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Title: SOUTH%20AFRICAN%20PIPED-GAS%20INDUSTRY


1
SOUTH AFRICAN PIPED-GAS INDUSTRY
PCE Briefing, 9 September 2014
2
Gas industry overview, regulation, and
challenges Presenters Phindile Baleni,
CEO Nomfundo Maseti, Regulator Member Piped Gas
Regulation
3
  • Content

3
4
ACRONYMS AND ABBREVIATIONS
  • Bcm Billion cubic meters
  • CNG Compressed natural gas
  • DoE Department of Energy
  • FS Free State Province
  • GP Gauteng Province
  • GUMP Gas Utilisation Master Plan
  • IEP Integrated Energy Plan
  • IRP Integrated Resource Plan
  • JHB Johannesburg
  • LNG Liquefied natural gas
  • LPG Liquefied Petroleum Gas
  • MGJ/a Million Gigajoules per annum
  • MP Mpumalanga Province
  • NG Natural Gas
  • NGV Natural Gas Vehicle
  • NDP National Development Plan
  • NERSA National Energy Regulator of South Africa
  • TCF Trillion cubic feet

4
5
INTRODUCTION
  • The National Energy Regulator of South Africa
    (NERSA), a Schedule 3A Public Finance Management
    Act, 1999 (Act No. 1 of 1999) Public Entity was
    established on 1 October 2005 in terms of the
    National Energy Regulator Act, 2004 (Act No. 40
    of 2004) to regulate
  • Electricity industry (Electricity Regulation Act,
    2006 (Act No. 4 of 2006))
  • Piped-Gas industry (Gas Act, 2001 (Act No. 48 of
    2001))
  • Petroleum Pipelines industry (Petroleum Pipelines
    Act, 2003 (Act No. 60 of 2003))

5
6
OVERALL MANDATE
  • NERSAs mandate is anchored in
  • 4 Primary Acts
  • National Energy Regulator Act, 2004 (Act No. 40
    of 2004)
  • Electricity Regulation Act, 2006 (Act No. 4 of
    2006)
  • Gas Act, 2001 (Act No. 48 of 2001)
  • Petroleum Pipelines Act, 2003 (Act No. 60 of
    2003)
  • 3 Levies Acts
  • Gas Regulator Levies Act, 2002 (Act No. 75 of
    2002)
  • Petroleum Pipelines Levies Act, 2004 (Act No. 28
    of 2004)
  • Section 5B of the Electricity Act, 1987 (Act No.
    41 of 1987)

6
7
GAS POLICY/REGULATORY FRAMEWORK
  • Other impacting plans/policy documents
  • Gas Utilisation Master Plan
  • Integrated Energy Plan
  • Integrated Resource Plan 2010-2030
  • National Development Plan 2012

Currently under development
7
8
GAS POLICY/REGULATORY FRAMEWORK cont.
  • White Paper in Energy Policy (WPEP)
  • Promotes fuel diversification in the SA energy
    mix, and recognises natural gas
  • as an attractive option for SA
  • WPEP also provides the basis for the development
    of the National Integrated Energy Plan (IEP)
  • National Energy Act, 2008
  • National Energy Act seeks to ensure that diverse
    energy resources are available, in sustainable
    quantities and at affordable prices, to the South
    African economy in support of economic growth and
    poverty alleviation
  • The IEP
  • Its purpose and objectives are anchored in the
    National Energy Act
  • The IEP provides a roadmap of the future energy
    landscape for SA which guides future energy
    infrastructure investments and policy development

9
GAS POLICY FRAMEWORK cont.
  • Integrated Resource Plan (IRP)
  • provides a national electricity plan until 2030
    including preferred generation technologies and
    timelines
  • Gas is allocated 3126 MW of base load and/or
    mid-merit CCGT generation capacity between 2019
    and 2025
  • 1659MW CCGT capacity to be added later in the IRP
    period, 2028-2030
  • Gas Utilisation Master Plan (infrastructure
    framework)
  • will assess the bottlenecks and capacity
    constraints of existing gas infrastructure and
  • plans for further gas infrastructure development
    particularly to enable gas to power development
  • The National Development Plan (NDP)
  • NDP recognizes gas an alternative to move SA
    into a low carbon intense economy

