South Africa: Sasol Warns of Looming Industrial Gas Supply Crisis

• South Africa faces an impending industrial gas supply crisis, threatening 8% of its economy and 75,000 jobs.
• Sasol, the primary supplier from Mozambique, warns that within two years, its fields will only meet its own needs, leaving other industries without supply.
• Attempts to build private sector gas import infrastructure, like the TotalEnergies Matola gas terminal, are stalled due to insufficient demand commitments.
• Domestic gas exploration is hindered by legal challenges and environmental disputes, exemplified by Shell Plc's denied exploration right.
• Industry calls for specialist courts to expedite oil and gas matters have been ignored, leaving the sector unable to assess or develop potential reserves.

Substantial investment is currently on hold due to uncertainty regarding gas availability beyond 2030 and future pricing.

South Africa faces a critical natural gas supply crisis, according to business leaders, even as the government addresses persistent power outages and deteriorating water infrastructure. This looming "gas cliff" threatens a significant portion of the nation's economy. Industries heavily reliant on gas, including glassmakers, tile manufacturers, and food processors, collectively contribute 8% to the economy, generate R700 billion (approximately $43 billion) in annual economic output, and sustain 75,000 jobs.

Currently, almost all of these industrial gas requirements are met by Sasol, sourced from its fields in central Mozambique. However, Sasol has issued a stark warning: within two years, the output from these Mozambican fields will only be sufficient to meet its own operational needs. This impending Sasol Mozambique gas supply shortage leaves other industries facing a severe supply deficit, prompting them to halt investments and demand urgent solutions from the government. Thomas Shaw, Chief Commercial Officer of Ardagh Glass Packaging-Africa, the continent's largest glassmaker, expressed frustration, noting that the government typically delays action until a crisis is immediate, perceiving this gas shortage as too distant. He highlighted that substantial investment is currently on hold due to uncertainty regarding gas availability beyond 2030 and future pricing.

Efforts to establish private sector-led gas import infrastructure, crucial for bridging the anticipated supply gap, have been hampered by insufficient demand from industrial users alone to justify the substantial investment required. A prime example is the planned TotalEnergies Matola gas terminal, a joint venture between TotalEnergies SE and South Africa's Gigajoule Group. This project has struggled to secure the necessary demand commitments since at least 2025 to proceed.

Magali Pailhé, Managing Director of TotalEnergies Exploration & Production and Renewables South Africa, emphasized that developing such a project requires a minimum of three years. She underscored the necessity of guaranteed uptake to ensure cash flow and recoup investment over time. The Matola terminal holds strategic importance as it could connect to existing pipeline infrastructure leading to Gauteng, South Africa's industrial heartland, encompassing cities like Johannesburg and Pretoria. The economic viability of South Africa LNG import infrastructure projects could be significantly improved by increased investment in gas-fired power generation. While the nation's long-term energy strategy prioritizes renewable power, its national energy plan also designates gas as a transition fuel, targeting 16 gigawatts of gas-fired generation by 2039. The government is currently evaluating bids for 2 gigawatts of gas-fired power plants, though their construction timeline remains uncertain. Additionally, national utility Eskom is pursuing a 3-gigawatt plant in Richards Bay, which would necessitate a new LNG terminal, but its permit was annulled by the Supreme Court of Appeal in September 2025, requiring Eskom to restart the authorization process. This location lacks a pipeline connection to Gauteng.

South Africa possesses significant untapped gas reserves, both onshore and offshore. However, the development of these domestic resources, particularly ocean exploration, has been severely impeded by ongoing legal challenges and disputes with environmental advocacy groups. A notable instance occurred in August when the country's highest court denied Shell Plc the renewal of an exploration right off the Wild Coast region, concluding a five-year legal battle with activists. This case is one of numerous courtroom confrontations over hydrocarbon exploration off South Africa's coast during the past decade.

Industry associations have repeatedly requested the establishment of specialist courts to expedite the adjudication of oil and gas matters, but these appeals have not been acted upon by the government. Magali Pailhé, who also chairs the Offshore Petroleum Association of South Africa, lamented that despite the immense potential of domestic resources, the industry is essentially "stuck" and unable to advance. She noted that without the ability to explore, it is impossible to even ascertain the extent of these potential resources, further exacerbating the South Africa industrial gas supply crisis.

The impending South Africa industrial gas supply crisis demands immediate and decisive action to avert significant economic disruption. The current reliance on a single, diminishing external source highlights the vulnerability of key industrial sectors. Without a clear strategy for securing future gas supplies, the R700 billion annual economic output and 75,000 jobs dependent on gas remain at risk.

As a temporary measure, Sasol has proposed a stopgap solution involving methane-rich gas derived from coal. While this offers a potential short-term fix, it comes with an acknowledged environmental cost. Sasol's application to the energy regulator to establish pricing for this coal-derived methane gas has been approved by the National Energy Regulator of South Africa (NERSA) for the period from July 1, 2026, to March 31, 2028. The urgency of the situation underscores the critical need for government policy clarity and regulatory frameworks that can unlock investment in both import infrastructure and domestic exploration, ensuring a stable and sustainable gas supply for South Africa's industrial future.

Lawyers advising industrial clients in South Africa must assess significant supply chain risks and potential operational disruptions stemming from the impending natural gas supply crisis. Energy and environmental law practitioners should monitor regulatory developments, potential fast-tracking of gas infrastructure, and ongoing legal challenges impacting domestic gas exploration.

Source: Original reporting via Bloomberg