/ 12 November 2010

Infrastructure development is key

Infrastructure Development Is Key

In a world of rising energy demand, natural gas is a low-carbon energy solution and is playing an increasingly important role in many countries.

Natural gas is more energy-efficient and environmentally friendly than other fossil fuels, but is relatively scarce in South Africa.

Given its environmental benefits and South Africa’s need to diversify and secure energy supply, what is its role in meeting electrical energy demand in the country and what building blocks are needed today to establish a vibrant gas industry for the future?

Of the 52 000MW of new generation capacity required in the next 20 years, the draft Integrated Resource Plan for Electricity (IRP 2010), which has been released for public comment and is expected to be gazetted in the first quarter of 2011, proposes only 1 896MW of combined-cycle gas turbine (CCGT) generation fuelled by imported liquefied natural gas (LNG) between 2019 and 2021.

Eskom already has about 2 000MW of diesel-fired open-cycle gas turbine (OCGT) generation capacity in service in the Western Cape and the IRP 2010 also proposes the conclusion of the 1 020MW department of energy OCGT independent power producer (IPP) project in the Eastern Cape in 2013 and the construction of a 5 750MW OCGT peaking generation plant between 2022 and 2030.

Thus in the next 20 years 8 666MW of new OCGT/CCGT capacity is planned under the IRP 2010, which amounts to about 16.5% of the 52 000MW of new build over this period. This also means that the total of 10 650MW of installed OCGT/CCGT electricity generation capacity would be about 12.5% of the planned total system generation capacity of 85 241MW in 2030.

It should also be remembered that electricity power generation is not the only application for natural gas or LNG — they can also be a more environmentally friendly replacement for petrol and diesel in the transport sector and in the industrial sector for heating.

The advantages of natural gas or LNG in CCGT/OCGT power plants is that it is cleaner than coal-fired power plants and in CCGT power plants the operating efficiencies are significantly higher. This means a significant reduction in carbon emissions per gigawatt hour of electrical energy generated.

Another advantage of CCGT and OCGT power plants is that their power output can “follow” the normal fluctuations of power demand more effectively, which is important because electricity cannot be easily stored and generation must closely match demand at all times.

Thus gas turbines perform an important role in the provision of the peaking capacity (as opposed to base-load capacity) that is required by power utilities. This advantage becomes increasingly important when wind is introduced into the energy mix.

To maintain power-system stability, fast following or peaking plant must be able to pick up the generation capacity shortfall quickly when the wind doesn’t blow.

CCGT and OCGT power plants also provide a measure of flexibility, risk mitigation and contingency for planners, because the technology is mature and can be constructed faster and at lower capital costs than baseload nuclear and coal-fired power plants.

If mega-projects (such as Medupi, Kusile or a nuclear power plant), renewable energy projects, or regional hydro power projects get delayed for any reason, CCGT/OCGT projects can fill the gap relatively quickly.

CCGT and OCGT power plants also provide useful opportunities and entry points for private investment and independent power producers to meet the objectives of diversity in the generation mix and security of supply.

Although Mozambique is the biggest producer of natural gas in the region, South Africa produced 3.2- billion cubic metres of natural gas in 2008, making it the second-largest producer in the region.

The reserves off the coast of Mossel Bay are diminishing but further natural gas production is expected off the West Coast in 2013.

The discovery and development of significant shale gas reserves in the Karoo basin also has the potential to change the game, but this would be a longer term option beyond 2030. Other natural-gas producers in Southern Africa include Angola, Tanzania and the Democratic Republic of Congo (DRC).

There are also significant further proven reserves of natural gas in Angola, Mozambique and Namibia, and Angola is undertaking major developments to expand production from its gas fields.

What is missing is the liquefication, importation and distribution infrastructure, which includes the expansion and refurbishment of pipelines, road and rail links, harbour facilities and capacity, and bulk storage services.

Who will build this will be part of the feasibility assessment after the finalisation of the IRP 2010.

Furthermore, the IRP 2010 indicates that if the department of energy OCGT IPP project is required by 2013, as proposed, the procurement process must be finalised now, with financial closure being reached by early 2011, which appears to be unlikely.

The IRP 2010 identifies the costs and timelines for the provision of the LNG infrastructure as key risks.

The CCGT deployment between 2019 and 2021 “requires supporting LNG importing infrastructure, which would be on a critical path if delayed beyond early 2011.

This decision would be required, regardless of who is allocated the responsibility for the build. This process could be mitigated by asking PetroSA or another entity to start investigating the development of this infrastructure.”