Gwede Mantashe’s gas plan, the northern jihadists and… – Daily Maverick

Euclid is reported to have said to Ptolemy there is no royal road to geometry and so there is no royal road to decarbonisation. The dirty, as it seems in the foreseeable future, will wash its hands with the clean.

Those who think the only way to shake off our dependence on coal is going to come through a 100% renewables revolution are living in Utopia. South Africa is slowly building a gas bridge to Mozambique. It is not like we are new to this thing.

Mozambiques economy is increasingly being tethered to South Africas. More than 30% of its exports are to South Africa. The countrys national budget is meagre: about $4-billion, compared with the annual turnover of Sasol, a private company, which is about $3-billion.

South Africas new diplomacy in Mozambique is to drive firmer geoeconomic and geostrategic relations with its neighbour because of mutual dependencies. It imports electricity from the Cahora Bassa hydropower plant and we have long sucked gas from Mozambiques inland sources. In many respects, SA has been an anchor offtaker of Mozambiques gas and electricity and now it seems the country will increasingly play that role with the vast new gas finds estimated to be between 100 and 180 trillion cubic feet (TCF).

South Africa is active in newly discovered offshore gas fields in a region called Rovuma. The monetisation of this gas, which is being led by the French oil and gas company Total with an early investment of $20-billion, will make Mozambique the fourth-largest gas producer in the world.

These finds, and those in neighbouring Tanzania, will reconfigure the global gas market.

The bulk of the funding for Totals investment is coming from a consortium of South African private banks, the Development Bank of Southern Africa and others.

Mozambique is bankrupt following a famous fishing boat scandal run by former finance minister Manuel Chang (2019) in cahoots with some dodgy Credit Suisse deal arrangers. Chang is still being held in South Africa as the US and Mozambique battle his extradition. The former minister is reported to have stolen funds from a $2-billion debt deal for Mozambique.

Northern Mozambique, in Cabo Delgado province, is in the throes of a jihadist onslaught increasingly drawing the Russians, through their proxy private military company Wagner, and South Africa looks like it will undertake naval patrols along the coast if not have soldiers boots on the ground soon.

The intensity of the insurgency has caught regional governments by surprise. Mozambiques stability is key to the regions stability. South Africa has no option but to get involved. South Africas soft and strategic hard power will increasingly come to play in Mozambique and it will want something in return.

During the Jacob Zuma period the use of Mozambiques gas was largely left in limbo but with Cyril Ramaphosas presidency it has intensified. Mozambiques interests have become South Africas too.

Mantashe announced a 2,000MW emergency power procurement request for proposals which seems mostly designed to procure gas, even though round five of the renewables independent power producers programme is expected to start in December of 2020. This is the first slow drip of the gas strategy.

Zumas presidency produced a gas utilisation master plan for South Africa (which was not worth the paper it was written on). At the time there was also a big push for fracking, but the economics of fracking is dismal. The public pushback on fracking was so intense that the government has learnt to go quiet on gas and keep people distracted on other things like the coal and renewables fight.

Ramaphosa knows Mozambique gas well his own former company Shanduka (now owned by Phembani Holdings) paired up with Aggreko during an energy crisis in South Africa, in 2012. Shanduka and Aggreko built gas-fired power plants in Mozambique sending electrons to Eskom.

It is clear the Presidency understands the geostrategic value of gas to South Africa which, unlike renewables, has multiple utilities from electricity generation, fertiliser production, heating and liquid fuels to plastic.

South Africa has some of the leading technology players like Sasols Fischer Tropsch process and Petro-SAs gas-to-liquid plants in Mossel Bay.

The major shareholders of Sasol also happen to be the SA Government Employees Pension Fund and the Industrial Development Corporation together they hold about 20% of Sasol shares. Other South African institutional investors also hold pensioners funds in Sasol.

This is the backdrop to understanding the invisible hand of Gwede Mantashe slowly opening the gas tap. Those who think the energy minister is some sort of lone wolf and a minister not stroking the right egos, may be watching too many television soapies and should never venture into a career as a political analyst. Mantashe is working with his colleagues to unfurl what looks like new economic diplomacy with Mozambique both necessity and gas economics are driving this.

Mantashe announced a 2,000MW emergency power procurement request for proposals which seems mostly designed to procure gas, even though round five of the renewables independent power producers programme is expected to start in December of 2020. This is the first slow drip of the gas strategy.

