Natural gas use in South Africa

1. Natural gas use in South Africa 23 May 2013 FFF council meeting. Johannesburg Sibbele Hietkamp South Africa National Energy Development Institute SANEDI

2. Contents • Natural gas general • International developments • Current and future availability of natural gas in South Africa • Infrastructure requirements • Carbon dioxide emissions using coal or gas as primary energy source • Compatibility of natural gas with renewable energy in electricity production • Research gaps and conclusions

3. Natural Gas general (NG) • NG is composed of mainly methane and may contain other gaseous hydrocarbons, non gas liquids, carbon dioxide, helium, nitrogen, water vapour and hydrogen sulphide. • Conventional NG reserves are present at pressure in rocks with a large permeability and porosity and are capped with impermeable rock layers. Typically conventional NG will rise under its own pressure through a borehole and can be used after separation of the other components. • Non conventional NG is extracted by fracturing less porous rock formations e.g. shale gas and has become commercially attractive particularly in the USA. • Coal Bed Methane (CBM) can be extracted from coal seams and is already exploited in e.g. Australia. • Methane clathrate, a solid composed of water and methane, can form under conditions of low temperature and high pressure in the oceans. Large quantities of methane clathrate have been found in deep and cold water, but currently commercial exploitation of these resources is not viable.

4. Natural Gas general (NG) • Transport of NG is mainly by pipeline, e.g. pipelines are now transporting natural gas from Western Siberia to Western Europe. Significant quantities of NG are also transported by ship in a liquefied form(LNG Liquid Natural gas) at -160 C. Particularly Japan is importing a large amount of LNG. • Uses of natural gas are for heating purposes, industrial processes e.g. the manufacture of ammonia, for power generation and also for transport vehicles. For the latter use, natural gas is pressurised (CNG Compressed Natural Gas) in excess of 20MPa and is mainly used in buses. • The Greenhouse Warming Potential(GWP) of NG is 21 times that of carbon dioxide (100 year time frame) and about 70 over a 10 year time frame. It is therefore important to avoid leakage during extraction, transport, storage and use of NG.

5. World wide natural gas production/consumption 1970- 2011BP statistical review of world energy demand 2012

6. NG proven reserves BP statistical review of world energy demand 2012

7. International developments • Strongly increasing demand in e.g. China, India. • Also more demand in OECD countries mainly due to fuel switching from coal to gas. • Potential increase in NG demand for transport if the crude oil price increases substantially. • Non conventional gas may change overall availability and demand • Russian NG export by pipeline, 207 billion m3 to mainly Western Europe. Other large pipeline exporters are Canada (88 billion m3), Norway (92 billion m3), and Netherlands (52 billion m3) to neighbouring countries. • The largest LNG exporters are Qatar (102 billion m3), Malaysia (33 billion m3), Nigeria (26 billion m3) and Trinidad and Tobago (19 billion m3) and the largest importers are Japan (107 billion m3), Western Europe (91 billion m3) and South Korea (49 billion m3)

8. Natural gas pricesBP statistical review of world energy demand 2012

9. International price developments • A large quantity of shale gas is currently entering the market, causing considerable pressure on NG prices, particularly in the USA. • It is likely that more LNG facilities will be constructed in countries with large reserves of NG and that are not connected by pipeline to major markets. • It is likely that the price gap between pipeline gas and LNG will be narrowing due to the building of more LNG infrastructure. • Overall it is expected that the demand for NG worldwide will increase faster than the demand for oil and coal. (IEA WEO 2010)

10. There are two opposite views on the future price of LNG (1) Source:Mac consulting • Oil majors - the price: • Will continue to be disaggregated; • Will continue in the East to be tied to the oil price; • Will rise above $4 in the US. Disaggregation and high average prices

11. There are two opposite views on the future price of LNG (2) Source Mac consulting • More prevalent view: • Market pressures lead to a decoupling of the gas price from the oil price within the next 5 years, as supply, particularly from unconventional shale sources, continues to rise faster than demand. Convergence and lower average prices

