SOUTH African industrial users of natural gas are moving forward with the establishment of a gas aggregator company to provide the basis for large-scale gas infrastructure investments and transactions.
The establishment of this gas aggregator (gas company, or GasCo) will enable South African manufacturing to transition from a fragmented market to a consolidated and structured market enabling secure, long-term gas infrastructure development and supply.
As Jaco Human, CEO of the Industrial Gas Users Association of Southern Africa (IGUA-SA), explains: “Gas aggregation paves the way for a more mature, transparent and equitable gas market in South Africa. We anticipate that GasCo will be a platform to enable inclusive, effective, long-term participation alongside government, Sasol, international oil companies, gas suppliers and transporters, and financial institutions, all of whom will play a critical role in the process moving forward.”
Since the onset of large-scale natural gas consumption in 2004, South African industry has remained commercially and technically reliant on the continued supply of natural and methane-rich gas from Sasol. Due to natural gas resource constraints, South African industry has to consider alternative supply options from June 2026. Given the imminent crisis between this supply cut-off and the time needed to establish alternative supply options, this decision required industrial users of natural gas to make long-term strategic decisions to ensure continued gas-energy supply, according to the IGUA-SA.
The formation of GasCo will aim to enable and secure alternative gas supply within the timeframes needed to avert permanent damage to South African manufacturing and employment. IGUA-SA says South African industrial users of natural gas employ over 70,000 people and contribute more than R500 billion per annum to the South African economy.
GasCo will act on an inclusive basis as an intermediary marketplace across the entire gas supply chain, facilitating the development of gas supply infrastructure, sourcing, transport, and distribution of gas to offtakers. This includes consolidating the demand from the various offtakers, negotiating with gas infrastructure developers, suppliers and systems operators for efficient pricing and terms of gas delivery to help bridge the gap between supply and demand.
Human adds, “The close, constructive collaboration of all stakeholders is a key prerequisite to finding the best possible solution for ‘SA Inc’ and our engagements continue in parallel as we move forward to determine this solution. Sasol remains an important role player in the transition to imported gas, as will related government entities, including the Central Energy Fund, the Department of Trade, Industry and Competition, and the Department of Energy and Electricity.”
GasCo will take the form of an externally funded, private company based on the guiding principles of cost-pass through (thereby operating as a non-profit), full transparency, a low asset and operational base and proportional representation.
Gas aggregators are typically incorporated as state-owned or state-operated entities, with risk borne by the state in the national interest, given that the primary and often sole purpose behind their establishment is to secure a steady flow and stable pricing for gas in their respective countries to support their manufacturing and power-generation sectors. In the absence of a state-coordinated mechanism in South Africa, industry has been driven to establish this model privately, on a non-profit basis. The private sector is compelled to carry the additional fiscal burden associated with such an initiative in the interest of continued operations and the national economy, says IGUA-SA.
Human explains: “The commercial basis for aggregation and operations will be to recover costs – and no more. These costs will include the cost of the procurement of gas, gas transportation and operation costs, and administration. Commercial participation and preferential rights will be based on volume proportionality. GasCo will also ensure full upstream contract visibility, with organised participation in supplier negotiations.”
A feasibility study has been concluded, demonstrating the legal, regulatory, economic and operational viability of the proposed company. A non-exclusive joint venture agreement is being concluded with approximately 30 large and small users of piped gas in South Africa following the earlier conclusion of a memorandum of understanding.
Detailed implementation plans and budgets have been drawn up on the basis of an earlier block exemption granted by the Competition Commission for an initiative of this nature. Term sheets will be concluded with infrastructure developers, gas suppliers and gas transportation service providers in the coming months, and financial instruments to facilitate transactions of this scope and magnitude are being developed with major financial institutions, IGUA-SA said in a media release issued on 11 July 2024.
In South Africa alone, current demand for gas (300PJ/a) already exceeds the limited supply (180PJ/a). The potential development of gas demand in Southern Africa is principally contingent on decisions to invest in long-term domestic production as well as short- and medium-term investment in liquefied natural gas import and distribution infrastructure.
By taking the lead in the establishment of this GasCo, South African industry hopes to pave the way for a mature, stable and growing gas network in southern Africa. However, the process remains fraught with risk and unresolved challenges. The biggest risk faced by industry remains gas energy security from 2026 onwards. Constructive discussions continue with Sasol and international oil companies, gas infrastructure developers and operators to ensure continued gas supply beyond 2026.
Human concludes: “We are confident that the establishment of the GasCo is a necessary first step towards a broadly beneficial outcome. Long-term, constructive collaboration remains critical for the development of associated markets, and we continue to actively engage with all stakeholders with the ultimate goal of enhancing South Africa’s industrial and manufacturing capacity, economic development, and ability to create and sustain employment.”