10
REGULATORY Mandate ITO the GAS ACT
  • Regulatory mandate in a nutshell
  • Objectives of the Gas Act include
  • Promote orderly development of the gas industry
  • Development of a competitive gas market
    Facilitate investment Promote competition
  • Functions include
  • Licensing gas infrastructure
  • Pricing and tariffs
  • Compliance monitoring and enforcement
  • Investigations and dispute resolution
  • Facilitation of investment, entry and promoting
    industry growth through
  • Licensing of new gas infrastructure and trading
    activities
  • Approval and monitoring of maximum prices and
    transportation tariffs
  • Reflective of costs, risks and economic value of
    the product
  • Enforcement of third party access to existing
    infrastructure

10
11
Scope of regulation
  • How did we regulate until 25 March 2014?
  • Regulated ito of the Sasol Regulatory Agreement
    Gas Act
  • The Agreement provided regulatory framework in
    the absence of the Gas Act (which was only
    enacted in 2001, and became effective in 2005)
  • The Agreement took precedence over the Gas Act
    for the duration of the 10 year dispensation
    period

12
Scope of regulation
  • NERSA regulates the piped-gas industry
  • Natural/synthetic/compressed gas transported via
    pipeline
  • Scope of regulation
  • Currently all hydrocarbon gases transported by
    pipeline
  • Regulated activities include the
    construction/operation/conversion of gas
    facilities and trading in gas
  • Excludes gas production, reticulation and LPG
    prices
  • Gas Exploration and Production falls under PASA
    (Petroleum Agency of South Africa)
  • Reticulation is a responsibility of Local
    Government. NERSA only monitors gas prices
    charged to reticulators by Sasol Gas Ltd
  • LPG infrastructure is licensed by NERSA but
    prices are regulated by DoE
  • Note fragmentation in the regulatory landscape

12
13
SA Gas market structure
  • Upstream Midstream Downstream

Reticulation - Regulated by Munics
Mozambique Exploration Production by Sasol
Petroleum International
Transmission ROMPCO Sasol Gas Transnet
Distribution Sasol Gas
NG Importation Sasol Gas
Trading
Pipeline gas Sasol Gas Spring Lights Reatile
  • Competition may not be levelled
  • Sasol Gas has a competitive advantage
  • as a single supplier of gas/ gas distributor
  • Price advantage exhibited over other traders

CNG VGN Novo Energy NGV Gas
Domestic
  • Competitive price advantage for CNG as a vehicle
    fuel over petrol
  • Always priced approx. 20-30 below petrol price
  • Potential for NGV growth due to
  • increasing policy drives to address environmental
    concerns (carbon tax)
  • increasing appetite for cleaner transport fuels
    (e.g., Municipalities)
  • increasing appetite for cheaper fuel (Taxi
    Industry)

Syn gas production by Sasol Synfuels
PASA regulated Exploration Production - On
offshore
NERSA regulated activities
14
CURRENT GAS INFRASTRUCTURE
Egoli Gas reticulation network in the
Johannesburg area
CNG mobile storage and transportation system
Sasol Gas Pipelines
ROMPCO Mozambique to Secunda Pipeline
CNG high pressure cylinders
Transnet Lilly Pipeline
15
  • Pipeline infrastructure (transmission,
    distribution reticulation)
  • 1100 km transmission pipeline network owned and
    operated by Sasol Gas
  • a 865 km transmission pipeline from Mozambique to
    Secunda owned by ROMPCO
  • a 573 km transmission pipeline owned by Transnet
  • 100 km pipeline owned by PetroSA for the
    transmission of gas for own use
  • a 317 km distribution pipeline network owned and
    operated by Sasol Gas
  • 1100 km gas reticulation network owned by Egoli
    Gas and regulated by City of Joburg ito
    Municipal bylaws
  • 58 km of gas reticulation network owned by
    Easigas in PE (not regulated ito Gas Act)
  • NERSA regulates about 70 of the existing
    pipeline infrastructure
  • CNG Infrastructure
  • CNG vehicle refuelling stations owned and
    operated by Novo Energy and NGV Gas
  • CNG mobile storage facilities owned and operated
    by Novo Energy and Virtual Gas Network

