SOUTH AFRICAN PIPED-GAS INDUSTRY
PCE Briefing, 9 September 2014
2
CONTENT
Gas industry
overview
Challenges
NERSA initiatives
Conclusion
• Introduction
• Gas Policy/regulatory framework
• Regulatory mandate ito Gas Act
• Gas value chain
• SA gas market structure
• Current gas infrastructure
• Gas trading and market opportunities
• Challenges with the current landscape
• Industry challenges
• Policy/ Regulatory challenges
• Regulatory tools
• Measures for introducing competition
• Regulation of gas prices and tariffs
• Gas Prices methodology
• Tariffs guidelines
• Future of gas prices
• Key outcomes from public participation
process on gas pricing
3
ACRONYMS AND ABBREVIATIONS
Bcm
CNG
DoE
FS
GP
GUMP
IEP
IRP
JHB
LNG
LPG
MGJ/a
MP
NG
NGV
NDP
NERSA
TCF
Billion cubic meters
Compressed natural gas
Department of Energy
Free State Province
Gauteng Province
Gas Utilisation Master Plan
Integrated Energy Plan
Integrated Resource Plan
Johannesburg
Liquefied natural gas
Liquefied Petroleum Gas
Million Gigajoules per annum
Mpumalanga Province
Natural Gas
Natural Gas Vehicle
National Development Plan
National Energy Regulator of South Africa
Trillion cubic feet
4
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
OVERALL MANDATE
NERSA’s 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
GAS POLICY/REGULATORY FRAMEWORK
Overarching policy
White Paper in Energy Policy, 1998
Primary Legislation
- National Energy Regulator Act, 2004
- National Energy Act, 2008
- Gas Act, 2001
- Sasol Regulatory Agreement until 25 March 2014
- Gas Regulator Levies Act, 2002 (Act No. 75 of 2002)
Gas Act, 2001 (Currently being
reviewed)
- Piped Gas Regulations, 2007
- Gas Act Rules 2009
- NERSA tariffs and pricing methodologies
- Internal procedures and frameworks
developed by NERSA
Other impacting plans/policy documents
* Currently under development
-Gas Utilisation Master Plan*
-Integrated Energy Plan*
-Integrated Resource Plan 2010-2030
-National Development Plan 2012
7
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
8
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
9
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
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
11
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
SA GAS MARKET STRUCTURE
Upstream
Mozambique
Exploration &
Production by
Sasol Petroleum
International
NG Importation
Sasol Gas
Midstream
Transmission
ROMPCO
Sasol Gas
Transnet
Downstream
Reticulation
Distribution
Sasol Gas
-
Regulated by Munics
Trading
Pipeline gas:
•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
Domestic
Syn gas production
by Sasol Synfuels
PASA regulated
Exploration & Production
- On & offshore
Sasol Gas
Spring Lights
Reatile
CNG:
VGN
Novo Energy
NGV Gas
• 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)
NERSA regulated
activities
13
CURRENT GAS INFRASTRUCTURE
Egoli Gas reticulation network
in the Johannesburg area
Sasol Gas Pipelines
CNG mobile storage and
transportation system
ROMPCO Mozambique to
Secunda Pipeline
CNG high pressure cylinders
Transnet Lilly Pipeline
14
•
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
15
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 16
generation purposes
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
17
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
18
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
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
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
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
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
23
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
• 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 (>50% 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)
o
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
o
o
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
25
exclusive areas
REGULATION OF GAS PRICES AND TARIFFS
• 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
26
• 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
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
• 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
• Use of Energy Price Indicators Approach
• Maximum price of Gas Energy formula
GE = w1 CL + w2 DE + w3 EL + w4HFO + w5 LPG
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
30
• 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
• 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
Category 1
< 400 GJ/a
Category 2
401-4,000
GJ/a
This price must be
translated to prices
for customer
categories (ito
Regulations)
Category 3
4001-40,000
GJ/a
Category 4
40,001400,000 GJ/a
Category 5
400,001 –
4,000,000 GJ/a
Category 6
> 4,000,000
GJ/a
Total price for piped-gas
Trading margin
Margin (R)
Distribution
Tariff (U)
Transmission
Tariff (R)
Gas Energy Price
Price (R)
33
This methodology
refers to
Total price for piped-gas
Trading margin
Margin (R)
Distribution
Tariff (U)
Transmission
Maximum price for Gas Energy
Tariff (R)
Price (R)
34
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
• 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
 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
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
ROMPCO
Element
Application
Methodology chosen
Discounted Cash Flow (DCF)
Tariff period
01 July 2011 – 30 June 2029
Tariff structure approach
Block tariff
39
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, nondiscriminatory, transparent, predictable and efficient
40
• 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
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
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)*
300
250
200
137
150
100
50
0
2011
2012
2013
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
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
Average fuel prices for FY15
R/GJ
79
Diesel
LPG
Electricity
HFO
Gas
Coa
l
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
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
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
47
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
48
How Sasol Implemented Max Prices
•
Source: Sasol Gas
•
•
FY15 forecast
40 001 – 400 000 GJ = 74 customers , 10mGJ
400 0001 – 4m GJ = 25 customers , 35mGJ
49
Notable Impact: Of the 20 customers that consume 80%
of external volumes, 25% will see price decreases
Source: Sasol Gas
50
Total Maximum Gas Charge Excluding Distribution Tariff
(R/GJ)
160
140
120
100
80
Secunda / Middelburg / Witbank
KZN
60
Gauteng
40
20
0
< 400 GJ p.a
401 - 4,000 GJ
p.a.
Class 1
Class 2
4,001 - 40,000 40,001 - 400,000
GJ p.a.
GJ p.a.
Class 3
Class 4
400,001 4,000,000 GJ
p.a.
> 4,000,000 GJ
p.a.
Class 5
Class 6
51
Total Maximum Gas Charge Including Distribution Tariff
(R/GJ)
160
140
120
100
80
Secunda / Middelburg / Witbank
Gauteng
60
KZN
40
20
0
< 400 GJ p.a
Class 1
401 - 4,000 GJ 4,001 - 40,000
40,001 400,001 p.a.
GJ p.a.
400,000 GJ p.a. 4,000,000 GJ
p.a.
Class 2
Class 3
Class 4
Class 5
> 4,000,000 GJ
p.a.
Class 6
52
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
53
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
54
THANK YOU
Website: www.nersa.org.za
Tel:012- 401 4600
Fax:012- 401 4700
Email: info@nersa.org.za