Notice for the stakeholder workshop for review of the methodology to approve maximum prices of gas in South Africa 4 June 2026

The National Energy Regulator of South Africa (NERSA) is hosting a crucial stakeholder workshop on June 4, 2026, to review the methodology for approving maximum gas prices. This initiative comes amidst a dynamic energy landscape, characterised by declining domestic gas reserves, increasing reliance on imports, and a pressing need for regulatory certainty to foster investment and ensure fair pricing. The workshop aims to gather input on the current "cost-plus" methodology, which NERSA applies under the Gas Act, 2001, to balance consumer protection with the financial viability of gas suppliers. The outcome of this review will significantly impact the piped-gas industry, influencing operational costs, investment decisions, and the overall competitiveness of the South African gas market.

The National Energy Regulator of South Africa (NERSA) has announced a pivotal stakeholder workshop scheduled for June 4, 2026, to undertake a comprehensive review of its methodology for approving maximum gas prices. This workshop is a critical event for the South African energy sector, particularly the piped-gas industry, as it directly addresses the regulatory framework governing gas pricing, a cornerstone of market stability and investment attractiveness. NERSA, as the custodian of energy regulation in the country, is mandated to ensure that gas prices are fair, predictable, and equitable, while also promoting competition and facilitating the development of the gas market.

NERSA was established as a juristic person under Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004), with a broad mandate to regulate the electricity, piped-gas, and petroleum pipelines industries. Its authority over the piped-gas sector is primarily derived from the Gas Act, 2001 (Act No. 48 of 2001). Specifically, Section 21(1)(p) of the Gas Act empowers NERSA to approve maximum prices for gas distributors, reticulators, and all classes of customers, provided there is inadequate competition in the relevant gas markets. This regulatory intervention is crucial in a market, like South Africa's, where competition may be limited, to prevent excessive pricing and protect consumers.

The history of gas price regulation in South Africa has seen various approaches. An initial methodology implemented by NERSA in 2013 was subsequently set aside as irrational by a Constitutional Court order. This led to the adoption of a new methodology, which for a period applied an international benchmarking approach. However, more recently, NERSA has been applying a "cost-plus" methodology, which aims to allow licensees to recover prudently and efficiently incurred costs and earn a fair return on investment. This framework is further informed by the 'Price Regulation Procedures and Principles' prescribed in the Piped-Gas Regulations, promulgated under the Gas Act, 2001, in Gazette No. 29792 of 20 April 2007.

The upcoming workshop is particularly pertinent given the recent approvals of maximum gas prices for various licensees, such as Spring Lights Gas, Natural Gas Vehicles, Virtual Gas Network, and NOVO Energy, for periods extending into 2026. These approvals demonstrate NERSA's ongoing application of its current methodology, which, as noted, is predominantly a cost-plus approach. This methodology considers the cost of gas, trading costs, and a profit component, aiming to emulate prices that would persist in competitive markets and facilitate the establishment of conditions for effective competition.

However, the South African gas market faces significant challenges that necessitate a continuous review of regulatory frameworks. The country is heavily reliant on natural gas imports from Mozambique, primarily through Sasol Gas, and these fields are experiencing declining reserves, posing a substantial supply threat. This looming supply crisis, coupled with the high costs and infrastructure challenges associated with potential Liquefied Natural Gas (LNG) imports, underscores the urgency of a robust and adaptable pricing methodology. Stakeholders have previously raised concerns regarding price increases, predictability, and compliance with regulatory rules, especially following adjustments related to supplementary gas volumes.

The review of the methodology must therefore navigate a complex landscape, balancing the need to protect industrial and residential consumers from exorbitant prices with the imperative to provide sufficient certainty and attractive returns for investors to develop new gas supply sources and infrastructure. The Gas Act, 2001, explicitly mandates NERSA to promote the development of a competitive market. The workshop provides a crucial platform for NERSA to engage with industry players, consumers, and other interested parties to refine the methodology, ensuring it remains fit-for-purpose in a rapidly evolving energy environment. This includes considering alternative methods, such as hub pricing for LNG imports, which aligns with competitive global LNG pricing.

The stakeholder workshop on June 4, 2026, represents a critical juncture for the South African piped-gas industry. The revised methodology for approving maximum gas prices will have far-reaching implications for gas producers, transporters, distributors, and end-users, directly influencing operational costs, investment appetite, and the overall energy security of the nation. Legal practitioners advising clients in the energy sector must closely monitor the outcomes of this workshop and the subsequent amendments to NERSA's methodology.

Practitioners should prepare to advise on potential shifts in pricing structures, contractual implications, and compliance requirements. Active engagement with NERSA's consultative processes is paramount to ensure that the final methodology fosters a stable, competitive, and sustainable gas market in South Africa, aligning with both economic development goals and the broader energy transition strategy. The ongoing need for legislative clarity, including the finalisation of instruments like the Gas Amendment Bill, also remains a key area for legal and regulatory attention.