16
GAS TRADING
  • SA currently have six licensed gas traders
  • Sasol Gas, Spring Light Gas and Reatile supplying
    gas via traditional pipelines
  • Novo Energy, NGV Gas and Virtual Gas Network
    supplying gas via CNG mobile gas storage and
    transportation system (aka Virtual Pipelines)
  • Gas customers
  • Sasol Gas directly supplies NG and MRG to approx.
    370 customers in MP, FS, GP and KZN
  • Spring Lights Gas on-sells MRG to about 23
    customers in KZN
  • Reatile has not yet started operating but intends
    to supply gas in GP and KZN
  • Novo Energy and NGV Gas supply CNG as a vehicle
    fuel in Gauteng (669 vehicles converted, mostly
    taxis)
  • Virtual Gas Network supplies CNG to 4 industrial
    customers in Gauteng
  • Economic sectors serviced
  • Gas is largely consumed for industrial,
    commercial, domestic, transport and for power
    generation purposes

17
Immediate demand for gas
  • Opportunities for gas in SA exist in power
    generation, transport, and GTL and residential
    markets
  • Gas can serve as an efficient alternative for
    diesel and coal
  • Power generation
  • Opportunities for greenfield power (IPPs) also
    exist (various companies including Sasol,
    Gigajoule looking at importing gas from
    Mozambique mainly for baseload power generation)
  • Gas have benefits over nuclear and coal ito
    capital costs, carbon footprint, construction
    lead times and energy efficiency
  • Coal may be a cheaper option than gas for
    generating electricity in SA but gas has an
    advantage on other policy interventions to
    improve energy efficiency and to address
    environmental concerns
  • Overall, there is an interdependence between
    electricity and gas that can be exploited for the
    benefit of both industries

18
Immediate demand for gas
  • Gas for transport
  • Gas is a substitute for conventional transport
    fuels
  • CNG is an alternative for petrol diesel for
    normal vehicles (about 17.7 million NGVs exist
    worldwide)
  • LNG emerging as an alternative marine fuel,
    likely to displace bunker fuel oil in the
    long-run
  • CNG market in SA is emergent, 4 CNG refuelling
    stations in Gauteng (2 operational)
  • Existing opportunities for market growth
  • Taxis, buses and commercial vehicles whose
    owners are looking for cheaper alternatives to
    petrol
  • Municipal and Government fleets and heavy duty
    vehicles driven by the need for greener
    transportation
  • CNG has economic benefits always priced 20-30
    below prevailing petrol price
  • CNG market could serve as an access point to the
    industry for greenfield traders
  • Growth prospects for SA CNG market could be
    impeded by the many developmental challenges
    facing the domestic industry (to be discussed
    later)
  • IDCs green transport initiative is a positive
    step towards the right direction, however robust
    policy shifts are required to create a conducive
    environment for this market to grow.
  • Gas for GTL
  • PetroSA is looking for more gas to enhance
    supplies for its GTL operations

19
INDUSTRY CHALLENGES most likely to have hampered
further market development
  • Limited domestic gas reserves which result on
  • Limited access to gas supply
  • Least development of gas infrastructure (gas
    infrastructure available in only four provinces,
    mostly concentrated in Gauteng)
  • Proposed solution
  • Enhance mid-term supply through
  • additional pipeline imports from Mozambique and
    other neighboring producing countries
  • CNG and/or LNG imports from regional and
    international markets
  • Fast-track development of appropriate regulatory
    framework to enable shale gas as a long-term
    supply solution

19
20
INDUSTRY CHALLENGES cont.
  • Lack of anchor customer(s) to justify the
  • development of domestic gas fields (e.g.,
    Ibhubesi gas, coal bed methane)
  • development of major gas infrastructure to
    support domestic gas production or for imports
  • Hurdles to gas infrastructure development
  • Potential creditworthy off-taker(s) have been
    unwilling to commit
  • Difficulties in securing finance for large gas
    projects
  • Lack of gas infrastructure planning
  • Proposed solution
  • Strategic partnerships required to develop
    necessary gas infrastructure
  • Eskom/IPPs through the IRP to anchor the
    development as a key customer
  • Government to facilitate and coordinate this
    development
  • Relevant government departments and agencies to
    be coordinated to work in synergy

