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Interview

Stephen Rothman – CEO, CNG Holdings, South Africa

19.04.2018 / Energyboardroom

Stephen Rothman, CEO of CNG Holdings, discusses the market conditions which have opened the doors of the market to CNG players and the potential of CNG in helping shaped the nation’s energy mix. Furthermore, he highlights the need for greater supply of gas into the region and the competitive advantages CNH Holdings offer to their customers as well as the future aspirations of the company.

What was the reason behind the decision to establish CNG Holdings?

“Extensive research, conducted in 2007 to 2008, unearthed a significant opportunity with in the South African compressed natural gas (CNG) sector”

Extensive research, conducted in 2007 to 2008, unearthed a significant opportunity with in the South African compressed natural gas (CNG) sector. Based on the prevailing international market trends at the time, it was evident that South Africa was lagging behind the global curve in its search for a cleaner, more environmentally friendly fuel source. The impetus by international governments and corporations for alternative, and renewable, energy sources was substantial. This drove the National Regulator of South Africa (NERSA), and other governmental bodies, to create a platform to open up competition and issue gas licenses to operators.

I was involved in the LPG industry which was dominated by big business, and the supply of CNG meant that customers could get cost effective gas that is environmentally friendly. This then created the opportunity of developing the CNG Holdings business structures.

In 2010, NERSA issued Virtual Gas Network and NGV Gas, divisions of CNG Holdings, trading and storage licenses. The initial challenge was attracting investors and funders as not many companies were willing to invest in a market monopolized by Sasol. Once receiving our license and as the regulatory environment changed, we were able to attract individual smaller investors to prove the concept in South Africa. In 2014, after proving the concept in South Africa, the Industrial Development Corporation (IDC) took up a 26 percent shareholding, that has evolved to be 38.64 percent today. The business was then restructured to only have four shareholders.

How has the company evolved since then?

The company has three distinct business entities that fall under CNG Holdings; Virtual Gas Network for transporting compressed natural gas, NGV Gas for fueling natural gas vehicles and CNG Technology for supplying compressed natural gas equipment and vehicle conversions.

Virtual Gas Network (VGN) was established to fill the gap in the South African market to supply compressed natural gas via road to end-users, using a horse and trailer modular system. Through this innovative modular road transport system, VGN can safely and economically transport natural gas to refueling stations, gas distribution networks, industries, power generation systems, as well as to customers not on an existing pipeline.

Virtual Gas Network has established a mother station in Langlaagte, Johannesburg, where natural gas is compressed and transported to industry by road. The site is powered by five natural gas driven generators supplying more than 1MW of power.

Virtual Gas Network, has a number of industrial customers that are not on pipelines and provide CNG as an alternative to LPG, paraffin, HFO, coal and other traditional fossil fuels. The Department of Health in Gauteng, in an attempt to move away from coal has introduced a more efficient, greener approach, thus switching to CNG. VGN was awarded ten hospitals in Gauteng to operate on CNG.

Overall, the industrial side of our business is moving forward positively, and we are already looking to supply CNG to the mining sector. Smaller private power generating companies (between 0.5 – 6MW) that is using diesel can switch to CNG and save costs. When it comes to power provided by Eskom, the current price of CNG is not competitive compared to Eskom power. We do believe that the future of LNG will be brought to the shores of South Africa, starting off with small package LNG imports. This will create an opportunity for the CNG Group to develop a national footprint.

NGV Gas provides turnkey solutions for fleet owners requiring a proven and eco-friendly energy source that is cleaner and more cost effective than petrol or LPG. It develops natural gas filling stations, retrofits existing traditional fueling stations with CNG, and provides in-house gas filling facilities to fleet operators. Customers that are on the natural gas pipeline, are supplied equipment for the compression of gas so that their fleets can operate on CNG.

In 2014 we built our first flagship filling station in Langlaagte, Johannesburg. To date, we have helped finance over 1000 taxi conversions to run on CNG, looking to capitalize on the nation’s 285 000 taxis operating nationally.

Sub-Saharan Africa requires large energy demands. Why have companies not invested more into the energy sector in the region?

There are many opportunities in the region, however we believe that you need to pick your local partners well to mitigate risks. Nigeria has various CNG companies operating and we are in discussions with parties to see where there are synergies in the other countries. CNG infrastructure has to be established and as opportunities arise, we will investigate the opportunities.

