SOURCE: Frost & Sullivan

March 28, 2011 01:30 ET

South Africa Faces Challenges With Finite Energy Resources -- Frost & Sullivan

CAPE TOWN, SOUTH AFRICA--(Marketwire - March 28, 2011) - With the price of finite energy resources such as oil and coal, currently on the increase South Africa needs to consider liquid natural gas reserves as an alternative energy resource, believes Frost & Sullivan. As a non-oil producing country, South Africa is heavily exposed to oil increases, having a very negative impact on its balance of payment account. Furthermore, recognised as a country rich in coal, South Africa's carbon mitigation strategies may result in coal electricity and fossil fuel (petrol and diesel) becoming non-competitively expensive.

"Ideally liquid natural gas reserves would solve a large part of this problem," says Cornelis van der Waal, Frost & Sullivan's Energy and Power Business Unit Leader.

South Africa has been producing liquid petroleum products for an extensive period of time through the likes of PetroSA via the Mosgas project and Sasol's piped gas from Mozambique. Because of this available technology, South Africa is therefore less dependent on imported oil. "The problem to date, is that we have not been able to find sustainable and significantly large enough gas reserves in the country," explains van der Waal. "The Mosgas reserves will most likely run out before the end of next year and therefore it is in our own best interest to start looking for alternative energy sources."

In a country where coal generation provides more than 90% of its generated electricity, gas holds significant electricity generation appeal for South Africa because of its cleaner burning qualities when compared to coal. Gas generation infrastructure can be established within two to three years which is relatively rapid, as opposed to coal stations which can take between five to seven years to build. "When the generation is done through combined cycle generation technologies (CCGT), efficiencies of generation can be significantly increased through the generation of electricity using the same amount of feed stock," comments van der Waal. "Considering this, it is obvious that access to local natural gas reserves would be a huge asset and deliver much needed development and job creating opportunities in South Africa. The money needed to buy energy resources, for example oil in South Africa's case, will then remain in the country, leading to much more stable energy prices, should long term contracts be negotiated. This would ultimately benefit the economy," says van der Waal.

Bearing in mind that the fuel price has increased by more than one Rand between January 2011 and April 2011, Frost & Sullivan believes that a local natural gas reserve would have a considerable positive impact on inflation and transportation costs and assist with positioning South Africa competitively in terms of global energy resources.

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