Industry fears new Sasol gas tariff
A NEW pricing structure for natural gas will have a “very inflationary” impact on manufacturers’ power costs and make it harder for them to compete in the export market, industrial gas users warn.
For the past decade, Sasol, the main supplier of gas in South Africa, has been negotiating prices directly with customers.
But from March 26 energy regulator Nersa has set the maximum price Sasol may charge, based on the price of a basket of alternative energy sources, mainly electricity and export coal, priced in dollars.
Stewart Jennings, CEO of PG Group, said the new pricing regime would lead to big cost rises for many users who were already struggling to remain internationally competitive with energy costs coming down in many parts of the world.
A shale-gas boom in the US, for example, had led to significantly reduced prices and a revival of US manufacturing.
“The concern for us is that, like electricity and diesel, the price of gas will now also be regulated, which means customers have no power to negotiate,” Jennings said.
“Gas is our biggest cost, and the new structure will have a very inflationary impact.
“We have seen major increases in electricity and fuel costs, and it is already a challenge to remain internationally competitive,” said Jennings.
Sasol Gas said that it was “confident that its prices are competitive with other forms of energy in South Africa, as well as in relation to international gas prices”.
Its average gas price is about R42 a gigajoule (GJ), substantially below the maximum Nersa-set price of R117 a GJ, it said.
PG Glass uses gas to fuel its smelters.
Jennings said that diesel, its only alternative fuel, was far more expensive, so PG had no choice but to buy gas from Sasol — or close shop.
Sasol is negotiating with its customers, and “has been a much more engaging organisation than it was even a year ago”, said Jennings.
“They’ve come some way towards us — but nowhere near enough.”
Sasol is granting a phase-in period for customers facing a cost increase of 15% or higher.
The group said on Friday that it had signed new contracts with 98%, or 342, of its customers.
It had made arrangements with other customers, and two customers had chosen to switch to other sources of fuel, it said.
PG Glass is one of six large industrial users, including Consol, Nampak and SABMiller, who are taking Sasol and Nersa to court to review Nersa’s price determination.
Alternative pricing models could include cost-based pricing, which Nersa says might deter investment by new entrants to the market, and global index-based pricing, which might not be relevant to South Africa.
Nersa’s pricing methodology differs from that used by Sasol, which set its prices according to the customer’s fuel at the time of conversion.
Nersa said this had led to discriminatory prices.
In the past, customers who switched from coal-generated power would pay significantly less for gas than those who had used diesel or liquefied petroleum gas.
The previous system had been in place since 2004 to encourage Sasol’s investment in developing the Pande and Temane gas fields in the south of Mozambique, and an 865km pipeline to Secunda.
The new regime will continue to allow third parties to apply for access to Sasol’s gas pipelines. No such applications have been received.
Nersa has justified the new methodology by saying it would remove pricing discrimination and create an environment that was attractive to new entrants.