Sasol Unveils Plan to Address Impending Gas Crisis in South Africa

April 15, 2025 stocks24

Sasol has announced a prospective interim gas strategy that could provide South Africa with an additional 24 months to avert the anticipated “gas cliff” threatening the nation’s industrial sectors, as gas reserves from Mozambique approach depletion.

With the supply of natural gas from Sasol’s Mozambican fields expected to cease by July 2028, and liquefied natural gas (LNG) import projects still in the preliminary stages, the nation’s industrial gas consumers are facing the looming threat of a sudden supply disruption, which would endanger jobs, manufacturing, processing, and other heavy industries dependent on gas for energy.

Read: The impending ‘gas cliff’ in SA, and the potential solutions …[Sept 2024]

In a significant development, Sasol has revealed its efforts to formulate a plan to redirect methane-rich gas (MRG)—a synthetic gas generated at its Secunda operations—as a temporary measure to sustain gas supplies from mid-2028 to mid-2030.

This synthetic option would completely substitute natural gas volumes for contracted external customers during the two-year transition, granting South Africa crucial time to finalize and activate LNG import infrastructures.

MRG as a Strategic Bridge

While the proposed MRG solution appears promising, it involves significant trade-offs. Redirecting synthetic gas for external supply will necessitate substantial internal process modifications at Sasol’s Secunda facility and could lead to a decrease in chemical and liquid fuel production.

However, the company views this move as essential for ensuring energy supply security and maintaining industrial continuity.

The feasibility of this interim measure is contingent on both regulatory and technical factors. Sasol has initiated formal discussions with the National Energy Regulator of South Africa (Nersa) to secure approval for a new maximum gas price (MGP) that would accurately reflect the production costs of MRG—costs that are significantly higher than the current natural gas prices regulated by Nersa.

Read:
Looming industrial gas crisis, government urged to accelerate efforts [Feb 2024]
Gas supply crunch may exacerbate SA’s economic difficulties [Nov 2023]

Internally, Sasol’s pricing analyses reveal that the synthetic gas has historically been undervalued, with Sasol Gas acquiring it below operational costs—a situation that the company asserts must be rectified to ensure the economic sustainability of the bridging plan.

Regulatory Challenges Ahead

Sasol is advocating for Nersa to acknowledge the urgency and unique nature of this interim solution, emphasizing that the production and supply of MRG is intended as a temporary measure rather than a permanent fix to the gas shortfall.

If the MGP process advances successfully, Sasol intends to engage customers to secure volume commitments and contractual arrangements specifically tailored for the 2028 to 2030 period.

“Pricing approval is absolutely critical,” remarked a company insider. “Without economic sustainability for both production and trading aspects of the business, the MRG plan cannot be executed.”

Additionally, Sasol warned that technical readiness is another essential element. Transitioning from natural to synthetic gas would require extensive evaluations and potential upgrades to customer transmission, distribution, and usage systems to ensure compatibility with MRG’s specifications.

The company is committed to facilitating customer readiness and plans to initiate bilateral discussions once both regulatory and commercial approvals are obtained.

LNG Import Delays Heighten Stakes

The urgency regarding this bridging solution is further heightened by delays in implementing South Africa’s long-term LNG import initiatives.

Despite backing from customers and government, progress on LNG infrastructure has fallen behind initial schedules—partly due to challenges in demand aggregation and the sluggish development of gas-to-power (GtP) initiatives that are vital for establishing the economies of scale required for viable LNG importation.

Read:
Eskom and Sasol collaborate to tackle impending gas shortfall
Plans for Ngqura LNG terminal gain momentum
Transnet outlines revamped pipeline to transport LNG from Richards Bay to inland markets

Without a reliable anchor demand and adequate supporting infrastructure, there is rising apprehension that LNG will not be ready by the mid-2028 deadline—hence the increasing significance of MRG as a stopgap solution.

Industry insiders have long cautioned against the “cliff edge” scenario, in which gas-reliant sectors would find themselves stranded as pipeline gas diminishes and LNG is yet to be available. The two-year MRG solution now presents a crucial contingency to avoid such dire outcomes.

Market Implications and Industrial Impact

For South African industry, this news comes at a critical juncture.

Firms in industries such as steel, glass, chemicals, and food processing are heavily dependent on natural gas, whether as a feedstock or energy source. Many have been actively seeking alternative fuel sources, considering relocations, or downsizing operations amidst uncertainties surrounding gas availability after 2028.

The assurance of a 24-month MRG bridge provides essential insight, enabling industries to adjust and align their strategies with the ongoing LNG rollout.

Read:
SA gas consumers strategize to secure supply before 2026
Sasol Gas submits gas pricing applications to Nersa [Jul 2023]
Sasol and Nersa disagree on gas price increases [Jul 2023]

Nevertheless, this interim respite will likely come with additional costs. Given the higher production expenses of MRG and the necessity for regulatory approval of new pricing structures, customers may confront significant increases in gas prices from 2028 onward—raising affordability concerns in an already strained economic climate.

Conclusion: A Crucial, If Costly, Respite

Sasol’s MRG initiative offers South Africa a crucial opportunity to transition into a new gas landscape without major disruptions. While the solution is technically plausible and a regulatory course is being established, the success of the initiative will depend on prompt, practical regulatory actions, customer engagement, and readiness of infrastructure.

With less than three years remaining before gas from Mozambique is depleted, time is of the essence.

The proposed MRG bridge is not a panacea, but it may be the sole feasible route to guaranteeing a consistent supply—and, correspondingly, industrial survival—until LNG becomes fully operational.

As the nation navigates its transition in gas supply, industry stakeholders, regulatory bodies, and energy planners face a crucial test of collaboration and urgency. The upcoming six months will be pivotal.

Read: Sasol’s gas supply and fluctuating oil prices raise sustainability concerns

Chris Yelland, managing director, EE Business Intelligence

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