SOUTH AFRICAN PIPED-GAS INDUSTRY

PCE Briefing, 9 September 2014

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Gas industry overview

• Introduction• Gas Policy/regulatory framework• Regulatory mandate ito Gas Act• Gas value chain• SA gas market structure• Current gas infrastructure• Gas trading and market opportunities• Challenges with the current landscape

Challenges

• Industry challenges• Policy/ Regulatory challenges

NERSA initiatives

• Regulatory tools• Measures for introducing competition• Regulation of gas prices and tariffs• Gas Prices methodology• Tariffs guidelines• Future of gas prices• Key outcomes from public

participation process on gas pricingConclusion

CONTENT

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ACRONYMS AND ABBREVIATIONS

Bcm Billion cubic metersCNG Compressed natural gasDoE Department of EnergyFS Free State ProvinceGP Gauteng ProvinceGUMP Gas Utilisation Master PlanIEP Integrated Energy PlanIRP Integrated Resource Plan JHB JohannesburgLNG Liquefied natural gasLPG Liquefied Petroleum GasMGJ/a Million Gigajoules per annumMP Mpumalanga ProvinceNG Natural GasNGV Natural Gas VehicleNDP National Development PlanNERSA National Energy Regulator of South AfricaTCF Trillion cubic feet

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• The National Energy Regulator of South Africa (NERSA), a Schedule 3A Public Finance Management Act, 1999 (Act No. 1 of 1999) Public Entity was established on 1 October 2005 in terms of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) to regulate: Electricity industry (Electricity Regulation Act, 2006 (Act No. 4

of 2006)) Piped-Gas industry (Gas Act, 2001 (Act No. 48 of 2001)) Petroleum Pipelines industry (Petroleum Pipelines Act, 2003

(Act No. 60 of 2003))

INTRODUCTION

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NERSA’s mandate is anchored in: • 4 Primary Acts:

National Energy Regulator Act, 2004 (Act No. 40 of 2004) Electricity Regulation Act, 2006 (Act No. 4 of 2006) Gas Act, 2001 (Act No. 48 of 2001) Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)

• 3 Levies Acts: Gas Regulator Levies Act, 2002 (Act No. 75 of 2002) Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004) Section 5B of the Electricity Act, 1987 (Act No. 41 of 1987)

OVERALL MANDATE

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* Currently under development

Other impacting plans/policy documents-Gas Utilisation Master Plan*-Integrated Energy Plan*-Integrated Resource Plan 2010-2030-National Development Plan 2012

GAS POLICY/REGULATORY FRAMEWORK

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• White Paper in Energy Policy (WPEP) Promotes fuel diversification in the SA energy mix, and recognises natural gas as an attractive option for SA WPEP also provides the basis for the development of the National Integrated Energy

Plan (IEP)

• National Energy Act, 2008 National Energy Act seeks to ensure that diverse energy resources are available, in

sustainable quantities and at affordable prices, to the South African economy in support of economic growth and poverty alleviation

• The IEP Its purpose and objectives are anchored in the National Energy Act The IEP provides a roadmap of the future energy landscape for SA which guides future

energy infrastructure investments and policy development

GAS POLICY/REGULATORY FRAMEWORK cont.

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• Integrated Resource Plan (IRP) provides a national electricity plan until 2030 including preferred generation

technologies and timelines Gas is allocated 3126 MW of base load and/or mid-merit CCGT generation capacity

between 2019 and 2025 1659MW CCGT capacity to be added later in the IRP period, 2028-2030

• Gas Utilisation Master Plan (infrastructure framework) will assess the bottlenecks and capacity constraints of existing gas infrastructure; and plans for further gas infrastructure development particularly to enable gas to power

development

• The National Development Plan (NDP) NDP recognizes gas an alternative to move SA into a low carbon intense economy

GAS POLICY FRAMEWORK cont.