More is coming: another 3GW or so of gas-to-power projects as part of a broader determination from the Integrated Resource Plan (IRP), which was recently approved by Cabinet, with a mix of renewables and coal as part of this planned new power procurement to start sometime in 2022 till about 2025.

As of July this year, Sasol is looking to sell its 50% stake in the pipeline company. It is likely that iGas/CEF (under the energy ministrys control) will take up Sasols stake. Sasol is haemorrhaging on account of Covid-19 and its troubled ethane cracker project in the US, the Lake Charles Chemical project.

Sasol draws gas from two gas fields, the Pande and Temane fields, which are close to South Africas border, but they are running out of gas, which has been critical to Sasols feedstock needs.

Sasol and the government want to construct a gas pipeline of 2,000km from Cabo Delgado to Richards Bay. This looks like an unlikely prospect because of costs and instability in Mozambique.

The alternative is to bring this gas via LNG and pipe it through an established pipeline called the Republic of Mozambique Pipeline Company (Rompco) that connects gas markets between Mozambique and South Africa. Currently, gas monetisation strategies for Mozambiques new gas is through LNG production.

Total and a South African gas company called Gigajoule are active in developing LNG and gas-to-power projects in Matola Harbour City, close to Maputo. The Matola Gas Company (MGC) is looking to supply the Beluluane Industrial Park from a planned 2,000MW gas-to-power project as part of a new industrial development zone. MGC is also connected to the South African gas grid, which supplies Sasol and Gauteng.

The preliminary strategy is to bring gas into Mozambique via floating storage and regasification units (FSRU) and in future a floating LNG ship (FLNG), which is in the final stages of construction completion.

The pipeline company is majority-owned by Sasol, the Mozambican government and a little known entity called the South Africa Gas Development Company (iGas), a subsidiary of the Central Energy Fund (CEF) both South African state-owned companies.

The current emergency procurement by the SA government will not source gas entirely from Mozambique but from other sources in the interim. The procurement though is designed to test the market and entrench a gas market pathway in the long term into SA that is no longer sourced from piped gas only, but also LNG. The global liquified natural gas market is cheap, and Total is increasingly beginning to etch its footprint in southern Africa.

As of July this year, Sasol is looking to sell its 50% stake in the pipeline company. It is likely that iGas/CEF (under the energy ministrys control) will take up Sasols stake. Sasol is haemorrhaging on account of Covid-19 and its troubled ethane cracker project in the US, the Lake Charles Chemical project.

In June, Cabinet approved the merger of iGas, Petrosa, CEF and the Strategic Fuel Fund into one entity to be named, possibly, the National Petroleum Company. This is not a rationalisation and consolidation without a strategic long-term objective in mind. It is aimed at SAs bigger role in the domestic and regional offshore oil and gas industry. The idea is to repair and consolidate the balance sheet of these companies, riven by corruption during the lost nine years, so that the new petroleum company can be positioned to benefit from new gas finds.

Ramaphosa eager to lift the mood of South Africans following the lost nine years of Zuma rule lauded the Brulpadda find in his State of the Nation Address in 2019. Recently Mantashe encouraged the drilling at Brulpadda to be sped up and celebrated the arrival of the deep-water drilling rig Stavanger for the exploration of another gas well adjacent to the Brulpadda gas field.

And, then the Russians: Russia has a history with liberation parties from Mozambique and South Africa. Its role in Mozambique is also being intensified. Russia understands the geopolitical value of gas very well. It is a big gas player through Gazprom, Novatek and Rosneft. It is not in northern Mozambique for nothing. Russias Gazprom bank is looking to finance and bankroll Mozambiques oil and gas company, the Mozambican Hydrocarbon Company, ENH, whose balance sheet is practically non-existent following the Chang scandal.

ENH was created when the US giant Enron discovered gas deposits in Inhambane, which were later taken over by Sasol. It has participation shares in the various blocks of gas fields it has allocated to international oil and gas players.

By financing ENH, Russia has access to future gas revenues from Mozambiques gas fields and influence over the countrys gas strategy. The president of Mozambique, Filipe Nyusi, met President Vladimir Putin in August 2019 to look at the financing of ENH and security in the northern areas. Interestingly, Gazprom, in the meantime, was reported to have also secretly met with PetroSA to strike an energy deal in May 2020.