12. South Africa reserves and resources • According to EIA: “In 2009, South Africa produced 67 Bcf,(1.9 billion m3 ) of natural gas and consumed 191 Bcf (5.4 Bcm) the remaining 124Bcf (3.5 Bm3 )was imported from neighbouring Mozambique. South Africa has very limited and declining conventional natural gas reserves but potentially large shale gas resources” (Energy Information Agency, South AfricaOct. 5, 2011) • From the above quote it is clear that South African reserves are small, but there may be large resources in the form of unconventional gas. The largest of these potential resources are “485 Tcf (13.7 trillion m3 )of technically recoverable shale gas” (EIA and Advanced Resources International). In addition there is CBM (Coal Bed Methane) currently estimated at 10 Tcf. (0.28 trillion m3) • “Our initial studies indicate a conservative estimate of around 10 Tcf (0.28 trillion m3 )total gas in place for all coal-bed methane basins,” according to MthozamiXiphu, chief executive officer at Petroleum Agency South Africa March 6 2012 IOL.

13. South Africa reserves and resources • The NG resources of about 500 tcf (14 trillion m3) in South Africa are very large compared with NG reserves in other countries e.g. the US and Saudi Arabia reserves are about 8 trillion m3. Assuming that “only” 10% of the resources will become reserves, then he South African reserves would be comparable to the reserves of Venezuela and Nigeria. • Such large reserves can change the energy future of South Africa and with it increase economic growth of the country in a significant way. (Econometrix report) • In Mozambique, recently large new reserves of natural gas have been discovered off shore, which may over time lead to an expansion of gas exports to South Africa.  • LNG imports may become attractive for South Africa. • NG has been discovered along the South West coast of South Africa as well as along the coast of Namibia. Currently it is not certain if economic exploitation is viable.

14. South Africa demand • Gas has been used in South African cities for more than hundred years e.g. the supply of gas in Johannesburg started in 1892 and was generated by coal gasification (town gas). • Gas is supplied by pipeline from Sasol and is composed mainly of methane (NG) and hydrogen. • Egoli gas, the gas supplier in Johannesburg, has a 1200 km gas network in the greater Johannesburg metropolitan area and is distributing the gas mainly to industry but also to households. • ROMPCO (Republic of Mozambique Pipeline Investment Company) from the Pande and Temane gas fields to Secunda. ROMPCO is owned by Sasol (50%), Mozambique government (25%) and South African Government through CEF iGas (25%) and has a capacity of 180 million gigajoules annually (4.7 billion m3/y) and is 865 km long. • PetroSA is exploiting gas from off shore fields and is converting it into liquid fuels.  • LPG demand and supply is about 600 000 tonnes and is a liquid under a moderate pressure

15. Exploration • A number of companies (Shell, Sasol, Anglo American, Falcon Oil and Gas) have requested permits for the exploration of shale gas, but due to environmental concerns regarding hydraulic fracturing, the government has invoked a moratorium on these requests starting April 21 2011. • A study was done by DMR and PASA on the merits of exploiting shale gas in South Africa The recommendation of the study was that “Approve hydraulic fracturing under augmented regulation and close control”. • An Econometrix study commissioned by Shell showed that if 10% (50 tcf,1.41 trillion cubic meter) of the potential resources (485tcf) can be extracted economically then 700,000 jobs will be created and 200 billion value will be added annually for 25 years. • The moratorium was lifted on 7 September 2012 but is still in place regarding hydraulic fracturing.