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REGULATORY MANDATE ITO THE GAS ACT

• Regulatory mandate in a nutshell Objectives of the Gas Act include:

Promote orderly development of the gas industry Development of a competitive gas market; Facilitate investment; Promote competition

Functions include: Licensing gas infrastructure Pricing and tariffs Compliance monitoring and enforcement Investigations and dispute resolution

• Facilitation of investment, entry and promoting industry growth through Licensing of new gas infrastructure; and trading activities Approval and monitoring of maximum prices and transportation tariffs

Reflective of costs, risks and economic value of the product Enforcement of third party access to existing infrastructure

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SCOPE OF REGULATION

• How did we regulate until 25 March 2014? Regulated ito of the Sasol Regulatory Agreement & Gas Act The Agreement provided regulatory framework in the absence of

the Gas Act (which was only enacted in 2001, and became effective in 2005)

The Agreement took precedence over the Gas Act for the duration of the 10 year dispensation period

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SCOPE OF REGULATION

• NERSA regulates the piped-gas industry Natural/synthetic/compressed gas transported via pipeline

• Scope of regulation Currently all hydrocarbon gases transported by pipeline Regulated activities include the construction/operation/conversion of gas

facilities; and trading in gas• Excludes gas production, reticulation and LPG prices

Gas Exploration and Production falls under PASA (Petroleum Agency of South Africa)

Reticulation is a responsibility of Local Government. NERSA only monitors gas prices charged to reticulators by Sasol Gas Ltd

LPG infrastructure is licensed by NERSA but prices are regulated by DoE• Note fragmentation in the regulatory landscape

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Upstream Midstream Downstream

SA GAS MARKET STRUCTURE

NG ImportationSasol Gas

MozambiqueExploration & Production bySasol Petroleum International

TransmissionROMPCOSasol GasTransnet

DistributionSasol Gas

Trading

CNG:VGNNovo EnergyNGV Gas

Pipeline gas: Sasol Gas Spring LightsReatile

Reticulation - Regulated by Munics

•Competition may not be levelled•Sasol Gas has a competitive advantage:-as a single supplier of gas/ gas distributor-Price advantage exhibited over other traders

• Competitive price advantage for CNG as a vehicle fuel over petrol • Always priced approx. 20-30% below petrol price• Potential for NGV growth due to

• increasing policy drives to address environmental concerns (carbon tax)• increasing appetite for cleaner transport fuels (e.g., Municipalities)• increasing appetite for cheaper fuel (Taxi Industry)

Domestic

PASA regulatedExploration & Production- On & offshore

Syn gas productionby Sasol Synfuels

NERSA regulated activities

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CURRENT GAS INFRASTRUCTUREEgoli Gas reticulation network in the Johannesburg area

CNG mobile storage and transportation system

CNG high pressure cylinders

Transnet Lilly Pipeline

ROMPCO Mozambique to Secunda Pipeline

Sasol Gas Pipelines

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• Pipeline infrastructure (transmission, distribution & reticulation) ± 1100 km transmission pipeline network owned and operated by Sasol Gas a 865 km transmission pipeline from Mozambique to Secunda owned by ROMPCO a 573 km transmission pipeline owned by Transnet ± 100 km pipeline owned by PetroSA for the transmission of gas for own use a 317 km distribution pipeline network owned and operated by Sasol Gas ±1100 km gas reticulation network owned by Egoli Gas and regulated by City of Joburg

ito Municipal bylaws ± 58 km of gas reticulation network owned by Easigas in PE (not regulated ito Gas Act) NERSA regulates about 70% of the existing pipeline infrastructure

• CNG Infrastructure CNG vehicle refuelling stations owned and operated by Novo Energy and NGV Gas CNG mobile storage facilities owned and operated by Novo Energy and Virtual Gas

