South Africa’s planned Zululand Energy Terminal at Richards Bay has reached the engineering stage, secured a 25-year terminal operator agreement and has Eskom lined up as a potential foundation customer for a planned 3,000 MW gas-to-power programme. Yet the project still faces a basic commercial problem: it does not have enough binding long-term commitments from customers to support a final investment decision. The lesson is important because large energy infrastructure is not financed simply because a country needs it. It is financed when future revenues are sufficiently credible for lenders and investors to take the risk.
The Zululand Energy Terminal is being developed by a joint venture between Vopak Terminal Durban and Transnet Pipelines at the South Dunes precinct of the Port of Richards Bay. Its initial configuration is expected to combine floating LNG storage with onshore regasification, allowing imported LNG to be converted back into natural gas and supplied into the domestic market. The project is currently in front-end engineering design, with a final investment decision targeted for 2028. But engineering can establish whether a terminal can be built; it cannot establish whether enough customers will use it to generate the revenue required to finance it.
That is why offtake agreements are so important. An LNG terminal has high fixed costs, while its economics depend on how much gas flows through the facility over many years. A lender therefore wants more than an expression of interest from a potential customer. It wants evidence of contracted demand, predictable payment and a credible gas supply structure. Eskom’s Heads of Agreement provides a framework for the utility to become a foundation customer, linked to its planned gas-to-power capacity, but the project still needs binding terminal-use and offtake arrangements. Industrial customers could provide additional demand from manufacturing, chemicals, mining and other energy-intensive operations, but those customers also have to commit capital and accept the economics of switching to imported gas.
The timing makes the question more complicated. South Africa is trying to introduce gas into a power system dominated by coal while simultaneously adding large amounts of renewable generation. Gas can provide dispatchable capacity when wind and solar output falls, but imported LNG can also expose users to international commodity prices, exchange-rate movements and global supply disruptions. That means an LNG terminal cannot simply assume that demand will appear because gas is strategically useful. It has to demonstrate that the delivered cost of gas makes sense for power producers and industrial users over the life of the infrastructure. The proposed East London LNG terminal adds another variable, potentially creating competition for both customers and capital as South Africa develops multiple import points.
Read Also: Why 20 MW of Solar Could Change Comoros’ Electricity System
Richards Bay therefore illustrates a broader rule in African energy infrastructure: the project pipeline is not the same thing as the investment pipeline. A terminal can have land, permits, engineering studies, government support and even a major potential customer and still remain unbankable until contracts convert future demand into predictable revenue. For Zululand, securing those commitments is the next real test. If Eskom and industrial users sign long-term agreements that give lenders confidence in utilisation and cash flow, the terminal can move from an engineering project toward a financed asset. Until then, the most important infrastructure at Richards Bay is the commercial structure that would make someone willing to pay for it.
