South Africa’s LPG dilemma

About 2 years ago I was contacted to work on the South African energy dilemma and indeed, I immediately saw enormous potential for new, lucrative investments. The problem was pronounced and the need was there.

But things were by far not as easy and as obvious as one would have guessed. Let’s get specific.

Anyone who looks at the map of worldwide energy movements will immediately find that Africa is some sort of black hole in it. There is very little movement around it as most big cargoes go through the Suez channel and the continent itself is not seen as a market in its own right.

There are some sources of hydrocarbons, but they all point towards the Northern Hemisphere. And as the continent has never been seen as a market, no import infrastructure has been developed. At least not the kind of infrastructure that would allow nations to weave themselves into international energy flows.

The most interesting and strongest economy by far is South Africa. Developed as they are and with an industrial base unrivaled by any of its peers in the wider region they should have developed copious import infrastructure as South Africa has very little hydrocarbon production by itself.

But it has not.

Up until 1994, South Africa was ruled by a system that has become notorious as Apartheid. This system was rightfully castigated by pretty much the rest of the planet as inhumane as it denied non-whites equal rights.

The result was a pretty solid isolation of South Africa from international business and this situation led the country’s leaders of the time to emphasize some form of energy autarky. South Africa was always pretty poor on hydrocarbon reserves but it was one of the biggest coal reservoirs in the world which made power production almost exclusively a coal domain. As soon as the specter of more power needed was on the horizon a new coal block would be built and commissioned.

Besides, the country tried to use whatever little could be found in terms of oil and gas to supply its fuel industry. The world’s first and longtime only GTL plant was built near Mossel Bay in Western Cape as Natural Gas from an offshore field was to be used for liquid fuel production rather than electricity, which should come from copious coal.

This system isolated the South African energy economy from the rest of the planet – the country’s geographical position on the tip of the continent furthered their isolation as most other countries simply were not economically attractive enough for their large-scale import projects. Namibia’s economy was paltry and it needed to emerge from decades of foreign domination, Mozambique and Angola were mired in decades of civil war and the countries to the north Botswana and Zimbabwe were economic minnows and landlocked. Nothing to tie into when Apartheid eventually came down.

But the Apartheid regime bestowed South Africa with an energy system that albeit working very badly still was here and produced workable results for a long time. It was so well-built that it took two decades to bring it to its knees but now we are there. And this pretty solid but ultimately insufficient system brought South Africa to its knees as it lured to countries’ leaders and energy players into some kind of false sense of security. As long as things don’t fall apart too openly, nothing needs fixing.

That’s over now. Everyone is aware that drastic action is needed to solve the crisis and importation of energy is the buzzword. An added complexity is that new energy would have to be much cleaner than what has been done in the past. It’s 2015 in South Africa too in the end.

Coming back to LPG – only 3 importation terminals adorn the coast of South Africa today. All are on the very, very small side. The largest of them in Richards Bay has just about 3200 metric tons capacity which makes it just usable for very small vessels. Those tend to be pressurized but Richards Bay is a liquids terminal which makes things harder again. Besides, going with such a small vessel to such a faraway destination with no other markets nearby (I talk about big volume markets) costs a premium.

There are some projects, but they all are in various phases of planning and sometimes already in some form of development and execution but regulation in South Africa is stifling with a lot of layers of government to be satisfied and there is no fast track for urgent situations. Besides, established players have entrenched positions which they don’t want to see under new competition so there is plenty of backstabbing. Sounds like a Brazilian telenovela – doesn’t it?

There are 6 refineries and synfuel plants in South Africa – all of them are decades old and need refurbishing plus their feedstocks are dwindling. Plus the refineries in Cape Town and Durban are now within residential areas which becomes less and less sustainable from an environmental point of view. Major oil companies worldwide are retrenching from such locations and that can be expected in South Africa as well, especially with the supply situation.

This means that the domestic supply situation gets worse and worse. And potential demand goes through the roof meanwhile. For a long time, South African consumers have heated their homes with electricity. Now, with almost constant load shedding in place, this has become unreliable, and many look towards LPG to heat their homes.

The catch is that LPG supply is erratic as well which makes choices harder and harder by the month. If there could be a stable supply of LPG assured in the country, demand would skyrocket very quickly to the point that the supply point would have to be expended very quickly.

What needs to happen is the establishment of an import hub that can accept virtually any size of LPG transport vessel. South Africa is still way out of any energy corridor.

It’s one of the rare opportunities where someone can still build a new world from scratch. It’s time South Africa finally waves goodbye to its energy past and passes into the 21st century.