20
21
INDUSTRY CHALLENGES cont.
  • Positive changes
  • Revised IRP2010 allocates about 3125 MW of gas
    generated electricity by 2025 (3600 MW by 2028)
  • IRP update includes big gas scenario in the
    view of domestic potential shale gas exploration
  • ESKOM as a potential anchor customer extensively
    looking at gas as an alternative fuel source
  • DoE currently working on the Gas Utilisation
    Master Plan but delays in finalizing the plan
    sends incorrect market signals

21
22
INDUSTRY CHALLENGES cont.
  • Difficulty in securing finance for gas projects
  • Significant upfront capital required for
    infrastructure development
  • Finance could come from the fiscus, public
    enterprises, development finance institutions,
    equity investment
  • Government has limited resources for competing
    priorities
  • No framework of incentives/subsidies to encourage
    investment in gas infrastructure projects
  • Proposed solutions
  • Strategic partnership between private entities
    and government
  • Entities (e.g. PetroSA, Eskom, etc) to make the
    project more bankable
  • Incentives such as accelerated depreciation
    allowance on energy projects that make use of gas
    as an energy source to generate electricity (as
    it was done for wind and renewable energy
    projects)

22
23
POLICY/REGULATORY CHALLENGES
  • Regulatory issues
  • Light-handed regulatory approach (Approval vs.
    setting of tariffs and prices
  • Weak enforcement mandate (can only issue notices)
  • Solution Gas Act currently being amended by DoE
  • Policy issues
  • Bottom-up approach on Integrated Energy Planning
    GUMP not finalised, but draft IEP already shows
    no significant role for gas in the energy mix
  • Lack of coordination by various government
    departments lead to misalignment of legislation
    regulating gas
  • Lack of policy drive on the increased use of
    natural gas in core economic sectors (Electricity
    industry and transport sector)
  • Solution Continuous engagement between
    government, parliament and the industry on policy
    issues affecting gas industry

24
NERSA INITIATIVES INTERVENTIONS
  • NERSA mainly regulates for market development and
    competition as per
  • the objects of the Gas Act
  • NERSA strives to facilitate investment, entry and
    to promote industry growth through
  • Licensing of new gas infrastructure and trading
    activities
  • Approval and monitoring of maximum prices and
    transportation tariffs
  • Reflective of costs, risks and economic value of
    the product
  • Enforcement of third party access to existing
    infrastructure
  • NERSA has developed
  • Gas Act Rules, 2009 to provide for a clear and
    transparent licensing process
  • Pro-investment methodologies for
    approving/setting maximum price for gas and gas
    transportation tariffs
  • Rules for registration of gas production
    operations including small biogas operations in
    rural areas
  • Compliance framework for inspection and audits of
    licensees activities
  • Dispute resolution framework for, amongst others,
    investigations of complaints

24
25
  • How do we ensure fair access to gas?
  • According to Sasol supply is constrained to
    satisfy gas demand
  • No mandate to determine allocation of gas to the
    market
  • Single supplier currently gets preferential
    access to the gas (gt50 of imported gas for
    internal use by other Sasol subsidiaries)
  • Existing capacity constraints an obstacle to
    bring more gas from Moz to SA
  • Measures for introducing competition within the
    current constraints
  • enforcement of third party access to existing
    pipelines
  • Development of Guidelines for TPA in transmission
    facilities (by licensees)
  • Guidelines governs the access arrangements
    between the transmission licensee and third
    parties seeking access to the licensed gas
    transmission pipelines
  • NERSA study for the determination of uncommitted
    capacity to gas facilities
  • Purpose of the study is to determine the levels
    of uncommitted capacity in all licensed
    transmission pipelines
  • Study not yet completed
  • Enforcement of eligible customers provisions in
    the Regulations
  • Customers consuming at least 40 000 MGJ/a of gas
    within an exclusive licensed distribution area
    have a legal right to source gas from other
    suppliers outside that area
  • Traders can compete with distributors for
    prospective eligible customers within those
    exclusive areas

25
26
  • Mandate on prices and tariffs
  • S4(h) monitor and approve and if necessary
    regulate tariffs for transmission and storage
  • Tariff Guidelines approved in 2009
  • S21(1)(p) approve maximum prices for all classes
    of customers where there is inadequate
    competition in terms of the Competition Act
  • Regulation 3(a), The Regulator must, when
    approving the maximum prices, be objective i.e.
    based on a systematic methodology applicable on a
    consistent and comparable basis
  • Maximum prices methodology approved in 2011
  • The Gas Act makes a distinction between tariff
    and price
  • Price charge for gas molecule, Gas Energy
    price
  • Tariff charge for (network) service

