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Trying to unpack the current state of South Africa’s envisaged shale gas industry is a tricky undertaking. It is a sector peppered with all that makes SA a noisy and economically complex country in which to do business: politics, foreign money – or the maligned “white monopoly capital” – civil society resistance and environmental opposition.
The industry has seen little national attention in the last year or two, having been thrust out of the energy spotlight by the energetic renewable energy and nuclear debate. It has, however, recently been returned to the national consciousness following comments by minister of mineral resources Mosebenzi Zwane and his deputy Godfrey Oliphant, in which both said that government had given the development of shale gas in the Karoo region the go-ahead.
“Based on the balance of available scientific evidence, government took a decision to proceed with the development of shale gas in the Karoo formation of South Africa,” Zwane told a community in the Northern Cape on 30 March.
“Government will ensure that you are kept up to date about the exploration method and benefits that can be realised from the development of shale gas and informed about the mechanisms and instruments that seek to augment existing laws for the protection of water resources and for the protection of the environment.”
Oliphant reiterated his senior’s message during an address to the community of Beaufort West, in the Western Cape, on 20?April, adding: “We are here to share with you information on the importance and benefits of developing the gas resources.”
Numerous attempts by finweek to secure an explanation by the department of this planned
“development” proved fruitless, but it is largely accepted that it points to
the imminent issuance
of exploration licences to gas explorers – a move that is likely to be
furiously opposed by environmental lobbyists.
The science
While the extent of SA’s shale gas resources remains unclear, with some reports pointing to possible recoverable resources of up to 50tr cubic feet (Tcf) in the Karoo Basin, the legislation that would govern the extraction of the gas – the Regulations for Petroleum Exploration and Production – remains contested.
The impact of the method of extraction, hydraulic fracturing (fracking), has also raised the hackles of SA’s environmental lobby groups.
In order to fully investigate the extent of the potential resource, government in 2015 initiated the Strategic Environmental Assessment (SEA) for shale gas development in South Africa, which, over 24 months, has assessed the risks and opportunities of shale gas development to assist government in creating a framework and guiding principles.
The project team comprises experts from the Council for Scientific and Industrial Research, South African National Biodiversity Institute, and the Council for Geoscience (CGS).
“This assessment will seek to translate
existing scientific information into a form usable by policymakers and be
characterised by an extensive, transparent review process by both experts
and stakeholders.
“The SEA will consider both the exploration- and production-related activities and impacts of shale gas development and will include an assessment of all the material social, economic and biophysical risks and opportunities of the industry,” reads the SEA’s mission statement.
While the team published its final scientific assessment in November last year, Phase 3 of the SEA process, which will translate these findings into operational regulatory recommendations for government to augment the existing framework, will only be completed at the end of May.
Moreover, amendments to the overarching Mineral and Petroleum Resources Development Act (MPRDA) are also yet to be finalised, while results from the Karoo Deep Drilling study being undertaken by CGS are yet to be released.
With little real legislative and regulatory progress, the timing of Zwane and Oliphant’s reinvigoration of the shale gas debate is thus perplexing.
“It’s pure pre-election shale gas posturing,” anti-fracking lobby group Treasure Karoo Action Group’s (TKAG’s) Jonathan Deal tells finweek. “The net effect of these comments is zero, as it’s the same thing government and the DMR has since 2011/12 been telling the public.”
Further complicating the issue, the DMR is currently facing court action initiated by the TKAG and AgriSA, who argue that the Regulations for Petroleum Exploration and Production were promulgated without public consultation and should thus be set aside.
“Despite what the minister may think, driving through [the Northern Cape] in a blue-light convoy doesn’t constitute public consultations,” Deal says of Zwane’s recent community address.
AgriSA adds that it cannot lend its unqualified support to shale gas exploration as a result of the uncertainties that still exist with respect to the impact these activities may have on the limited water resources in the Karoo area.
Subdued appetite
Meanwhile, international gas explorers who submitted applications for gas exploration licences in the Karoo Basin years ago seem not to have been scared off by the continued regulatory and legal wrangling. They do, however, appear more subdued in their enthusiasm.
“The appetite by explorers is still there but it’s subdued; I think they are starting to realise the regulatory environment in which they are working. They are also now aware that the geology is tough to drill into. It will chew their expensive drill bits to pieces,” says Deal.
Reacting to the DMR’s recent comments on the development of the shale gas sector, energy firm Shell – the biggest potential explorer – reiterates its commitment, but called for “a supportive, clear and stable legal, fiscal and regulatory environment” to encourage its “significant” planned investment.
Subject to it obtaining the required rights and permits, it plans to drill exploration wells that will indicate whether shale gas is present and will provide new data to develop further exploration plans to assess the quantity of gas and whether a development would be worthwhile.
“Should the project prove to be commercially viable, we believe that we have a significant role to play in developing the project to its full potential to deliver as much value as possible to South Africa and its people. Producing gas at commercial scale will positively contribute to changing the country’s energy mix and could potentially be a significant contributor to the South African economy,” it states.
Gas boom
Explorers could also be deterred by receding gas prices, helped by the US’s aggressive natural gas expansion plans. The country has upped its output by 50% in recent years, making it the world’s biggest producer today.
Prices for gas have averaged less than $3 per million British thermal units over the past two years, a third of the price in 2005, and are expected to remain mostly below that level through at least 2023, based on current futures trading on the New York Mercantile Exchange, Reuters reported in April.
SA energy expert Chris Yelland believes that, while the development of a local shale gas industry is the “longest, riskiest” option when compared with other gas-sourced energy options, such as imported liquefied natural gas (LNG), its viability must be explored.
“Fracking for shale is a very expensive, technical process. It’s high risk. But the industry can never start without exploration – this doesn’t mean that the industry is actually worth developing, but we need to know where the gas is. It’s necessary that exploration is undertaken, even though the price of gas is not too exciting.
“Exploration is the beginning of a process – it’s a necessary step,” he says.
Moreover, shale gas could complement renewable energy (RE) generation, which is set to increase its contribution to the country’s energy mix in the coming years.
“Once RE becomes a significant percentage of total installed capacity, and if SA sticks to its energy mix programme, we will need gas in between five and 10 years. So we need to start moving on gas now for it to be ready to add to the grid in a decade,” argues Yelland.
This article originally appeared in the 11 May edition of finweek. Buy and download the magazine here.