Network

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• SA currently have six licensed gas traders Sasol Gas, Spring Light Gas and Reatile supplying gas via traditional pipelines Novo Energy, NGV Gas and Virtual Gas Network supplying gas via CNG mobile gas

storage and transportation system (aka ‘Virtual Pipelines’)

• Gas customers Sasol Gas directly supplies NG and MRG to approx. 370 customers in MP, FS, GP and

KZN Spring Lights Gas on-sells MRG to about 23 customers in KZN Reatile has not yet started operating but intends to supply gas in GP and KZN Novo Energy and NGV Gas supply CNG as a vehicle fuel in Gauteng (669 vehicles

converted, mostly taxis) Virtual Gas Network supplies CNG to 4 industrial customers in Gauteng

• Economic sectors serviced Gas is largely consumed for industrial, commercial, domestic, transport and for power

generation purposes

GAS TRADING

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• Opportunities for gas in SA exist in power generation, transport, and GTL and residential markets

• Gas can serve as an efficient alternative for diesel and coal• Power generation

Opportunities for greenfield power (IPPs) also exist (various companies including Sasol, Gigajoule looking at importing gas from Mozambique mainly for baseload power generation)

Gas have benefits over nuclear and coal ito capital costs, carbon footprint, construction lead times and energy efficiency

Coal may be a cheaper option than gas for generating electricity in SA but gas has an advantage on other policy interventions to improve energy efficiency and to address environmental concerns

Overall, there is an interdependence between electricity and gas that can be exploited for the benefit of both industries

IMMEDIATE DEMAND FOR GAS

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• Gas for transport Gas is a substitute for conventional transport fuels

CNG is an alternative for petrol & diesel for normal vehicles (about 17.7 million NGVs exist worldwide) LNG emerging as an alternative marine fuel, likely to displace bunker fuel oil in the long-run

CNG market in SA is emergent, 4 CNG refuelling stations in Gauteng (2 operational) Existing opportunities for market growth Taxis, buses and commercial vehicles whose owners are looking for cheaper alternatives to petrol Municipal and Government fleets and heavy duty vehicles driven by the need for greener transportation

CNG has economic benefits – always priced 20-30% below prevailing petrol price CNG market could serve as an access point to the industry for greenfield traders Growth prospects for SA CNG market could be impeded by the many developmental

challenges facing the domestic industry (to be discussed later) IDCs green transport initiative is a positive step towards the right direction, however

robust policy shifts are required to create a conducive environment for this market to grow.

• Gas for GTL PetroSA is looking for more gas to enhance supplies for its GTL operations

IMMEDIATE DEMAND FOR GAS

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INDUSTRY CHALLENGES…most likely to have hampered further market development

• Limited domestic gas reserves which result on Limited access to gas supply Least development of gas infrastructure (gas infrastructure available in only four

provinces, mostly concentrated in Gauteng)

Proposed solution Enhance mid-term supply through

additional pipeline imports from Mozambique and other neighboring producing countries

CNG and/or LNG imports from regional and international markets

Fast-track development of appropriate regulatory framework to enable shale gas as a long-term supply solution

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INDUSTRY CHALLENGES cont.

• Lack of anchor customer(s) to justify the: development of domestic gas fields (e.g., Ibhubesi gas, coal bed methane) development of major gas infrastructure to support domestic gas production or

for imports

• Hurdles to gas infrastructure development Potential creditworthy off-taker(s) have been unwilling to commit Difficulties in securing finance for large gas projects Lack of gas infrastructure planning

Proposed solution: Strategic partnerships required to develop necessary gas infrastructure Eskom/IPPs through the IRP to anchor the development as a key customer Government to facilitate and coordinate this development Relevant government departments and agencies to be coordinated to work in synergy

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INDUSTRY CHALLENGES cont.

• Positive changes: Revised IRP2010 allocates about 3125 MW of gas generated electricity by 2025

(3600 MW by 2028) IRP update includes ‘big gas scenario’ in the view of domestic potential shale gas

exploration ESKOM as a potential anchor customer extensively looking at gas as an alternative

fuel source DoE currently working on the Gas Utilisation Master Plan but delays in finalizing

the plan sends incorrect market signals

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INDUSTRY CHALLENGES cont.