Regulation of gas prices and tariffs
26
27
  • The Energy Regulator does NOT set gas prices
  • Distinction must be drawn between maximum and
    actual prices
  • The Energy Regulator approves maximum prices to
    be charged by licensees in line with sec 21(1)(p)
  • Why do we need to determine a value for gas?
  • No market (gas exchange) in South Africa
  • International gas prices not necessarily relevant
    to South Africa
  • Lack of competition means that the current prices
    are not reflective of competitive market outcomes

27
28
  • Methodology for approving maximum prices for gas
  • (for gas molecule only)
  • The Methodology provides for two approaches.
  • (1) Use of Energy Price Indicators to determine
    the gas energy (GE) price
  • This is the price of the gas energy at the point
    of its first entry into the transmission /
    distribution system
  • Energy price indicators used are coal, Diesel,
    Electricity, HFO and LPG.
  • (2) Pass- through (or cost-build up) to cater for
    -
  • new entrants. e.g., importers of LNG, developers
    of domestic gas sources, etc
  • transition for incumbents and traders along the
    value chain after gas first entry into the
    transmission, distribution system
  • Where licensees deems the price to be materially
    lower than its preferred gas price

28
29
  • The methodology also provides for
  • Long-term contracts, as well as shorter review
    periods, at the election of the licensee
  • Specified data sources, as well as allowance for
    licensees to propose other data sources for NERSA
    considerations
  • Review
  • Maximum Gas Energy Price
  • In the absence of a transparent gas market price
    in South Africa ..
  • the maximum price for gas energy will be
    determined by reference to energy price
    indicators
  • This is the price of the gas energy at the point
    of its first entry into the transmission / distr.
    system
  • Based on specific energy price indicators (after
    consultation)
  • Coal, Diesel, Electricity, HFO, LPG

29
30
  • Use of Energy Price Indicators Approach
  • Maximum price of Gas Energy formula
  • where
  • CL Coal
  • DE Diesel
  • EL Electricity
  • HFO Heavy Fuel Oil
  • LPG Liquefied Petroleum Gas and
  • w1-w5 weights for coal, diesel, electricity,
    HFO, LPG

GE w1 CL w2 DE w3 EL w4HFO w5 LPG
30
31
  • Variables, weights and sources
  • The outcome of the formula depends on the weights
    attached to the energy indicator prices
  • e.g. If GE is 90 determined by the coal price,
    the price of gas energy will be relatively low,
    and
  • if 90 LPG related, the price of GE will be
    relatively high
  • Weights were determined based on data
  • from an independent source (DoE) and
  • On facts (share of each indicator in secondary
    energy consumption in SA economy)

31
32
  • Pass-through approach
  • The pass-through approach requires a cost-based
    price build-up,
  • Costs include -
  • the cost of the procured or produced gas,
  • any transportation or re-gasification costs
  • transmission tariffs
  • distribution tariffs, and
  • trading margin determined in accordance with this
    methodology

32
33
This price must be translated to prices for
customer categories (ito Regulations)
33
34
Total price for piped-gas
This methodology refers to
Trading margin
Margin (R)
Distribution
Tariff (U)
Transmission
Tariff (R)
Maximum price for Gas Energy
Price (R)
34
35
Maximum Prices approved to date
  • The Energy Regulator approved maximum prices for
  • Sasol Gas R117.69/GJ on 26 March 2013
  • Virtual Gas Network R278/GJ - on 29 July 2013
  • Novo Energy R249/GJ - on 9 December 2013
  • Spring Lights Gas R123/GJ on 27 February 2014
  • Reatile Gastrade applied but application not
    yet approved
  • For Sasol Gas, the Energy Regulator also approved
    transmission tariffs

35
36
  • Guidelines for monitoring and approving piped gas
    transmission and
  • storage tariffs
  • Key provisions in the Guidelines-
  • Licensee choose a preferred methodology from the
    menu of six provided in the Guidelines
  • Licensee can also use its own, (not in the menu),
    methodology so long as it is proven and tested
  • Data sources are specified by NERSA
  • NERSA tests the application using same
    methodology used by the licensee in its tariff
    application
  • The menu of six methodologies provided for in
    the Guidelines are
  • Rate of return regulation
  • Incentive regulation
  • Price Caps
  • Revenue Caps
  • Hybrids of the abovementioned approaches
  • Profit sharing or sliding scales and
  • Tariffs based on a discounted cash flow model of
    allowable revenue.

