By Jaco Human, Chief Executive Officer, Industrial Gas Users’ Association of Southern Africa
15 January 2025
In August 2023, Sasol’s announcement of the impending cessation of its natural gas supply sent shockwaves through South Africa’s industrial sector. The news underscored the urgent need for decisive action to secure the country’s future energy supply. Yet, while the initial announcement triggered some high-level meetings, the South African government has since lapsed into a telling silence. This lack of engagement, particularly in addressing short-term solutions, stands in stark contrast to its verbose advocacy for less challenging, long-term policies. In any other country facing such a crisis, the government would be working hand-in-glove with the private sector to avert disaster. Here, industry finds itself alone.
The consequences of inaction
The urgency is clear: Sasol’s ability to maintain gas supply ends in June 2028—a mere 42 months away. Given the 30-month minimum lead time to build the necessary infrastructure, South Africa has only a few short months to conclude agreements and break ground. Failure to act will result in a catastrophic economic shock.
South Africa’s industrial users of gas contribute approximately R700 billion annually to GDP and directly support 100 000 jobs. Key sectors such as mining, automotive, chemicals, ceramics, glass, consumer goods, and steel depend on a stable gas supply. Disruption risks widespread job losses and could destabilise the economy. The stakes could not be higher, yet government silence persists on the specifics of any plan or solution.
Promises with no details
Despite the lack of meaningful engagement with industry, the government continues to announce purported solutions. From the Eskom/Sasol Memorandum of Understanding to vague initiatives of government-to-government LNG supply deals, and uncertain developments in Richards Bay and Transnet pipeline upgrades, these proposals lack critical details such as commercial terms, pricing, or timelines. Without such specifics, these announcements seem little more than political theatre. Words alone cannot sustain an industrial economy – actionable and bankable plans are imperative.
Governments in other nations facing similar crises would align closely with private sector stakeholders to craft pragmatic, urgent solutions. For instance, during the Russia-Ukraine conflict, the German government took decisive steps to safeguard its energy security by forging public-private partnerships, ensuring adequate financial support, and sharing risks with the private sector. Such measures demonstrate that governments typically have “skin in the game”, recognising their pivotal role in stabilising markets and securing the future of their nations. By contrast, the South African government’s disengagement places the burden of gas energy security entirely on the private sector, an untenable expectation for a developing economy.
Industry solutions: practical and ready
That said, the private sector has indeed stepped up in the absence of any discernible government plans. The industry-led GasCo initiative represents a practical and least-cost, sustainable path forward. This non-profit demand aggregator is already well-advanced, with shareholder agreements expected to be in place by Q1 2025. Negotiations with suppliers are underway, and financial institutions have indicated they are prepared to back the project. GasCo’s approach is not onerous or overly complex; it simply requires government alignment and limited risk assumption by the government to succeed – risk that is in the national interest.
Sasol, while a critical player, has made it clear that it cannot fulfil the country’s LNG needs alone. Its role as a trader for commercial gain, coupled with its limited balance sheet, underscores the importance of broader and more progressive market solutions like GasCo – solutions that are truly designed to serve the broader economic interest of the country rather than narrow monopolistic, business, and government-serving interests.
An urgent call for tangible and practical government action
Time is running out. The next six months will determine whether South Africa’s industrial sector survives or succumbs to the gas cliff. The government must not only focus on politically convenient long-term policies. It must engage immediately with the private sector to develop actionable short-term solutions. High-level, focused discussions between key government departments and industry stakeholders are essential. These talks must result in a framework that enables infrastructure development and risk sharing with the private sector to secure gas supply within the critical timeframes.
The solutions are not complex or onerous.
The private sector is taking on the challenge head-on in the interest of the South African economy. It is crafting practical and cost-efficient solutions. It has the technical expertise, commercial strength, and commitment to secure South Africa’s gas energy future. What is lacking is a proper public-private partnership framework.
Suppose there is a solution as advocated by the government. In that case, the right announcements need to be made now – announcements that speak to government and market alignment, definitive infrastructure developments, project timelines, and carefully considered public-private finance and risk frameworks.
South Africa stands at a pivotal juncture. The recent disruptions to the supply of gas from Mozambique due to political unrest underpinned the urgent need to establish a secure and sustainable gas supply for South African industrial and other users, an objective that should be front of mind for all stakeholders.
The Department of Electricity and Energy (DEE), the Department of Trade, Industry and Competition (dtic), and National Treasury have the tools and capacity to drive real change. With the right focus and alignment within these departments, working together with industry, there is no reason why this challenge cannot be met with confidence and purpose.
By channelling its energy into actionable, collaborative frameworks, the government can secure the country’s industrial future and restore faith in South Africa’s ability to navigate this critical moment. But time has run out, and swift action is now imperative for South Africa.