Regional Market Outlook on  Natural Gas 

  • South Africa`s domestic natural gas production is at 2.65 billion cubic metres in 2016 (41 percent of domestic supply) from its offshore infrastructure by PetroSA. The entire domestic production is supplied to PetroSA`s GTL (Gas-to-oil) refinery in Mossel Bay 
  • The domestic demand of natural gas in South Africa is solely met by imports from Mozambique via the 860 km pipeline operated by Sasol Gas
  • Recently, SASOL invested $2.4 million to construct a gas processing unit in Mozambique, and the project is expected to be completed by 2019
  • With a view to diversify primary fuel consumption from coal (that accounted for 68 percent in 2015) and tackle the power shortage situation, natural gas demand is expected to increase by 2.8 percent CAGR (for 2014–18)


Consumption Profile

  • Around 75 percent of the natural gas consumed in South Africa is attributed to transformation by Sasol (that transforms the natural gas to synthetic gas) and PetroSA (which produces the liquids from natural gas at its GTL plant) 
  • The second biggest consumer of natural gas in South Africa is the electricity sector (where natural gas contributes to ~2 percent of the total electricity in South Africa) 
  • In 2017, South Africa produced about 40Bcf of dry natural gas and consumption was at 158 Bcf. The difference of 118 Bcf was imported from Mozambique pipeline . South Africa has a very limited natural gas reserves but potentially large shale gas resources when explored will lead to surplus region

Natural Gas Proved Reserves

  • South Africa`s proven natural gas reserves stood at 27 billion cubic feet in 2015 and majority of the reserves are attributed (55 percent) to the explorations and discovery in Ibhubesi gas field (Orange Basin). Sunbird Energy is expected to supply natural gas to ESKOM from 2018 at 0.3 billion cubic meter/year for 15 years 
  • According to EIA estimates, South Africa holds 11.04 Trillion cubic meters of technically recoverable shale gas resources in the Karoo desert basin.
  • However, due to various technical, environmental restrictions coupled with lack of demand and market maturity, achieving the shale gas potential (Global rank - 8th) is quite challenging and hence has received any impetus so far

South Africa Natural Gas Price Analysis

Historical Price 

  • The average prices of natural gas (average of all customer classes) in South Africa has increased by nearly 8.7 percent from ZAR 144.36/GJ in 2017 to ZAR 156.88/GJ in 2018. This was mainly due to the increase in the electricity price component

Price Forecast

  • For 2019, prices are expected to increase as per the SASOL gas maximum price equation.The price increase will be due to increase in the commodity price such as diesel and expected increase in electricity prices by minimum 4 percent compared to prices in 2018

Industry Wide Procurement Practices 

Natural gas is predominantly sold under bilateral contracts with 3 popular models - take or pay, firm and interruptible contracts. Industrial users usually prefer Take or Pay contracts as it involves higher cost savings and lower risk (in terms of supply security).

Take or Pay (TOP) Contracts

  • Under this agreement buyer agrees to take a minimum quantity of gas at a price that is decided in the agreement. If the buyer does not take the minimum quantity, then the buyer is liable to pay for that minimum quantity at the contract price or specific price agreed in case of default
  • This contract provides buyer with a right to receive a make up quantity in later years, only when the buyer has taken TOP quantity for that year. Industrial users usually opt for TOP (minimum take of 90-95 percent) contracts because higher the minimum percentage lesser the contract price

Firm Gas Contracts

  • Under this contract either party may interrupt its performance without liability only to the extent that such performance is caused by an event of Force Majeure
  • Party invoking Force Majeure is held responsible for any imbalance charges related to the interruption after the nomination is made to transporter and until the change in deliveries and receipts is confirmed by transporter
  • In this contract, concerned parties anticipate no interruptions and are legally obligated to either receive or deliver the amount of gas contracted. These contracts are specially very beneficial in high demand season, when there are chances of supply disruption

Interruptible Gas Contracts

  • Under this contract either party may interrupt its performance at any time for any reason, whether or not caused by an event of Force Majeure, with no liability, except the interrupting party will be held responsible for any imbalance charges as decided in the agreement
  • Under this agreement, two parties involved anticipate and permit interruption on short notice, generally in high demand seasons. Usually interruptible contract price is lower than firm gas contracts