36
37
  • Each of the regulatory methodologies considered
    in the above menu requires the calculation
  • of an allowed revenue formula. This formula
    takes the form shown below
  • AR (RAB x WACC) E T D /- C
  • Where
  • AR is allowed revenue for a distinct regulatory
    period
  • RAB is the Regulatory Asset Base
  • WACC is the effective weighted average cost of
    capital
  • E is Expenses maintenance and operating expenses
    in the tariff period under review
  • T is Tax flow-though tax expense in the tariff
    period under review
  • D is Depreciation the charge for the tariff
    period under review
  • C is the claw-back based on actual volumes lagged
    by one year
  • All prudently and efficiently incurred expenses
    go as a pass through
  • Companies are allowed to make a return
    commensurate with risk.
  • The return for each company is determined using
    its Weighted Average Cost of Capital (WACC)
  • The WACC (expressed as a ) is applied to the sum
    of the working capital, asset base and/or cost of
    sales
  • The cost of equity is determined using CAPM

37
38
Approved Transmission Tariffs
Sasol Gas
Element Application
Methodology chosen Cost of service (Rate of return)
Tariff period 26 March 2014 30 June 2015
Tariff structure approach Entry / exit pricing with 3 zones
Transnet Pipelines
Element Application
Methodology chosen Cost of service (Rate of return)
Tariff period 01 April 2014 31 March 2016
Tariff structure approach Block Tariff
38
39
ROMPCO
Element Application
Methodology chosen Discounted Cash Flow (DCF)
Tariff period 01 July 2011 30 June 2029
Tariff structure approach Block tariff
39
40
  • Conclusions about methodology
  • Important to note that
  • A regulated price can only mimic competitive
    outcomes, real pressure on prices will only come
    from gas-on-gas competition
  • the Gas Act provides for a complex pricing and
    tariffs regime
  • NERSA approve maximum prices for gas
  • NERSA monitor and approve transmission and
    storage tariffs
  • Regulations must allow an efficient operator to
    recover its prudently incurred costs and make a
    profit commensurate with risk
  • NERSA must use an approach that is objective,
    systematic, fair, non-discriminatory,
    transparent, predictable and efficient

40
41
  • Balancing the interests
  • Attempt to provide a flexible framework that
    provides for all eventualities and all players
  • Is a balanced approach with some compromises -
    expect to perfect methodology over time
  • Safeguards built in
  • Pass through approach
  • Difficult to please everyone, all of the time
  • Energy Regulator has opted for best option
    available balancing the interests of consumers,
    suppliers and potential entrants

41
42
The future of gas prices in sa
  • NERSA is currently not in a position to forecast
    gas prices going forward
  • Gas prices were regulated ito of the Sasol
    Agreement for the past 10 years
  • Implementation of maximum prices for gas only
    started in 2014
  • Impact assessment of the pricing could only be
    conducted over a period of time
  • However, gas prices are likely to be affected by
    the other Energy Indicators (Coal, LPG, diesel,
    Electricity HFO) as discussed above
  • Competition in the market will drive gas prices
    in the long-term
  • How does the Gas Energy price compare with
    international gas prices?

42
43
South Africa class 3 price in Gauteng as at March
2013 (4,001GJ 40,000GJ per annum, including
Sasol tariffs) compared to EU industrial tariffs
(10,000GJ 100,000GJ per annum) (ZAR / GJ)
Source Eurostat Exchange rates 2011
R10.06/EUR 2012 R10.50/EUR 2013 R12.79/EUR
(Average exchange rates per year. Source
Oanda.com)
43
44
Source waterborne Energy, Inc. Data in US/MMbtu
LNG prices before the regas cost
South Africa GE 12
Price of gas in its gaseous form compared to LNG
  • According to stakeholders looking at LNG as a
    supply option -
  • LNG landed price plus regas costs in SA is
    expected to be 16 /Mmbtu
  • This price compares well with landed prices of
    LNG in other regions