• Difficulty in securing finance for gas projects Significant upfront capital required for infrastructure development Finance could come from the fiscus, public enterprises, development finance

institutions, equity investment Government has limited resources for competing priorities No framework of incentives/subsidies to encourage investment in gas

infrastructure projects

• Proposed solutions Strategic partnership between private entities and government Entities (e.g. PetroSA, Eskom, etc) to make the project more bankable Incentives such as accelerated depreciation allowance on energy projects that

make use of gas as an energy source to generate electricity (as it was done for wind and renewable energy projects)

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POLICY/REGULATORY CHALLENGESRegulatory issues

Light-handed regulatory approach (Approval vs. setting of tariffs and prices

Weak enforcement mandate (can only issue notices) Solution: Gas Act currently being amended by DoE

Policy issues Bottom-up approach on Integrated Energy Planning – GUMP not

finalised, but draft IEP already shows no significant role for gas in the energy mix

Lack of coordination by various government departments lead to misalignment of legislation regulating gas

Lack of policy drive on the increased use of natural gas in core economic sectors (Electricity industry and transport sector)

Solution: Continuous engagement between government, parliament and the industry on policy issues affecting gas industry 23

• NERSA mainly regulates for market development and competition as perthe objects of the Gas Act• NERSA strives to facilitate investment, entry and to promote industry growth

through Licensing of new gas infrastructure; and trading activities Approval and monitoring of maximum prices and transportation tariffs

Reflective of costs, risks and economic value of the product

Enforcement of third party access to existing infrastructure• NERSA has developed

Gas Act Rules, 2009 – to provide for a clear and transparent licensing process Pro-investment methodologies for approving/setting maximum price for gas and gas

transportation tariffs Rules for registration of gas production operations including small biogas operations in rural

areas Compliance framework for inspection and audits of licensees activities Dispute resolution framework for, amongst others, investigations of complaints

NERSA INITIATIVES & INTERVENTIONS

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• How do we ensure fair access to gas? According to Sasol supply is constrained to satisfy gas demand No mandate to determine allocation of gas to the market Single supplier currently gets preferential access to the gas (>50% of imported gas for

internal use by other Sasol subsidiaries) Existing capacity constraints an obstacle to bring more gas from Moz to SA

• Measures for introducing competition within the current constraints enforcement of third party access to existing pipelines

Development of Guidelines for TPA in transmission facilities (by licensees)o Guidelines governs the access arrangements between the transmission licensee and third parties seeking access to the licensed gas

transmission pipelines

NERSA study for the determination of uncommitted capacity to gas facilitieso Purpose of the study is to determine the levels of uncommitted capacity in all licensed transmission pipelineso Study not yet completed

Enforcement of ‘eligible customers’ provisions in the Regulations Customers consuming at least 40 000 MGJ/a of gas within an exclusive licensed distribution

area have a legal right to source gas from other suppliers outside that area Traders can compete with distributors for prospective eligible customers within those

exclusive areas 25

• Mandate on prices and tariffs S4(h) ‘monitor and approve and if necessary regulate tariffs for transmission and

storage’ Tariff Guidelines approved in 2009

S21(1)(p) ‘approve maximum prices for all classes of customers’ where there is inadequate competition in terms of the Competition Act

Regulation 3(a), The Regulator must, when approving the maximum prices, be objective i.e. based on a systematic methodology applicable on a consistent and comparable basis

Maximum prices methodology approved in 2011• The Gas Act makes a distinction between tariff and price

• Price = charge for gas molecule, “Gas Energy price”• Tariff = charge for (network) service

