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Fracking proponents, opponents agree on need for exploration to determine size of Karoo shale resource

26th April 2013

By: Samantha Herbst

Creamer Media Deputy Editor

  

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Gas industry stakeholders supporting and opposing the exploiting of shale gas reserves in the Karoo basin reached a consensus at Gas Week 2013 – exploration needs to go ahead to conclusively determine whether the 485 tcf of technically recoverable shale gas in the region is, indeed, commercially viable.

Much of the week-long event, hosted by the Institute for International Research, earlier this month, focused on the possible exploitation of indigenous shale gas reserves, weighing up the risks and concerns of moving ahead with hydraulic fracturing (fracking) against the benefits that the development of a natural gas sector may bring.

Law firm Webber Wentzel Africa mining and energy projects partner Jonathan Veeran maintains that, while developing an industry around shale gas exploitation in the Karoo is manageable, it is also not without significant economic and environ- mental risks.

“It takes time to explore shale gas resources and it may take years before exploration turns into production,” he says, explaining that natural gas prices may fall or rise considerably during the exploration period, which involves financial risk.

Further highlighting the significant capital development and infrastructure costs involved in shale gas development, Veeran adds that South Africa does not have a sufficiently developed gas market to support these costs.

“There is also a need for govern- ment buy-in and, though government has shown willingness, there seems to be some disconnect between the National Development Plan and the Department of Mineral Resources’ (DMR’s) mineral policy on how to progress the issue and create investment opportunities to make South Africa’s shale gas sector an attractive investment destination.”

This disconnect is compounded by South Africa’s unstable labour environment, says Veeran.

Further difficulty in developing the shale gas sector comprises the environmental concerns pertaining to fracking and the environmental regime that needs to be adhered to.

“From our perspective, the difficulty is that there is no stream- lined application process. Companies need to approach different government departments to apply for different licences, which delays the process,” says Veeran.

He also highlights other major environmental concerns, including waste management processes, the deterioration of air quality, groundwater contamination and the migration of gas to the land’s surface, as possible complications that could arise as a result of the fracking process.

This, says Veeran, aggravates existing negative public opinion.

“Companies, like oil and gas major Shell, have gone on the public offensive to ease some of these concerns, but I think there’s still a fair bit of negotiation that needs to go on there,” he states.

As a frontrunner in developing the natural gas sector in South Africa, Shell is reiterating its belief that, while there are significant challenges inherent in shale gas exploration and development, these can be mitigated through best industry standards and transparent regulations.

While maintaining a strong stance in favour of fracking and the economic benefits that it would bring to South Africa, should it prove to be economically viable, Shell SA chairperson and VP Bonang Mohale assured Gas Week delegates that Shell was com- mitted to protecting the Karoo, even if it became a national energy resource.

“We are not going to compete for water with the people of the Karoo and will provide full compensation to those who will be out of pocket as a result of our activities.”

Mohale acknowledged that water access would be a key challenge, should Shell move ahead with fracking in the Karoo. He added, however, that the company would seek alternative water sources, such as brackish water, which might be sufficiently available at depth.

In addition, Shell has promised full disclosure of the chemicals that will be used in the fracking process, if it proceeds with the development phase, which will probably get under way only in the next decade.

With the moratorium on exploratory fracking now lifted, Shell is waiting for an exploration licence from the DMR on the basis of the environmental management plan it submitted to the Petroleum Agency of South Africa (Pasa).

Drilling, however, can only start once Shell has submitted its environmental, social and health impact assessment (Eshia), which will take an estimated two years to prepare.

Eshia will assess the poten- tial impact that exploration activities could have on the environment and will highlight possible operational alternatives. The assessment will include specialist studies, water tests, seismic testing and air-quality tests, among other processes. Extensive consultation sessions will also be held with the people of the Karoo.

Shell will submit the finalised Eshia to the Department of Environmental Affairs for approval and, if granted approval, will proceed with exploration drilling, which could take up to nine years to finalise.

Shell plans to drill at least six wells within the first three-year licence period, which is the minimum number of wells required for drilling. These wells will test whether the shale can produce sufficient quantities of gas to make the development worthwhile.

Should the first exploration wells show encouraging results, Shell will renew its exploration licence to drill more exploration wells, which could add up to 24 wells within the licence period.

Once the exploration period draws to a close, the oil major hopes to proceed with gas production, which would involve the construction of between 60 and 70 drilling-rig sites, or well pads, each about the size of a football field, which will be spaced 4 km to 5 km apart. Each well pad can accommodate up to 32 wells.

“This development process is expected to impact on not more than 1% of Shell’s 90 000 km2 licence area, which is nothing in terms of surface impact. “The overall footprint of shale gas development in the Karoo will, therefore, be very limited,” says Mohale.

He adds that, in terms of explor- ation legislation, South Africa has the correct checks and balances in place to proceed with confidence.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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