South Africa’s first liquefied natural gas (LNG) terminal could provide relief from the country’s ongoing power shortages, as energy planners seek to stabilise the grid and reduce reliance on coal-fired electricity.
Set to be built in Richards Bay, KwaZulu-Natal, which has the deepest natural harbour in Africa, the terminal will serve as an import hub for LNG, supplying both industrial users and gas-to-power projects. Targeting a startup date of 2028, Transnet National Ports Authority said that the terminal would have an initial yearly throughput of at least two million tonnes, with the potential to raise this to above five million tonnes.
By integrating natural gas into the energy mix, the facility aims to support more stable electricity generation, potentially easing the strain on a grid plagued by frequent blackouts.
An unstable grid
South Africa has struggled with chronic power outages, commonly known as load shedding, due to ageing coal plants operated by state-owned utility Eskom, maintenance failures, and grid imbalances. Last year, President Cyril Ramaphosa declared a national state of disaster, calling the energy crisis an “existential threat” to Africa’s most developed economy.
Eskom is South Africa’s biggest power utility company
Load shedding mitigates grid failure but has widespread economic consequences. Outages can last for more than 12 hours per day, forcing industries to rely on costly backup generators and raising production costs.
Impact on industrial gas production
While some companies, such as industrial gas supplier O2Africa, can continue operations during outages, the wider supply chain faces significant disruptions. Luke Jamieson, Technical Director and Founder of O2Africa, explained that while the company does not have a major power dependence, its clients and suppliers are not always in the same situation.
“With processes that require a constant power demand, some businesses rely on expensive backup generators, while others have to halt production altogether,” he told gasworld. “At Stage 8 [when 40% of demand is shed], nearly all industries, including manufacturing, would likely experience operational disruptions.”
Industries such as mining, steel, and chemicals, which require a stable power supply, contribute significantly to South Africa’s economy. The mining sector alone accounted for 7.8% of GDP in 2022, according to Stats SA, while manufacturing contributed approximately 13%. The LNG terminal could offer a more stable alternative, but infrastructure investment and pricing will be key factors.
LNG as a solution
In September last year, Eskom and energy company Sasol announced they would work together to determine the amount of LNG needed for a viable import market. The partnership focuses on using gas for power generation to provide essential baseload electricity.
Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, has backed the initiative, stating, “We have made it clear that we are serious about LNG solutions for the country and that our demand for gas across both industrial and energy frontiers will unlock these solutions.” As part of the gas masterplan, the agreement will support Eskom’s plans to convert some of its coal-fired power plants to gas.
Jamieson believes the LNG import terminal could be instrumental in mitigating load shedding. “The gas-to-power project is said to have a 6,000 MW minimum capacity, which would greatly assist in minimising blackouts,” he said. “Potentially, it could eliminate the first six stages of load shedding.”
However, stabilising electricity prices is a key priority for industries reliant on energy-intensive processes. Eskom requested a 44% increase in electricity tariffs, but the energy regulator only granted a 12.74% hike. Annual increases of 40% or more could have major impacts on all sectors in South Africa, leading to price hikes across industries and reducing the country’s global competitiveness.
Challenges and industry outlook
While LNG could provide immediate relief, long-term energy diversification is essential. The plan includes renewable energy projects that could deliver nearly 2 GW of power to the national grid at a cost of $1.7bn. The Electricity Regulation Act Amendment targets 5,000 MW of renewable energy capacity from January 2025, but this hasn’t been achieved.
“While there has been investment in renewable energy through wind and solar,” Jamieson noted, “Eskom still produces over 40% of all carbon dioxide emissions in South Africa. Coal reserves are finite, so a more balanced mix of energy sources is needed.”
LNG has played a stabilising role in energy supply for several countries facing power crises. Pakistan and India have increased LNG imports to reduce coal dependency, while Egypt leveraged its gas resources to shift from an importer to an exporter.
The terminal is to be located in Richards Bay, KwaZulu-Natal
However, infrastructure and pricing remain key hurdles – challenges South Africa also faces. According to analyst group BloombergNEF, LNG import prices fluctuated sharply in 2023, with spot prices reaching as high as $18 per million British thermal units, making affordability a concern for emerging markets.
Meanwhile, neighbouring Mozambique has major LNG export projects, but regional trade agreements would be necessary to ensure South Africa benefits from these supplies. The African Development Bank has highlighted the need for cross-border infrastructure to facilitate regional gas trade, yet no formal agreements are in place.
The success of LNG as part of South Africa’s energy mix will depend on cost competitiveness, infrastructure investment, and integration with renewables. While LNG could ease immediate pressure on the grid, long-term energy security will likely require a combination of gas, renewables and infrastructure upgrades.
