues related to natural gas supply.
Policy and Regulatory Barriers
South Africa’s energy sector continues to face significant policy and regulatory hurdles that slow down progress. The regulatory environment for the gas sector remains complex and unclear, dissuading both domestic and international investors from committing to large-scale infrastructure projects.
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Gas Master Plan 2024
In 2024, the government released the Draft Gas Master Plan (GMP), which outlines strategies for importing LNG and developing infrastructure. However, the GMP lacks specific implementation timelines and does not provide enough detail on how it will be executed.
The plan does not adequately address the regulatory barriers that make it difficult for energy companies to invest in and develop infrastructure projects. The plan’s uncertain timeline adds to the lack of confidence in the country’s ability to meet its growing energy needs.
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Upstream Petroleum Resources Development Bill
Another significant hurdle is the pending passage of the Upstream Petroleum Resources Development Bill (UPRDB), which is intended to provide regulatory clarity for oil and gas exploration and production. While the bill has been on the table for some time, it has yet to be enacted.
The delay in passing the bill has further compounded the regulatory uncertainty surrounding the energy sector, and it could delay much-needed investments in gas infrastructure.
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Investor Confidence
The lack of regulatory clarity is also reflected in declining investor confidence. One notable example is the recent decision by TotalEnergies to withdraw from key offshore oil and gas projects in South Africa.
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The company cited concerns about regulatory stability and the commercial viability of the projects as factors in its decision to exit the market. This reflects broader concerns among investors about the stability of the policy and regulatory environment, which could delay or derail much-needed infrastructure projects.