Total has become the frontier company to monetise Mozambiques gas. It also happens to have a share in Novatek, a Russian company established to crack open the LNG market in the northern hemisphere. Total is active in the Yamal Peninsula, close to the Arctic, which is fast developing as an LNG exports hub owned by Russia.

Russias model of delivering gas via pipelines is coming under attack, if you follow geopolitical debates in Europe over the finalisation of the Russian gas pipeline NordStream 2. Novateks role in the globalisation of LNG will become crucial to Russias gas exports as piped gas becomes a political hot potato, given growing tensions and distrust between Nato and Russia.

Recently, Total announced a gas find on the eastern shores of South Africa called Brulpadda Blocks 11B/12B.

Ramaphosa eager to lift the mood of South Africans following the lost nine years of Zuma rule lauded the Brulpadda find in his State of the Nation Address in 2019. Recently Mantashe encouraged the drilling at Brulpadda to be sped up and celebrated the arrival of the deep-water drilling rig Stavanger for the exploration of another gas well adjacent to the Brulpadda gas field.

Russias ties with South Africa will grow as interests in Mozambique expand. Ramaphosa, who met Putin during a BRICS Summit in 2018 in Johannesburg, and then at the Russia-Africa Dialogue Forum, politely told Putin that the nuclear deal is off, but they may have come to terms with the fact that their cooperation will be needed in other economic areas, both in South Africa and Mozambique. We are tied geopolitically with Russia because of BRICS and recently secured a $1-billion loan from the BRICS Bank as part of emergency Covid-19 support to South Africa. Keeping good terms with Russia and China in BRICS becomes a necessity, given their role and influence in the BRICS Bank.

Besides, the ANC has a long cozy relation with Moscow. Its not going to disappear soon.

You cannot also dismiss another intriguing angle Putins role in the ANC. Zuma was close to Russia and that relationship, the move east, was solidified following Zumas defeat of Mbeki at the ANC Polokwane conference. Zuma is also believed to have rushed to Moscow for treatment for poisoning in 2014, so he owed his life to Russia. They wanted their nuclear power project, as reciprocity from South Africa.

Understanding gas geopolitics is like trying to crack gestalt art: it is to constantly turn the way the minds eye looks. The challenge is to tame our first impressions from overpowering our framing when everything we need to see is right in front of us.

Ramaphosas close win at Nasrec at the ANC elective conference of 2018 meant that he did not have a huge margin of victory over Zumas former wife, Nkosazana Dlamini Zuma. As we have seen, the Zuma faction continues to be a menace to Ramaphosas clean campaign within the ANC.

Working constructively with Putin is a way to placate a possible Russian menace in ANC internal fights and Ramaphosas ability to gain control over the ANC.

So, coming back to that gas picture: one can only try to pull the connections between things in an abductive way because one lives outside of the world of those who broker geopolitics and transnational economic deals.

But if you put the pieces together, it is hard not to conclude that a gas strategy is taking shape first the efforts to stump the jihadist insurgency in the north; then the push for possibly about 5GW (in the next round of Independent Power Producer bids) of gas procurements as one anchor in a gas utilisation plan; the establishment of a new oil and gas company directly under the supervision of Mantashe that will benefit from revenues from piped gas as Sasol offloads its stake in the pipeline company; and the expanded ambit of activities of Total between Mozambiques offshore and South Africas gas fields it all tells a story.

There is not only a market rationalism that defines what is going on, but a geoeconomic rationale: the value of which is greater than the price of gas at the petrol station.

Understanding gas geopolitics is like trying to crack gestalt art: it is to constantly turn the way the minds eye looks. The challenge is to tame our first impressions from overpowering our framing when everything we need to see is right in front of us.

When pieces of a puzzle look seemingly too far apart and autonomous, they are actually not. They are part of one picture somebody knows but because it is not spoken thus, does not mean it does not exist.

Alas! In 20 years South Africas energy transition is likely to be a mix of gas and renewables with coal on the decline. And, will there be settlement on this between those who want the royal road to decarbonisation and those who believe that road must be paved by the economic imperatives of gas, presumably also aimed at saving a troubled country? Here, two competing emotive totems and models of progress battle each other: one aiming to save the planet and the other saving a country who will win? DM

Saliem Fakir is Executive Director of the African Climate Change Foundation

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Gwede Mantashe's gas plan, the northern jihadists and... - Daily Maverick