44
45
Average fuel prices for FY15
R/GJ
79
Coal
HFO
LPG
Diesel
Electricity
Gas
Prices for alternative fuels based on Group
assumptions, save for coal where McCloskey
forecast was used
Average electricity price in FY15 R0.72/kWh or
R193/GJ. Sasol Gas customers who pay the
highest possible price and tariff, still has a
total charge equivalent to R0.51/KWh less than
the average electricity price.
Source Sasol Gas
45
46
Key outcomes from public participation process on
gas pricing
  • NERSA has no mandate for Dx tariffs margins
  • Prices will be too low Sasol, traders
    potential suppliers
  • Prices will be too high (monopolistic prices)
    current customers
  • Prices will not reflect market prices Sasol,
    customers and some (potential) suppliers
  • Traders will be disadvantaged by a pancaking
    approach as the market has a ceiling (trader)
  • Choice of alternatives broad agreement with
    stakeholders
  • Weights of the energy price indicators in the
    basket criticism-
  • Traders and Sasol prefer higher weighting of
    higher priced indicators i.e. LPG and HFO
  • Consumers prefer higher weighting lower priced
    indicators i.e. coal
  • Data sources DoE not preferred for weights data
    or HFO price
  • Cost-plus approach more preferred by most users

46
47
  • Will prices be too high?
  • Risk of prices that are too high
  • Windfall profits
  • No customers willing to switch / no viable gas
    business
  • NO, because
  • GE price approximates value at which customers
    would be willing to switch to gas (compared to
    other energy carriers)
  • Is based on wholesale prices of alternatives
  • Provides a maximum below which can discount

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  • Will prices be too low?
  • Risk of prices that are too low
  • No viable gas business / No entry
  • Rapid depletion of finite gas resources
  • NO, because
  • GE price higher than minimum landed price (S)
  • GE is constructed based on comparable prices of
    alternatives, to which all other costs are added
  • All costs associated with transportation added /
    passed on via tariffs
  • (profit) Margin for traders is added to cover all
    costs and profit for the selling of gas

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How Sasol Implemented Max Prices
  • FY15 forecast
  • 40 001 400 000 GJ 74 customers , 10mGJ
  • 400 0001 4m GJ 25 customers , 35mGJ

Source Sasol Gas
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Notable Impact Of the 20 customers that consume
80 of external volumes, 25 will see price
decreases
Source Sasol Gas
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KEY MESSAGES
  • Challenges facing the SA gas sector continues to
    hamper development
  • Growing the gas market would require more gas and
    more infrastructure
  • Existing need for SA to diversify its gas supply
    sources
  • LNG, CNG and shale gas (long-term) have a role to
    play
  • Clear and appropriate policy signals, and govt
    support required to
  • enhance market interest in natural gas as a
    viable option
  • encourage investments
  • Policy and regulatory certainty is needed
  • Alignment of IEP, IRP GUMP is critical to avoid
    conflicting messages from govt
  • Energy strategy plan (IEP) should realize the
    potential for gas in order for SA to benefit from
    this new era of natural gas
  • Gas Utilization Master Plan must be fast-tracked
    and its legal status must be clear
  • Implementation of the gas to power component in
    the IRP should be fast-tracked

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KEY MESSAGES cont.
  • Gas to power is seen as a key enabler for further
    gas market development
  • Interdependence between electricity and gas must
    be exploited
  • Eskom could benefit from converting its OCGT
    plants to CCGT plants (cost savings)
  • Gas also has a role to play in the renewable
    energy programme due to the intermittency of
    renewable sources
  • Gas supply is no longer an issue
  • Mozambique, Tanzania additional gas finds could
    benefit SA
  • LNG imports from global market is also a supply
    solution
  • but decisive actions required
  • Alignment of legislation regulating gas or
    affecting gas industry is also critical
  • Current regulatory framework and the proposed
    amendments in the Gas Bill are appropriate for
    encouraging further industry development. But
    finalisation of the Bill must be fast-tracked

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  • THANK YOU
  • Website www.nersa.org.za
  • Tel012- 401 4600
  • Fax012- 401 4700
  • Email info_at_nersa.org.za
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