SA firms can learn from global energy partners
AS THE government rolled out its programmes to produce power from gas, local companies should draw on the experience and expertise of their global counterparts, the South African Oil and Gas Alliance (Saoga) said earlier this week.
Minister of Energy, Tina Joemat-Pettersson, earlier this year announced plans to procure 600 megawatts of gasfired power in addition to the 3 126MW that will come from independent power producers (IPPs) as part of an IPP procurement programme for converting liquefied natural gas (LNG) to power.
The 600MW project, to be located in one of the country’s major ports, will be developed as a public-private partnership.
The Department of Energy will appoint strategic partners for development, financing, construction, operation and maintenance of the gas plant. According to the department, the project is a catalyst for manufacturing opportunities within the power value chain.
The strategic partner would provide the necessary technical and financial support for the implementation of the gas project, in conjunction with one or more state-owned companies.
The department said the gas for the envisaged project would be sourced through the import infrastructure established through the LNG-to-power IPP procurement programme.
The department invited interested parties to respond to an expression of interest and submissions closed on June 20.
Saoga chief executive Niall Kramer said this week that there was no question international companies would be keen on the project given their experience, scale and capacity.
“However, as South African businesses, it is critical (that) we draw from their experience and start transferring capacity and skills to South African entities from the international partners. We know we do not yet have the capacity, but we must build it, and international partners can help us do this.
“Skills and especially artisan skills development is a particular concern. We need more, we need high quality and we will need them to embrace high levels of health and safety practice,” Kramer said.
He said the LNG-to-power IPP procurement programme provided a catalyst to start a real local gas economy.
‘We know we do not yet have the capacity, but we must build it, and international partners can help us.’
South Africa’s use of gas in the energy mix is about 3 percent against a global average of about 20 percent. “Gas is the big global growth fuel. It is an ideal complement to renewables,” Kramer said.
He said LNG was available globally at low prices and high volumes largely owing to the success of shale gas in the US.
South Africa was well positioned to craft good deals to capitalise on the low prices and high volumes to import LNG.
“Then later, once onshore and offshore exploration takes off, we will know if we have indigenous supply or not. If so, it can feed into a gas economy being set up by LNG,” he said.
Tilden Hellyer, a research analyst for energy and environment at Frost & Sullivan, said this week that given the nascent gas landscape in most parts of South Africa, there were not many local companies that could implement the project without the assistance of their global multinational teams, or outsourcing.
“This was the same with the first couple of rounds of the (renewable energy IPP procurement) programme, where – in the absence of a local market – overseas project developers were guided by local content requirements, which were firmed up in later rounds from a percentage local content point of view,” Hellyer said.
Global guidance
Frost & Sullivan expected the same pattern to emerge, with local engineering, procurement and construction (EPC) companies delivering on the capital structures guided by international project developers when it related to the services sector, he said.
He said South Africa had “a great deal” of activity in the gas industry, with local EPC entities building skills.
He said the IPP Office, a partnership between the Department of Energy, the Treasury and the Development Bank of Southern Africa, was also enhancing its own capacity, while financial and legal institutions were training staff on gas-project-related aspects like project finance and legal contracts.
“The question, therefore, is not whether our skills will be adequate, but rather, given the ambit of the unclear nuclear programme and our sluggish economy, whether there would be a need for these large capital projects to form part of the energy supply mix and not become stranded assets.
“It might be a good idea to consider tabling the notion of seriously reducing the nuclear energy mix portion and increasing the LNG portion,” Hellyer said.