16. NG demand by country 2011BP statistical review of world energy demand 2012

17. Future demand Power generation • Eskom has four OCGT (Open Cycle Gas Turbine) power stations, Acacia (Cape Town), Fort Rex (East London), Ankerlig (Atlantis) and Gourikwa (Mosselbay), running on diesel and fuel oil and are used for back- up power, peak shaving and voltage stabilisation. • Eskom and IPP (Independent Power Producers) committed to build 1410 MW of OCGT and CCGT (Combined Cycle Gas Turbines) diesel fuelled power stations before 2014 (IRP 2010 revision 2). • New build options listed in IRP 2010 revision 2 amount to 2370 MW for gas fuelled CCGT and to 3910 for diesel fuelled peak OCGT. • “CCGT 2019 to 2021: Building gas-driven CCGT power plants requires the creation of gas infrastructure. In addition to the CCGT power plants, a LNG terminal needs to be decided on unless a suitable domestic supply is developed, and built together with the associated gas infrastructure. To trigger these decisions and investments and to ensure that the first CCGT capacity is available by 2019, a firm commitment to building the CCGT power plants is required, which will create the necessary demand to ensure appropriate utilisation of the new gas infrastructure”. IRP 2010 revision 2. • The estimated annual gas use at 60% efficiency and 60% utilisation is 2 billion m3 which is equivalent to 3.3 million m3 of LNG imports, which would amount to about 25 shiploads at a load of 120000 to 140000 m3.

18. Future demand Industrial heat • Replacement of coal fired boilers with NG. Includes option for cogeneration (Combined heat and power CHP) • A prerequisite is the availability of a NG grid infra structure and connections to industrial sites, office buildings, housing blocks etc. Research is required to determine the potential for this fuel switch. Important issues are the economic aspects, reduction in air pollution, fuel savings, and reduction in GHG emissions. Domestic heating, cooking • For domestic heating and cooking similar aspects apply as for industrial applications. Local differences have large impact on the financial viability of a gas grid e.g. the availability of conventional fuels such as coal and firewood, the density of the population, the distance from the NG supply etc.

19. NG for transport • Due to its physical properties large quantities of NG are transported by ship in its liquid state (Liquid Natural Gas, LNG). Smaller quantities are used in high pressure containers typically at 250 bar (Compressed Natural Gas CNG). • CNG is increasingly used as a fuel in road transport, but as the energy density is relatively low, it is mainly used in large vehicles such as buses. • If South African resources are exploitable at reasonable cost, part of it could be used as fuel for road transport.

21. Infrastructure requirements

22. Levelized cost of electricity (LCOE), R/MWh • Source: Mac consulting Medupi coal-fired electricity is said by Eskom to cost R 490/MWh, but with financing costs and costs over-runs this has been estimated as high as R 970/MWh. Only if private, not Eskom 970? Latest awards in South Africa's Renewable Energy Independent Power Producer Programme

23. Levelized cost of electricity (LCOE), R/MWh • Source: Mac consulting Projected carbon tax 2035 Projected carbon tax 2035

24. Carbon dioxide emissions using coal or gas as primary energy source • Energy content per weight: • Coal 18 -26 MJ/kg • NG 50 MJ/kg • CO2 emissions per MJ (Australian LCA study) • Coal 950 grCO2e/kWhe 35% thermal efficiency • NG (cc) 440 gr CO2e/kWhe 53% thermal efficiency • Direct use of gas for heating purposes • 230 gr CO2/kWh (3.6 MJ) • 25% of coal based electricity assuming same heating efficiency and no gas losses

25. Compatibility of natural gas with renewable energy in electricity production • Renewable energy is available as nature provides it, but is not a function of demand. Therefore demand and supply are not matched. • NG for power supply is suitable for matching demand and supply as: • Low capital cost for NG plants • Short response time compared with coal and nuclear

26. EPRI combined plant design

27. Research needs • Cost of infrastructure. • Cost comparison of landed gas and exploitation of resources. • Exploitation of shale gas. • Identification of pipeline trajectories as well as harbours for LNG. • Change in CO2 emissions by replacing coal with gas. • How to increase LPG supply. • Piloting CNG for road transport. • Increased use of biogas • Barriers that prevent grid access to small electricity producers using e.g. biogas

28. Conclusions • Replacement of coal with gas has many benefits ranging from a reduction in in-house air pollution, reduction in carbon dioxide emissions to AMD and coal waste. • However significant infrastructure is required • The economics of gas use need to be viable

29. Email:sibbeleh@sanedi.org.za Phone: 010 201 4710 Website: www.sacccs.org.za