Are you optimistic the government’s move to start the final round of the renewable energy program will have a domino effect and stimulate further growth in the gas industry?

With President Ramaphosa in charge, we envisage that his leadership will lead to growth promotion and a more responsible government, attracting the investment required for South Africa and the region. We are encouraged to see that renewable projects are moving forward again, and we are hopeful that the economy will show growth. With future growth, Eskom will once again have to look at replacing their aging power stations, with this the gas to power projects should be resuscitated.

What is the main concern with Sasol having such a large market share in the natural gas supply market?

Due to Sasol’s market monopoly, they are able to offer low prices when customers use certain fossil fuels, such as HFO and paraffin. It makes it difficult for smaller companies to compete. The introduction of the carbon tax will be a positive move by government for us to provide an alternative to traditional fossil fuels.

Sasol controls the supply of gas, and the large portion of the natural gas is used for their own production (e.g.: Gas to Liquids). Sasol is not selling gas directly to new businesses reselling gas. New entities have to buy gas via Sasol’s existing three distributors. To rapidly stimulate the growth of the CNG industry in South Africa and providing gas directly to resellers, selling to end users thus acquiring cheaper gas, we have proposed that a percentage of the piped natural gas is allocated to supply the CNG businesses to develop the CNG vehicle conversion program and the industry as a whole.

What strategy do you have to find another gas supply for CNG Holdings?

We are in negotiations with LNG importers and in the longer term, coal-bed methane and shale gas could be a reality for the growth in the South African market.

Is an import-based gas ecosystem viable for South Africa in the future, or can E&P stimulate local production?

In the short term, that is the next 18 to 24 months, we believe that small scale imported LNG projects could be initiated, which will give us a platform for downstream distribution. The key effective to the cost-effective import of LNG will be the source of supply and pricing structures. In the medium to long term, coal-bed methane and shale gas production will lead to our own gas-based energy source. Mozambique does have a large supply of gas, one of the largest in the world, though with the prices from Asia being significantly higher than what South Africa can offer, we may not receive initial supply at a cost-effective basis.

Is uncertainty the new norm when investing in Africa?

When we established the CNG Group, I spoke to many people and they believed CNG would not be a viable business, due to the monopoly of Sasol and availability of gas in South Africa. We started with small individual investors, that were prepared to take the risk of developing a green fields operation in the gas industry in South Africa. Once the business showed viability, other larger investors were keen to participate.

It is a challenge to show the potential of the gas market, as Africa’s perception is hard to overcome. Large foreign investors, are keen to supply the gas and/ or equipment, however they are not very keen to invest in infrastructure and operations of new projects in the early stages of development.

What differentiates CNG Holdings to your competition?

Our self-sufficient motherstation ensures that we have no dependency on third party suppliers and VGN does not need access to the electricity grid as we use our own gas generators to power our compressors and our filling stations.

VGN always has spare capacity in the form of filled trailers on site at Langlaagte. This ensures a stable supply of gas to our customers should there be any interruption to the Sasol pipeline, or if there is an urgent requirement for a back up gas supply.

Financial backing by the IDC ensures financial stability, we hold sufficient stock for quick new project establishments, whereby installations can be completed within three to four weeks and spares and equipment is bought in bulk, ensuring competitive pricing.

VGN retains equipment ownership, safety and servicing responsibilities with regular safety equipment inspections by our highly experienced and internationally trained CNG industry technical team.

We have over 9 years of local experience and our equipment has been tried, tested and adjusted to enhance peak performance in African conditions. State-of-the-art equipment with built-in redundancy, dual-stage pressure regulation, heating and filtration systems ensures no customer downtime. Our communication systems remotely monitor pressure flow levels, gives electrical/ mechanical status updates and meters gas usage.

What opportunities do you see in the market moving forward?

To introduce, promote and expand the use of compressed natural gas for industrial use, commercial applications and as an alternative fuel for vehicles within South Africa and the Sub-Saharan Africa.

What are your goals for the next five years?

To be the market leader in the supply of CNG and CNG equipment, strive to be in the forefront of CNG development, sustain a technologically advanced product range and maintain sustained growth and profit to the benefit of our customers, employees and investors.

Furthermore, we want to increase our growth, ensure the supply to a diversity of customers, develop a national footprint and position ourselves in selected African countries through joint-ventures with local partners.

NGV Flagship Filling station, Langlaagte, Johannesburg (Dec 2016)

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