South Africa faces another economic threat as natural gas supply nears crisis

South Africa faces an impending natural gas crisis, warns the Energy Council’s CEO, James Mackay. With Sasol Ltd. reducing gas production from Mozambique by 2027, a supply cliff looms, risking 300,000 to 400,000 jobs. Inadequate state planning compounds challenges, including daily power outages. Urging swift action, Mackay suggests importing gas from Mozambique or building facilities in South African harbours. Without prompt decisions, the country risks an economic downturn reminiscent of past capacity collapses, emphasising the need for clarity and rapid execution in addressing the impending gas shortage.

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

Gas Crunch Threatens to Deepen South Africa’s Economic Crisis

By Antony Sguazzin

South Africa’s supply of natural gas is set to plunge within the next three to four years and there’s a risk of a shortfall triggering the country’s next economic crisis, the head of an industry body warned. 

With Sasol Ltd. set to curb production of the fuel from its fields in Mozambique between 2026 and 2027 as reserves dwindle and retain more output for its own operations, 300,000 to 400,000 jobs at firms that use gas for industrial purposes are endangered, said James Mackay, the chief executive officer of the Energy Council of South Africa. 

“We have a supply cliff coming,” Mackay, whose organization represents companies including Sasol and Glencore Plc, said in an interview on Thursday. “There isn’t currently a supply alternative that will readily be available in the time frames needed.”

A gas supply crunch would be another impediment to growth in Africa’s most-industrialized economy caused by inadequate state planning. The country experiences almost daily power outages because of inadequate generation capacity and its ports and freight rail network are crumbling because of a lack of investment and maintenance.

“We do need a national focus on saying where that supply will come from and there are a number of opportunities,” Mackay said. 

Gas could be imported through a port in Mozambique or facilities could be speedily erected at South African harbors such as Richards Bay or Coega, he said. By 2030, a gas field discovered off the west coast by TotalEnergies SE could be in operation.

“We have a bit of a policy vacuum around how to deliver this energy transition and this supply problem,” he said. “This is not about policy direction, it’s really about execution, fast-tracking implementation, making decisions and making sure that policy is converted into very clear regulatory environments where we need investment decisions made.”

The collapse of state capacity in South Africa over the last 15 years in terms of everything from electricity provision to port efficiency has cost the country 40% of its growth, Harvard University researchers said in a report released on Wednesday.

“That’s the level of clarity we need to get to very, very quickly in order to avert a supply crisis in the natural gas space,” Mackay said. “We still have time, we can get it done, but we’ve got to move very quickly.”

The country is also seeing a decline in the amount of gasoline and diesel it can refine as its processing plants close, but its needs can be met with imports, he said. 

Read also:

© 2023 Bloomberg L.P.

Visited 1,584 times, 8 visit(s) today