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Newly discovered South African gas fields offer no clear route to market

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The large offshore South African gas discoveries of late represent potential for vast change in the country. However, as yet there is no clear route to commercialization for the partners, says GlobalData, a data and analytics company.

“The discoveries of Brulpadda and Luiperd offer South Africa the chance to develop significant gas resources and reduce its reliance upon imports,” said Conor Ward, Oil & Gas Analyst at GlobalData. “However, Sasol, a state-owned oil and gas company, currently supplies around 80% of the country’s gas demand via its pipeline from Mozambique. Development of South Africa’s newly discovered gas resources faces competition from established imports flowing from Mozambique, LNG regasification and a currently unclear domestic gas outlook.”

The gas currently being imported via Mozambique is priced at approximately $6-7/mcf. GlobalData has estimated a breakeven cost for the potential Brulpadda and Luiperd development of approximately $3/mcf making it competitive against current imports.

As the major Mossel Bay Gas to Liquids plant is running out of feedstock due to depletion of domestic fields, the country will unlikely be able to take advantage of newly discovered resources fast enough to secure supply in the near term. An alternative solution currently being considered is LNG regasification, at least for the near term, as a contract period of just five to eight years has been stipulated in the tender documents.

“For the new discoveries to be developed, South Africa will have to transform its currently coal-reliant power sector, which in the short term could be achieved through conversion of many of its diesel plants and continued investment into gas infrastructure,” Mr Ward noted. “The hurdles to development for Brulpadda and Luiperd are not insurmountable, but timing will be a key factor determining a path to monetization as the discoveries will be unable to alleviate the country of its near-term gas shortage challenge.”

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