The new situation we have with comparatively cheaper LNG is sharpening our senses for new opportunities. This happens out of pain experienced by the producers as well as out of opportunistic endeavor in potential consuming markets. Either way, we are all happy takers and won’t look at the teeth too much – won’t we?
There is too much LNG around today so the LNG world has to get creative in order to sink those gargantuan volumes nobody seems to need.
New markets are needed and they are needed real quick. Countries that just months ago could not even remotely hope to become LNG importers should be very high on the list of exporters development targets.
Spotlight on South Africa.
The country is the economic powerhouse of the SADC region and one of the African heavyweights. As such it resides a bit lonely in a region where its peers are economically far less potent and hence stands on its own for many developments in this region as it cannot count on others to make the initial pushes for bigger, better and cleaner.
Everyone looking at a world map of energy movements will quickly find that there is a huge white blob around the country. The entire African continent is an energy minnow with only some countries having developed some export industries but the import side and indeed, the internal energy markets are puny in comparison.
Moreover, South Africa still lives on the utility leftovers from the energy architecture that has been built under the reviled Apartheid regime. They built on autarky as the country was on bad terms with pretty much the entire planet. They tried to exploit whatever they could from their own country and limited imports.
This all in a continent that has not been a big player on the world stage so far and which did not develop big style import infrastructure for almost anything. Look at it whatever way you want – that’s an odd position to be in. Nobody to share the pain of initial developments in a faraway region of the planet. It’s a bit like doing things on planet Mars.
BUT – this market needs energy like yesterday and this energy also needs to be cleaner than coal on which they have been feasting since the dawn of centrally produced electricity. South Africa is, in fact, a perfect case for LNG as LNG was first produced to connect producers with consumers that could not otherwise be connected through a steel pipe. The next meaningful gas reserves are located either in the north of Mozambique or in Angola which is still worlds away from the consuming centers. Besides, there have never been pipelines in this part of the world as pipeline laying and operating can be a challenge here.
By all means and purposes, South Africa is in a similar situation like South Korea as in spite of a land-connection to would be producers, it’s often a challenge to reach them. Making matters worse is a geographic position at the end of the world. South Korea lies in the middle of sprawling East Asia, a very powerful and economically thriving region of the world.
Put yourself into South Africa and you might be forgiven if you have an eerie feeling of isolation. All their neighbors are economic minnows compared to them so they have no real peers to coast with.
In such a situation you might think that South Africa has all incentives on earth to make itself look like a big, sweet ice cream on a hot summer day for LNG exporters. Except that, they don’t.
Anyone who ever tried to develop an energy project in the country will instantly know that navigating the numerous stumbling blocks set up by policy makers and the legislative environment is a bit like swimming with Crocodiles. You must do your swimming bit in order to advance but you must also watch out their teeth in order not to become Crocodile fodder as this might hit you at any moment. The country has equipped itself with a very impressive armory of project killing policies and tools that smack of North America or Europe.
Hard regulation erecting countless stumbling blocks and super long consultation processes dissuading anyone to take a closer look at the country. Vocal political movements protecting special interests and trying to create jobs where none is necessary inflating payroll and operating expenses into Hindenburgesque proportions. Entrenched local players in a place with more systemic bottlenecks than a walk through a crowd of fans at an ACDC concert. And state-owned energy quasi-monopolies with bloated bureaucracies that must be cut into any deal one wants to make, ballooning cost even more.
Let’s face it. If you start a project there today, you might look at 10 years of Business Development before you come even close to something resembling an FID.
However, the country is also on its knees, energetically at least. Up until a year ago high oil prices gave the government the lure of shale potential but that has firmly gone away since the oil price dropped to much less nauseating altitudes. Their existing refineries and synfuel plants are all leftovers from Apartheid and are creaking. The swelling population needs ever more energy. And this new energy cannot be as filthy as the old coal blocks anymore. South Africans have discovered the value of breathable air.
So, someone will have to chip in and make something happen.
A couple of companies are in the process of evaluating options. The best location for any import terminal would undoubtedly be Richards Bay as its the gate to Kwa-Zulu Natal and also one of the closest ports to the economically important Gauteng region. The port is large and deepwater and is used to large vessels. Besides, some really large electricity producers such as aluminum smelters are there and it’s also at the end of the only gas pipeline South Africa has bringing gas to the south.
This could be reversed leaving more gas in the economically important region in the north while supplying KZN with LNG. That’s a double whammy then. Besides, Transnet would sure appreciate the optimization revenue from such a deal.
There are other places and Capetown (or the nearby Saldhana Bay) sure provides some spectacular backdrop but the total market is much smaller. One might want to start with something big and splashy when he goes bringing LNG from far away.
South Africans have a choice now. They can take a leaf from other countries like South Korea and make LNG happen or dream on with their uneconomical floaters and get energy strangled in a world of cheap LNG.