REGULATION OF GAS PRICES AND TARIFFS

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• The Energy Regulator does NOT ‘set’ gas prices• Distinction must be drawn between maximum and actual prices• The Energy Regulator approves maximum prices to be charged by licensees in

line with sec 21(1)(p)

•Why do we need to determine a value for gas? No market (gas exchange) in South Africa International gas prices not necessarily relevant to South Africa Lack of competition means that the current prices are not reflective of competitive

market outcomes

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Methodology for approving maximum prices for gas

(for gas molecule only)

The Methodology provides for two approaches.(1) Use of Energy Price Indicators to determine the gas energy (GE) price

This is the price of the gas energy at the point of its first entry into the transmission / distribution system

Energy price indicators used are coal, Diesel, Electricity, HFO and LPG.

(2) Pass- through (or cost-build up) to cater for - new entrants. e.g., importers of LNG, developers of domestic gas sources, etc transition for incumbents and traders along the value chain after gas’ first entry into the

transmission, distribution system Where licensees deems the price to be materially lower than its preferred gas price

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• The methodology also provides for: Long-term contracts, as well as shorter review periods, at the election of the licensee

Specified data sources, as well as allowance for licensees to propose other data sources for NERSA considerations

Review

• Maximum Gas Energy Price In the absence of a transparent gas market price in South Africa .. …the maximum price for gas energy will be determined by reference to energy price

indicators This is the price of the gas energy at the point of its first entry into the transmission / distr.

system Based on specific energy price indicators (after consultation)

Coal, Diesel, Electricity, HFO, LPG

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• Use of Energy Price Indicators Approach

• Maximum price of Gas Energy formula

where: CL = CoalDE = DieselEL = ElectricityHFO = Heavy Fuel OilLPG = Liquefied Petroleum Gas; andw1-w5 = weights for coal, diesel, electricity, HFO, LPG

GE = w1 CL + w2 DE + w3 EL + w4HFO + w5 LPG

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•Variables, weights and sources The outcome of the formula depends on the weights attached to the

energy indicator prices e.g. If GE is 90% determined by the coal price, the price of gas energy

will be relatively low, and if 90% LPG related, the price of GE will be relatively high

Weights were determined based on data from an independent source (DoE) and On facts (share of each indicator in secondary energy consumption in

SA economy)

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•Pass-through approach The pass-through approach requires a cost-based price build-up, Costs include :-

the cost of the procured or produced gas, any transportation or re-gasification costs transmission tariffs distribution tariffs, and trading margin determined in accordance with this methodology

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Gas Energy Price

Transmission

Price (R)

Tariff (R)

Distribution Tariff (U)

Trading margin Margin (R)

Total price for piped-gasThis price must be translated to prices for customer categories (ito Regulations)

Category 1 < 400 GJ/a

Category 2 401-4,000

GJ/a

Category 3 4001-40,000

GJ/a

Category 4 40,001-

400,000 GJ/a

Category 5 400,001 –

4,000,000 GJ/a

Category 6 > 4,000,000

GJ/a

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Maximum price for Gas Energy

Transmission

Price (R)

Tariff (R)

Distribution Tariff (U)

Trading margin Margin (R)

Total price for piped-gasThis methodology refers to

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Maximum Prices approved to date

• The Energy Regulator approved maximum prices for: Sasol Gas – R117.69/GJ – on 26 March 2013 Virtual Gas Network – R278/GJ - on 29 July 2013 Novo Energy – R249/GJ - on 9 December 2013 Spring Lights Gas – R123/GJ – on 27 February 2014 Reatile Gastrade – applied but application not yet approved

• For Sasol Gas, the Energy Regulator also approved transmission tariffs

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• Guidelines for monitoring and approving piped gas transmission and storage tariffs

Key provisions in the Guidelines:- Licensee choose a preferred methodology from the menu of six provided in

the Guidelines Licensee can also use its own, (not in the menu), methodology so long as it is

‘proven and tested’ Data sources are specified by NERSA NERSA tests the application using same methodology used by the licensee in

its tariff application• The menu of six methodologies provided for in the Guidelines are:

Rate of return regulation; Incentive regulation:– Price Caps;– Revenue Caps; Hybrids of the abovementioned approaches; Profit sharing or sliding scales; and Tariffs based on a discounted cash flow model of allowable revenue.

