South Africa Picks Ports for $3.7 Billion LNG Infrastructure

JOHANNESBURG (Capital Markets in Africa) – South Africa will invest $3.7 billion at the ports of Richards Bay and Coega to build infrastructure for a gas-to-power program aimed at easing the country’s dependence on coal.

A plant at Richards Bay will generate 2,000 megawatts of electricity from liquefied natural gas imports, and another at the Coega industrial development zone will produce 1,000 megawatts, the Department of Energy said Monday. The government will seek bidders to manage the projects, underpinned by a 20-year power-purchase agreement with state utility Eskom Holdings SOC Ltd.

South Africa formed a Gas Industrialization Unit in May to implement its 3,726-megawatt gas-to-power program after a series of managed blackouts last year curbed growth in a nation at risk of recession. By starting to import LNG, the government can take advantage of low prices for the fuel while reducing reliance on coal to power the continent’s most-industrialized economy. 

Richards Bay will initially require an annual 1 million metric tons of LNG and Coega 600,000 tons, Karen Breytenbach, head of the Independent Power Producer Procurement Program’s office, said Tuesday in Cape Town. The ports each need 25 billion rand ($1.84 billion) in infrastructure, she said. The program will look to hedge the cost of the LNG, which is priced in dollars. The cost of the power will be passed on to consumers through electricity tariffs.

South Africa will use vessels offshore to receive, convert and store the LNG it imports, avoiding the risk of gas plants becoming “stranded assets” if the country starts producing its own gas, Breytenbach said. It will also be quicker to use marine facilities, and onshore plants could follow if needed, she said.

The nation’s ability to transport gas overland is currently limited by poor pipeline infrastructure, but LNG can be sent by road and rail as a “temporary solution,” according to the Energy Department. 

The gas-to-power program “is designed to ensure that the LNG import and regasification facilities are complementary to the development of indigenous gas and/or development of a regional gas pipeline network,” the department said.

Bidders to manage the port projects will be pre-qualified in April after making submissions in February. The final request for proposals is expected next August, according to the department.

Apart from the 3,000 megawatts generated at the ports, the program will produce a further 726 megawatts from other projects.

Source: Bloomberg Business News