Sounding the alarm: industrial gas users warn of impending meltdown unless action is taken by the government

Sasol gas pipeline in Mozambique. Photo: Supplied

Sasol gas pipeline in Mozambique. Photo: Supplied

Published Feb 28, 2024


South African industrial gas users have warned of an impending meltdown that would affect thousands of workers in the manufacturing sector and related industries if the “gas cliff” is not averted within the next 30 months.

This comes after Sasol, South Africa’s monopoly supplier of large-scale natural gas, announced in August 2023 that the supply of gas to industrial users will be suspended by June 2026.

The Industrial Gas Users Association of Southern Africa (IGUA-SA) said yesterday that this unilateral decision to cut off the gas supply posed an existential threat to South Africa’s manufacturing base, in spite of South Africa sitting on significant offshore gas potential.

IGUA-SA CEO Jaco Human said the country was going through a gas supply-and-demand deficit as there had been no additional molecule presented into the system from around about 2015 or 2016.

Human said there had been no particular infrastructure developments, such as pipelines, and policy uncertainty continued to prevail as to the future role of gas in South Africa's energy mix.

He said the gas cliff - as Sasol has emphasised that there would be no gas available from June 2026 - would also pose a threat to South Africa’s regional competitiveness and the country’s balance of payments.

“The unilateral decision by Sasol to cut off gas supply poses an existential risk to large industrial users of gas and is likely to lead to the de-industrialisation of the South African economy,” Human said.

“Many industries have already been forced to halt investment and growth plans due to the risk of a gas-energy shortage.”

Sasol is streamlining its operations. This week the petrochemicals giant cited economic volatility as well as power supply and logistics constraints for its 34% lower profit for the first half year to December 31, a period in which it also recorded R3.9 billion in impairments from the Secunda liquid fuels refinery.

From an industrial perspective, Human said they had halted all significant investments in gas-related production activities, simply because they did not know when and how this situation would unfold.

“What we anticipate is an investment hard stop from this year onwards. We anticipate a reduced output from 2026 and also, in certain instances, manufacturing closures,” Human said.

“On top of all of this, we are also having this hidden cost of doing business in South Africa, considering the state of the network economy that we have energy, logistics, water, ports, roads, et cetera.”

South African industrial gas users directly employ 70 000 people and contribute between R300 billion and R500bn per annum to the economy.

A cessation in the supply of gas would result in multiple plant closures and a significant reduction in manufacturing output across KwaZulu-Natal, Gauteng and Mpumalanga.

Several key manufacturers, spanning multiple economic sectors such as chemicals, steel, glass, food and beverages, and supporting tens of thousands of jobs, are deeply reliant on gas energy for their continued operations.

Human said that besides the significant risk to the country’s manufacturing capacity, some 400 smaller to medium-sized businesses, several hospitals and approximately 8 000 households would also be directly impacted by a suspension in gas supply.

He said there were no confirmed supply solutions that would come on stream early enough to act as a sufficient source of independent supply, raising the prospect of devastating consequences for the economy and jobs.

As a solution, Human said they were proposing that the government urgently establish sufficient gas-to-power capacity on the Mozambique-South Africa Gas Pipeline (Rompco) to increase the demand for gas energy by 40-60 Petajoules per annum, which would render gas-receiving infrastructure investment in Matola, Mozambique economically feasible.

Also they want Eskom to increase power availability, to procure additional electricity from planned gas-to-power developments in Mozambique as part of its short-term power-purchase programme, and also to render gas-receiving infrastructure investment in Matola, Mozambique economically feasible through increased gas volume throughputs.

IGUA-SA also wants the government to ensure that the Rompco and Lily pipelines were linked before 2026 to provide gas energy security for KwaZulu-Natal, and for the government to provide the financial guarantees to underwrite the investment in gas-receiving infrastructure in Matola to ensure the economic sustainability of the manufacturing sector.

“The next four months are crucial to develop the required gas infrastructure to substitute the shortfall in supply from 2026 onwards and avoid substantial manufacturing and job casualties, and we are calling on the government to urgently engage with key stakeholders in industry to find a solution to this potentially devastating crisis,” Human said.