By Toyin Akinosho, Publisher
South African energy producer Sasol has disagreed with “the preliminary conclusion by the National Energy Regulator of South Africa (NERSA) that the maximum price of R120/GJ applied for by Sasol Gas for full year 2023 is excessive”.
Of the volume imported into South Africa from Mozambique through a pipeline inaugurated 19 years ago, Sasol sells 161Million standard cubic feet per day (MMscf/d) of natural gas to domestic customers. Those charges are regulated by NERSA.
120 Rand per Gigajoule amounts to $6.5/ thousand standard cubic feet (Mscf), or $6.5/Mscf. Full Year 2023 (FY 2023), in South Africa, refers to July 1, 2022 to June 30, 2023.
Gas prices in Africa’s domestic market haven’t been affected by the volatility in Europe and Asia in the last two years. Egypt’s regulated gas prices range from around $12/ Mscf for cement production to as low as $3/Mscf for electricity generation. In Ghana, Italian producer ENI charges the government around $9/Mscf for gas delivered from the country’s Sankofa field, supplied mostly for power generation. In Nigeria, upstream gas producers are allowed to charge around $2.2/Mscf from electricity generating companies, whereas in Tanzania, power producers pay up to $3/Mscf.
Sasol Gas’ customers include Consol Glass; Brochem, a chemical manufacturer; Mondi, a paper maker; the aptly named PFG Building Glass; Ceramic Industries; Ilovo Sugar and others. The company admits, in its latest report (July 11, 2023), that “natural gas and methane rich gas sales volumes in South Africa were 3% and 1% lower respectively when compared to the prior year due to lower customer demand”.
But of the maximum gas price, Sasol “maintains that apart from operational cost increases, NERSA also has to take into account the risk associated with extensive investments which Sasol is currently making to extend supply and the incentives to develop new resources”, the company notes in a statement. “Furthermore, the alternative value for Sasol is that it has the ability to convert gas into other value-added products in its South African facilities, as an alternative to selling this gas to third party customers”.
NERSA published Sasol Gas’s Amendment Maximum Gas Price (MGP) Application for FY2023 and published its Consultation Document. It has also published Sasol Gas’s MGP application for the period July 1, 2023 to June 30, 2024 (FY2024) together with its Consultation Document.
“This pricing application has followed the cost plus 2023 MGP methodology, which NERSA published in February 2023”, Sasol declares in the press statement.
Sasol says it welcomes the progress in its MGP application process, “and is optimistic that the approval of an appropriate maximum gas price for the FY2023 period will recognise the interests of consumers, while enabling the viability of the supply of gas in South Africa”.
Sasol Gas has continued to charge customers at $3.65/Mscf or R68.39/GJ from FY2022, “notwithstanding the additional expenditure and cost increases exceeding 40% that Sasol has faced during this period. To date, Sasol has invested over $300Million in capital expenditure since 2021 to maintain gas supply from Mozambique to 2026”.
Sasol notes that an MGP needs to be fair and enable ongoing investment in new sources of gas supply. “During the course of 2022, it became apparent that the MGP would increase dramatically, due to international gas hub prices increasing on the back of post COVID-19 demand, the war in Ukraine and weather conditions affecting gas demand.
“These (external) factors were projected to increase the MGP, determined according to the international gas benchmark 2020 MGP methodology, to R273,43/GJ (or $15/Mscf) for FY2023.
Sasol Gas engaged extensively with NERSA about appropriate pricing in accordance with the then applicable 2020 MGP methodology. These engagements continued throughout 2022 and resulted in NERSA requiring Sasol to bring a formal price application to resolve the matter.
“Gas price regulation in terms of the Gas Act is aimed at determining a competitive price for gas and should strike a balance between the interests of gas suppliers and consumers, while fostering the viability of the supply in South Africa and investment in new sources of supply”, Sasol rigorously argues. “Sasol’s investments over the past 20 years have offered consumers an alternative energy supply, thereby enhancing competition, consumer choice and, importantly, fostering economic activity and investment in the South Africa economy”.
Sasol says it will “continue its engagement in the commentary phase of the FY23 price application and trusts that NERSA will duly fulfil its mandate to determine an appropriate, reasonable and competitive gas price for FY23 in the interests of consumers and gas supply in South Africa”.
Sasol remains committed to complying with all applicable regulations and cooperating with relevant authorities throughout this process.