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Each of the regulatory methodologies considered in the above menu requires the calculation of an allowed revenue formula. This formula takes the form shown below:

AR = (RAB x WACC) + E + T + D +/- CWhere

AR is allowed revenue for a distinct regulatory periodRAB is the Regulatory Asset BaseWACC is the effective weighted average cost of capitalE is Expenses: maintenance and operating expenses in the tariff period under reviewT is Tax: flow-though tax expense in the tariff period under reviewD is Depreciation: the charge for the tariff period under reviewC is the claw-back based on actual volumes lagged by one year

All prudently and efficiently incurred expenses go as a pass through Companies are allowed to make a return commensurate with risk. The return for each company is determined using its Weighted Average Cost of Capital (WACC) The WACC (expressed as a %) is applied to the sum of the working capital, asset base and/or cost of

sales The cost of equity is determined using CAPM

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Sasol Gas Element Application

Methodology chosen Cost of service (Rate of return)

Tariff period 26 March 2014 – 30 June 2015

Tariff structure approach Entry / exit pricing with 3 zones

Transnet PipelinesElement Application

Methodology chosen Cost of service (Rate of return)

Tariff period 01 April 2014 – 31 March 2016

Tariff structure approach Block Tariff

Approved Transmission Tariffs

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ROMPCO Element Application

Methodology chosen Discounted Cash Flow (DCF)

Tariff period 01 July 2011 – 30 June 2029

Tariff structure approach Block tariff

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Conclusions about methodology• Important to note that

A regulated price can only mimic competitive outcomes, real pressure on prices will only come from gas-on-gas competition

the Gas Act provides for a complex pricing and tariffs regime: NERSA ‘approve’ maximum prices for gas NERSA ‘monitor and approve’ transmission and storage tariffs Regulations: must allow an efficient operator to recover its prudently

incurred costs and make a profit commensurate with risk NERSA must use an approach that is objective, systematic, fair, non-

discriminatory, transparent, predictable and efficient

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• Balancing the interests Attempt to provide a flexible framework that provides for all eventualities and

all players Is a balanced approach with some compromises - expect to perfect

methodology over time Safeguards built in

Pass through approach Difficult to please everyone, all of the time Energy Regulator has opted for best option available balancing the interests of

consumers, suppliers and potential entrants

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• NERSA is currently not in a position to forecast gas prices going forward Gas prices were regulated ito of the Sasol Agreement for the past 10 years Implementation of maximum prices for gas only started in 2014 Impact assessment of the pricing could only be conducted over a period of time

• However, gas prices are likely to be affected by the other Energy Indicators (Coal, LPG, diesel, Electricity & HFO) as discussed above

• Competition in the market will drive gas prices in the long-term

• How does the Gas Energy price compare with international gas prices?

THE FUTURE OF GAS PRICES IN SA

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Source: Eurostat* Exchange rates: 2011: R10.06/EUR; 2012: R10.50/EUR; 2013: R12.79/EUR (Average exchange rates per year. Source: Oanda.com)

South Africa class 3 price in Gauteng as at March 2013 (4,001GJ – 40,000GJ per annum, including Sasol tariffs) compared to EU industrial tariffs (10,000GJ – 100,000GJ per annum) (ZAR / GJ)*

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Source: waterborne Energy, Inc. Data in $US/MMbtu

South Africa

GE = $12

Price of gas in its gaseous form

compared to LNG• According to stakeholders looking at LNG as a supply option -

LNG landed price plus regas costs in SA is expected to be $16 /Mmbtu

This price compares well with landed prices of LNG in other regions

LNG prices before the regas cost

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79

HFOLPGDiesel ElectricityCoa

lGas

Source: Sasol Gas

Average fuel prices for FY15Average fuel prices for FY15

R/GJ

Prices for alternative fuels based on Group assumptions, save for coal where McCloskey forecast was used

Average electricity price in FY15: R0.72/kWh or R193/GJ. Sasol Gas customers who pay the highest possible price and tariff, still has a total charge equivalent to R0.51/KWh – less than the average electricity price.

