LPG's potential as a power generation fuel has been espoused by the industry for many years while uptake has been relatively meagre. But the benefits of small LPG-fuelled backup generators in developing countries lacking gas grid infrastructure and simultaneously expanding inherently intermittent renewables are becoming increasingly apparent. Nowhere is this more true than in South Africa, a country struggling to keep the lights on from its fleet of high-emitting coal-fired plants. Argus spoke with International Finance Corporation strategic adviser and the World LPG Association's chair of the LPG-to-power working group, Christophe Reimnitz, to discuss the opportunities in South Africa and market developments in east Africa:
What is South Africa's current LPG import capability?
South Africa has quite a lot of import capacity. It has five terminals, but really two that count — Bidvest and Petredec's terminal in Richards Bay, which has a capacity of 22,600t, consisting of one propane and three butane tanks. So for Petredec, it shouldn't be a problem to supply high-propane LPG, or 90pc propane and 10pc butane, if needed — which is what you do need for power generation. Vitol, which leases the Sunrise terminal in Saldanha Bay with a storage capacity of 5,500t, in Western Cape, is also capable of delivering HD5. There's a very small storage facility in Port Elizabeth but potential to create additional capacity nearby.
The country is grappling with power cuts and load-shedding — cutting power temporarily to ease strain on the grid. Can you explain the situation?
The issue is getting worse by the day. I spoke with someone in Johannesburg recently and they had 10 hours of load-shedding between 8am and 8pm. South Africa's generation capacity is around 55GW, and about 75pc of this is coal-fired. Unfortunately, two of the last big coal-fired plants that came on line have suffered technical issues. In South Africa, you have scheduled maintenance taking about 6GW off line and then you constantly have unplanned repairs taking up to 12GW off line. So they simply turn off the electricity in certain regions. We're about 115 days into the calendar year today, and we've had about 108 days of load-shedding.
Industry is likely to be protected, but not always, and nothing is worse for productivity and economic growth — if you don't have power, you have a big problem. So everyone is looking into how they can create backup electricity. The government has been pushing solar PV [photovoltaic] and wind. But intermittency is a problem, so you need batteries. But they can only provide limited power, for maybe 30-60 minutes, and their lifespan is unproven and they are still expensive.
I've been talking to someone in Western Cape province, and they're looking at all sorts of different generation technologies, including LPG. And I've been speaking to some of the importers of LPG, and they're very interested in pursuing this and how they can make it work in terms of supply. I think there's plenty of LPG to go around, and distribution on good roads won't be an issue. The value proposition is for a commercial or industrial customer to install a 1MW — or multiples thereof — LPG generator, which might be a little bit more expensive than a diesel one but is cheaper to run and if fuel makes up around 60-65pc of your operating costs, this matters. So you're going to be better off, you're cleaner, you're less noisy.
Why, if the benefits are so clear, has investment in LPG generators been limited?
The problem has been that the OEMs [original equipment manufacturers] in the past have not focused on LPG because it is a relatively small market. But many have now developed engines that are capable of running on LPG. Another reason is that diesel was very cheap, which is no longer the case, or you used natural gas, but Africa does not have the pipeline infrastructure to distribute gas widely.
Are there enough OEM offerings to spur deployment in South Africa?
We have a few OEMs that can do this. There is one engine out there, for instance, built by one of the leading manufacturers that works in the same way as any other gas or diesel engine and is on par in terms of performance and capacity. The other thing you need is reference cases, and there are a number of these in the Caribbean — in Jamaica and Puerto Rico, for example. Part of the issue has been a lack of promotion and a lack of awareness. In South Africa, people are desperate for a dispatchable, on-demand power solution, and that's where LPG comes in as an alternative to diesel. We tried in Nigeria in 2015 and 2016 but didn't succeed because you're competing with incredibly cheap natural gas in the country and everything being priced in US dollars. You have an official exchange for the naira, but you can't access that, you get it from the unofficial market at a significantly worse rate, which ruins the value proposition.
Are there any LPG generation projects in the pipeline in South Africa?
I've been in conversations with a number of LPG suppliers, and with OEMs about their capabilities. And I am in conversations with associations and trade publications like yourself to highlight the opportunities to whomever is willing to make the move there. Furthermore, I have identified users who are already today complementing their solar power and batteries with LPG-fired engines.
Will the government construe support for LPG as a generation fuel as being in conflict with efforts to transition from solid biomass fuels to LPG for cooking?
No, because there is significant import capacity. If South Africa has 30,000t of import storage capacity, you could maximise imports to maybe three turns a month. So you've got enough to bring in over 1mn t/yr, while you're currently consuming around 450,000 t/yr. If this were to take off, and LPG use were to grow at a phenomenal rate, new terminals would be built. For example, in Kenya and Tanzania, there's serious investment planned in LPG import terminals. In both countries there are various investments into import terminals and expansion of existing import capacity planned. Kenya's new president, William Ruto, recently assisted in the groundbreaking of a new 30,000t LPG terminal project by Tanzanian firm Taifa Gas in the Port of Mombasa. Mombasa has a new floating oil terminal, Kipevu Oil Terminal, with four berths, two of which are LPG capable. But you've really only had AGL and a smaller terminal bringing in supply.
Will any of these projects open this year or in 2024?
The Taifa Gas terminal should be ready by the end of this year, but it includes 12 storage spheres holding 2,500t each, so commercial operations may slip into the middle or second half of 2024.
How would plans for power generation fit with Kenya's LPG expansion plans, both for its residential cooking sector and as a regional trading hub?
LPG will primarily be targeted for cooking. For power generation, they would need to bring the cost down significantly, as earlier this year it was around $1.96/kg for a 13kg cylinder, or close to $2,000/t. They need to get it down to about $1.20-1.50/kg to make it attractive for small quantities used in generators. For a 1MW engine running six hours a day, and you did that throughout the year, you would consume about 450 t/yr. It also becomes an interesting wholesale proposition as you don't have to deal with cylinder refilling. If you have a dozen customers, then it's worth your while as an importer. But we haven't really looked at it as a solution for Kenya as it has a huge share of geothermal, and it does not have as much industry as South Africa, nor the same problems with load-shedding.
Can Tanzania act as an export hub to neighbouring countries?
Now there's a big push in Tanzania to create import infrastructure, and between Kenya and Tanzania, you're going to see imports going to the likes of Uganda, Rwanda, Zambia and Malawi. You have a whole host of countries, and Tanzania is actually geographically better placed to make that happen.
Are there any projects in the works?
A number of larger import storage terminals are under consideration and waiting to get final investment decisions. I've been able to identify three to four of them, which could add a significant amount of additional import capacity.
What are your expectations for these sub-Saharan African markets in 2023?
In South Africa, the energy crisis will boost LPG demand, because whether it's for power generation or something else, people will move to LPG as a reliable source of energy. Kenya, which is becoming more commercial under Ruto and is looking to address its import bottleneck, is a big opportunity for other players. It will come down to regulation in the country and whether they can enforce it. Tanzania looks pretty good and well run. It is better structured than Kenya with a smaller number of branded distributors and fewer illegal refilling operations. So I think there's a huge opportunity, and if you're talking about transitioning from wood for cooking, Tanzania is one of the fastest deforesting countries in Africa.
