Case Study on Fundamentals of Microeconomics Assessment Questions

Assignment Detail:-

• Number of Words: 1000

Read the extract below and answer the questions that follow:

Industrial gas users lament ‘gas supply constraints’

Industrial gas users in South Africa say the country is experiencing gas supply constraints. This follows Sasol’s announcement that it will cease gas supply to traders and industrial users in June 2026. Industry role players want the government to move with speed to ensure new gas infrastructure projects. They also want the cabinet to expedite the gas masterplan for public comment.

The views were expressed during a webinar looking at developments within the gas sector and solutions.

South Africa has a Gas Masterplan and an Integrated Resource Plan 2023 that speaks to accelerated efforts on the building of three gigawatts of gas-fired power generation to help plug an energy deficit that is hurting the economy.

Part of the government’s plan is to increase generation on the procurement of 3000 MW projects near Coega in the Eastern Cape province which those in the gas space believe should happen as a matter of urgency.

“We’ve written similar letters to the DMRE, even the presidency (and) all other government stakeholders. In essence, in these highlighted sessions, we emphasise the point that a gas supply crisis is imminent, and at that stage, we viewed this as the next energy challenge for South Africa and that has certainly become real in recent times,” says Jaco Human, Executive Officer: IGUA-SA.

They say the country is experiencing a gas decline and this was made worse by the announcement by Sasol which they say is already affecting consumers with an increase in gas demand and a shortfall that has the potential to negatively affect the economy.

“We are then faced with certain impacts. We see the investment hard stop from 2024 onwards in terms of fixed capital investments. We see reduced outputs at this point, from 2026 if nothing changes and definitely closures by plants and factories in KZN, Mpumalanga and Gauteng … loss of competitiveness already at play. We are subjected to increased network economic costs and energy, logistics, water … all these elements, we see an increase in SADC industrialization, access to cheap domestic gas energy next door and this is a reality and something we, as a country, need to keep an eye out all the time,” Human added.

They also believe that gas to power will contribute to grid stability, minimize loadshedding and complement the country’s renewable energy rollout.

“In future, energy security needs to be number one on any risk register in South Africa at the moment and it also provides private users with the solution that emanate against uncertain Eskom increases in the future. If it were to be an Eskom or government of South Africa type offtake, 30% of the current tariff by our estimation is in the region of 30% of the price of diesel per kilo that’s currently been burnt and if we compare that to the cost of load shedding to our economy it’s even less. And furthermore, we believe it’s below the cost of what it’s costing to keep the old coal fired plants going as we speak,” says Jurie Swart, CEO Gigajoule.

South Africa has four months to roll out the development of gas infrastructure to ensure gas energy security. Those in the sector are urging the government to prioritize the release of the Gas Masterplan for public comment.

Source:  https://www.sabcnews.com/sabcnews/industrial-gas-users-lament-gas-supply-constraints/

Question 1

“They say the country is experiencing a gas decline and this was made worse by the announcement by Sasol which they say is already affecting consumers with an increase in gas demand and a shortfall that has the potential to negatively affect the economy”.

Explain the factors that may have contributed to the recent increase in demand for natural gas despite the country’s gas decline and the potential implication on the economy.

Question 2

Justify the type of price elasticity of demand (elastic or inelastic) more likely to characterize the demand for natural gas in the industrial sector.

Question 3

Discuss how the natural gas industry interacts with the roles of government and international participants in the circular flow model of income and spending.

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