Thabiso Mageza – Director, LNG Tech, South Africa
Thabiso Mageza, director of LNG Tech, discusses the challenges of operating in a market with a limited and controlled gas supply as well as obstacles of developing the ecosystem from an infrastructure perspective. He also touches on the opportunities for customers and government entities that can benefit from gas to power projects and the steps needed for the company to start importing LNG by mid-2019.
What was the market need that prompted you to establish LNG Tech?
“We are very positive! We believe that President Ramaphosa understands the potential of gas to develop South Africa, so we must be ready for this market evolution”
Our mission is to supply natural gas in the form of LNG via small package, production and supply network to industrial users, power generation projects, commercial applications and an alternative fuel for heavy duty vehicles, within the African continent.
We will be looking at strategically investing in the full supply chain and we have concluded an agreement with the Delta State government in Nigeria to do a feasibility study for the production of LNG that will be supplied locally and to South Africa. The aim will be to produce cost effective gas to be supplied via LNG in Nigeria and to South Africa. The import of LNG will ultimately link to the supplier from Nigeria and LNG Tech is engaging with various investors to kick-start the project.
Sasol controls the natural gas supply entering South Africa. What is the issue with this?
We estimate that the South African market currently requires approximately 200 million gigajoules of gas per annum. For example, in a normal supply and demand environment, if a reseller requires gas, the national pipe gas supplier would be happy to supply the extra gas required because this will increase their external sales.
In Sasol’s case, they would rather allocate the extra gas for their own use, rather than supply new customers. This is because their main line of business is coal and gas to liquid, and the end product delivers higher profits compared to pure natural gas sales to customers.
What have been the main challenges you have encountered when setting-up the company?
First and foremost, regulatory approvals. Nobody has brought LNG into the country before, so we are pioneering the process of obtaining an LNG import and distribution license. To do this, we are working closely with the National Energy Regulator (NERSA). Nevertheless, we faced this challenged when establishing the CNG market with our sister company CNG holdings, so these circumstances are not new to us.
Secondly, financing to help kick-start the business and fund our feasibility study into the potential of LNG. At first, we had to invest into the business ourselves, though soon after the Industrial Development Corporation (IDC) came on board to take part in the feasibility study.
What expectations are there that the LNG regulation will change in the near future?
We have already started the interaction with NERSA, and they have a process of handling new technologies entering the market. Once we have an LNG supply commitment and infrastructure to accompany this, then they will grant a license. The next challenges after gaining the license, is to obtain capital to invest in the project, develop and train staff to operate an LNG import and distribution business.
What will be the impact of greater gas supply into South Africa?
Gas will replace other, more expensive energy sources being used, such as HFO, paraffin, LPG and diesel. Coal will still play a role as it is the cheapest form of energy, though as the market gets accustomed to gas and witnesses its benefit, we will start to see a larger gas footprint develop.
The minister of energy, Mr. Radebe, as well as President Ramaphosa, have been very vocal about the need for alternative energy, including gas. How optimistic are you this will help your business in the future?
We are very positive! We believe that President Ramaphosa understands the potential of gas to develop South Africa, so we must be ready for this market evolution.
The growth of the gas market is dependent on the cost-effective supply, and even if we supply a small percentage of the nation’s gas, we know there will always be a need to distribute natural gas via road (LNG) to remote areas where there is no gas pipeline. Furthermore, the energy policy states that five percent of the energy mix must be gas, and we are currently only scratching the surface, so there is great potential for growth.
How ready are you for this surge in demand?
We are a South African based company with the knowledge gained from our experience in the CNG industry. Our feasibility study for the import of small package LNG is well underway, and we are growing our knowledge and constantly talking to clients looking for cost effective energy source.
Which areas are in need of gas most?
The eastern, northern and western cape are very far from any piped gas and are using diesel. If we can persuade them to switch to natural gas, there is huge potential, especially in the mining sector which is a large energy consumer. Nevertheless, we must first secure a steady supply of natural gas for customers. We envisage that natural gas will not only be supplied from Nigeria, with alternative sources coming from Angola and possibly Tanzania.
When talking to clients it is important to go with a name. How do you build your presence in the market?
The only way we build LNG tech is to do what we say we will do. We believe in promising what we deliver. When we started operations at CNG holdings we saw a market opportunity to deliver energy to clients off the pipeline. Now, the company has developed into a major distributor of natural gas (CNG). This approach is what we are looking to bring to LNG tech. People need to trust that we can offer a premium service, and we are looking to grow the business in an organic and sustainable manner for the long-term. Our feasibility study will be completed in June and we believe that we will start physical operations in mid-2019.
How do you achieve your goals in the long-term?
We must obtain clients that will take on our products and this will be the difference between success and failure. Timing will be crucial as the market must be ready to take on our supply. Once we start bringing in trucks, failure is not option as we will have expertise and assets on the ground. Then it is all about execution and doing the job right.
What advice would you give to entrepreneurs looking to enter the energy space?
You need to find a way of funding investments. Within South Africa there is a lack of initial investment, which is crucial for gas installation in a country which lacks certain infrastructure. Companies entering the market in 20 years will have an easier time as all the required infrastructure will be in place. LNG Tech are the pioneers in the market, and we are not waiting, but want to lead the way for South Africa’s LNG ecosystem.