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• NERSA has no mandate for Dx tariffs & margins• Prices will be too low – Sasol, traders + potential suppliers• Prices will be too high (monopolistic prices) – current customers • Prices will not reflect market prices – Sasol, customers and some

(potential) suppliers• Traders will be disadvantaged by a ‘pancaking approach’ as the market has

a ceiling (trader)• Choice of alternatives – broad agreement with stakeholders• Weights of the energy price indicators in the basket – criticism:-

Traders and Sasol prefer higher weighting of higher priced indicators i.e. LPG and HFO

Consumers prefer higher weighting lower priced indicators i.e. coal• Data sources – DoE not preferred for weights data or HFO price• Cost-plus approach more preferred by most users

KEY OUTCOMES FROM PUBLIC PARTICIPATION PROCESS ON GAS PRICING

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Will prices be too high?

Risk of prices that are too high:- Windfall profits- No customers willing to switch / no viable gas business

NO, because - GE price approximates value at which customers would be willing to switch to

gas (compared to other energy carriers)- Is based on ‘wholesale’ prices of alternatives- Provides a maximum below which can discount

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Will prices be too low?

Risk of prices that are too low:- No viable gas business / No entry- Rapid depletion of finite gas resources

NO, because- GE price higher than minimum landed price (S)- GE is constructed based on comparable prices of alternatives, to which

all other costs are added- All costs associated with transportation added / passed on via tariffs- (profit) Margin for traders is added to cover all costs and profit for the

selling of gas

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How Sasol Implemented Max Prices

• FY15 forecast• 40 001 – 400 000 GJ = 74 customers , 10mGJ• 400 0001 – 4m GJ = 25 customers , 35mGJSource: Sasol Gas 49

Notable Impact: Of the 20 customers that consume 80% of external volumes, 25% will see price decreases

Source: Sasol Gas 50

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• Challenges facing the SA gas sector continues to hamper development• Growing the gas market would require more gas and more infrastructure• Existing need for SA to diversify its gas supply sources

LNG, CNG and shale gas (long-term) have a role to play• Clear and appropriate policy signals, and govt support required to

enhance market interest in natural gas as a viable option encourage investments

• Policy and regulatory certainty is needed Alignment of IEP, IRP & GUMP is critical to avoid conflicting messages from govt Energy strategy plan (IEP) should realize the potential for gas in order for SA to

benefit from this new era of natural gas Gas Utilization Master Plan must be fast-tracked; and its legal status must be clear Implementation of the gas to power component in the IRP should be fast-tracked

KEY MESSAGES

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• Gas to power is seen as a key enabler for further gas market development • Interdependence between electricity and gas must be exploited

Eskom could benefit from converting its OCGT plants to CCGT plants (cost savings) Gas also has a role to play in the renewable energy programme due to the

intermittency of renewable sources • Gas supply is no longer an issue

Mozambique, Tanzania additional gas finds could benefit SA LNG imports from global market is also a supply solution but decisive actions required

• Alignment of legislation regulating gas or affecting gas industry is also critical

• Current regulatory framework and the proposed amendments in the Gas Bill are appropriate for encouraging further industry development. But finalisation of the Bill must be fast-tracked

KEY MESSAGES cont.

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THANK YOU Website: www.nersa.org.za

Tel:012- 401 4600

Fax:012- 401 4700

Email: info@nersa.org.za