South Africa gauges appetite for bundled, unbundled LNG

South Africa’s Department of Energy (DOE) is understood to have received interest in the development an LNG import project through its current gas-to-power procurement programme ahead of the launch of an expected Request for Proposals (RfP) in the second half of this year.

The DOE is currently receiving preliminary proposals in an open Request for Information (RfI) process which will close on 20 July. The purpose of the RfI is to determine market appetite for a bundled or unbundled project, capable of delivering combined power generating capacity of 3,126 MW from 2020.

In energy terms that would equate to approximately 2mtpa of LNG, according to ICIS calculations.

A bundled project would see the entire value chain revolve around one key procurement contract; the power purchase agreement (PPA). State-owned electricity utility, Eskom, has been named as the expected sole buyer of power capacity and output.

An unbundled project on the other hand would see up to three separate procurement contracts; one for LNG supply, one for LNG regasification, and one for gas-to-power production.

Respondents in the ongoing RfI are required to clarify their intention to bid as part of a bundled or unbundled project.

While participation in the RfI phase is recommended by DOE it is not mandatory and the DOE has stated it can consider new proposals during its RfP stage.

The RfP is being targeted for a release to market in September, although this may slip to later in the year depending on the outcome of the RfI.

An unbundled approach would represent new territory for this size of project in South Africa, ICIS understands..

Should a bundled approach be decided upon, then following an RfP bid deadline in Q1 or Q2 2016, the DOE would normally award a preferred bidder 12 months to finalise its offer before a binding contract is signed. But the period that would be given to a preferred bidder for an LNG project – bundled or unbundled – remains to be determined, ICIS understands.

LNG features within one of four gas-for-power procurement strands, alongside compressed natural gas (CNG) and liquefied petroleum gas. With a separate strand dedicated for imported piped gas, the extent to which LNG would be competing with the potential imports from Mozambique and Namibia is limited. ICIS understands LNG projects are competing more directly with CNG.

The third gas-to-power strand involves bringing domestic gas to market while the fourth will evaluate the potential for floating gas-fired power plants, otherwise known as powerships or power barges.

The move to look at powerships reveals South Africa’s acute need for a fast-track solution to its constrained energy outlook.

Eskom launched a three-month enquiry into the running of its business in March following worsening power shortages that have afflicted the country for over a year.

Up to 95% of South Africa’s electricity is currently generated by coal-fired power stations but the country is diversifying its power mix to include gas, nuclear and hydro electric.

The country’s state-owned oil company, PetroSA has long considered LNG but shelved two consecutive projects in 2010 and 2014 following prolonged feasibility studies (see GLM 3 September 2014 and GLM 15 October 2010). ludovic.aldersley@icis.com