Sasol sale may be boon for gas users

• Two government entities wielding greatest power on board could have positive implications for industry, with possible lower tariffs

Sasol’s sale of a stake in the Republic of Mozambique Pipeline Company pipeline, which transports gas from Mozambique to SA, may mark a lost majority share in the strategic asset for the synthetic fuels producer but it could also present opportunities for the local gas industry if the pipeline owners play their cards right.

Sasol’s sale of a stake in the Republic of Mozambique Pipeline Company (Rompco) pipeline, which transports gas from Mozambique to SA, may mark a lost majority share in the strategic asset for the synthetic fuels producer, but it could also present opportunities for the local gas industry if the pipeline owners play their cards right.

The 865km pipeline stretches from Sasol’s Pande and Temane offshore gas fields in southern Mozambique and over the border to deliver the natural gas to Sasol’s operations in Secunda. Other transmission pipelines go on to deliver the same gas to a number of industrial users in SA such as Consol and ArcelorMittalSA.

Sasol, a synthetic fuels and chemical producer, is by far the biggest user of the piped natural gas, a critical input in its operations. Yet a portion of Sasol’s 50% stake in the pipeline found itself on the chopping block as the group embarked on assets sales to shore up its overstretched balance sheet when oil and chemicals prices fell at the outset of the Covid-19 pandemic in the first half of 2020.

First, a consortium led by the Reatile Group penned a deal to take 30% of the Rompco stake off Sasol’s hands. However, the deal was subject to pre-emptive rights on the shares held by existing shareholders iGAS, a subsidiary of SA’s Central Energy Fund, and Companhia Moçambicana de Gasoduto (CMG), a subsidiary of Mozambique’s Empresa Nacional de Hidrocarbonetos.

While Sasol will still hold a 20% stake in the pipeline and access to the critical natural gas supply, the two government entities, which chose to exercise their rights, now wield the greatest power on the board and could have positive implications for gas users.

Jaco Human, executive officer of the Industrial Gas Users Association of Southern Africa, says the big question is what is the intent of the pipeline shareholders. “Are they looking at this from an investment perspective or are they largely looking at this from a utility perspective? I think there’s a distinct difference in the approach and what it means for gas users and the cost of moving gas.”

He said an ideal outcome would be if the state recognised that the asset had already been paid for and opted to amortise it to zero value, bringing down the tariff. “This is where the political and the economic outlook of the new shareholders is going to play a very significant role and could well serve the interests of the country and the economy.”

Sasol and the Central Energy Fund have remained mum on plans for the pipeline post-sale, especially as it moves to merge all state-owned energy entities into a National Petroleum Company.

If the shareholders willed it so, there was nothing preventing them from reconsidering the transportation cost and lowering it so the transmission tariff can come down, said Nomfundo Maseti, Nersa regulator member primarily responsible for piped gas.

Maseti, however, noted that the structure of the sales deal was a big factor, though there were no details yet. “We do not know who is buying what portion of the equity, and we’re not sure about how that will be financed. So on that basis alone, it is not easy to then tell whether tariffs will come down.”

Important to note, too, is that the tariffs for the Rompco crossborder pipeline are in fact not regulated by Nersa — which the regulator is in the midst of challenging.

At the time of Rompco’s establishment, the SA and Mozambican governments, as well as Sasol, signed a crossborder pipeline agreement to ring-fence the asset and the costs associated with it. They also agreed on a prescribed tariff formula to ensure recovery of capital and fair returns to the shareholders.

The agreement was valid from 2004 to March 2014, when it expired.

While Nersa has contested that there is now no legal basis for the parties to continue using the tariff formula, which results in high costs, Rompco continues to calculate the tariff based on its own formula rather than the Gas Act, which empowers Nersa to monitor compliance with a prescribed tariff formula.

The shareholders contend that the pipeline agreement is technically still valid because it is included in the licensing conditions Nersa issued to Rompco. Nersa is working to meet the legal requirements to amend the licensing conditions, and has also published a document for comment.

The regulator, having conducted its own assessment, is of the view that the capital cost of the pipeline may have been paid up. Some of the shareholders on the Mozambican side of the deal don’t think so.

“So we are at the point where they need to present us with evidence that shows that there are debt obligations that still indeed need to be recovered from that tariff,” Maseti said.

As the pressure mounts on companies to decarbonise their operations, the already underserviced demand for gas in SA is likely to grow. Sasol alone will need more gas to reduce its large carbon footprint.

Sasol’s Pande and Temane fields are, however, running out of gas, with resources expected to dwindle in coming years.

With no success in Sasol’s exploration efforts to date, and a pipeline from gas finds in northern Mozambique unfeasible, the likely solution will be to import liquefied natural gas (LNG) through the Matola terminal in Maputo, which is in development.

Human said while LNG was costlier than natural gas, this could be offset in the event that the shareholders were able to reduce the pipeline tariffs.

In fact, the pent-up demand for gas in SA may well grow to the point that the pipeline may need to be expanded to supply sectors, such as logistics, where gas is the most feasible option to decarbonise operations.

When it comes to using LNG for power generation, it can be a cost-competitive way to help solve SA’s shortage of baseload and peaking power, said Paul Eardley-Taylor, head of oil and gas at Standard Bank.

“Rompco’s key aspect is it runs close to Maputo and the Eskom coal plant sites en route to Secunda, Sasolburg and Johannesburg,” he said. “This will allow the future Matola FSRU [floating storage and regasification unit] to take the world’s gas supply into SA, bringing the possibility for SA to build badly needed base load or mid-merit at existing generation sites.’’

SASOL ’ S PANDE AND TEMANE FIELDS ARE, HOWEVER, RUNNING OUT OF GAS