JOHANNESBURG (mining weekly.com) – A discovery of large recoverable shale gas reserves in South Africa's Karoo Basin would be a "game changer" in the broader South African energy market context, Sasol Petroleum International MD Ebbie Haan said on Monday.

Haan said in a media release that a large discovery would likely constitute a major step to further develop gas transmission and distribution infrastructure in the country.

The release stated that South Africa's Karoo Basin had unproved shale gas potential and significant exploration efforts were required for quantification.

Petroleum Agency SA technical compliance manager Stephen Mills told Mining Weekly Online that the area for which Sasol, together with its partners Statoil ASA of Norway and Chesapeake of the US, had been awarded an onshore petroleum technical cooperation permit (TCP) abutted an area in which interest was also being shown in coalbed methane gas.

Mills said that it was possible that a discovery of large recoverable shale gas reserves would be a game changer, as in the US, provided that there was sufficient gas and provided that there was infrastructure.

"That's possible, because the area that Sasol's applying for, in the northeast, joins on to the arc of coalbed methane interests, which extends from Virginia and Welkom in the Free State through southern Mpumalanga to northwestern KwaZulu-Natal.

"If all of these stack up nicely, then one can envisage the development of a grid of pipelines, but this is all really very optimistic thinking," Mills cautioned.

Haan said that large gas discoveries in the Karoo Basin could also help to alleviate South Africa's power and fuels shortage and assist in creating employment and wealth for the country.

Mills concurred, saying that, although South Africa did not have the well-established gas pipeline infrastructure of the US, it did have a well-developed national electricity grid and gas was a recognised fuel for combined-cycle gas turbine electricity units.

"It would be relatively straight forward to burn the gas, produce electricity and connect that electricity to the grid. But we first have to prove that the gas is there," Mills added.

In addition, the increase of natural gas in South Africa's energy portfolio would significantly aid in the reduction of greenhouse gas emissions on a per unit basis, compared to more conventional resources such as coal.

"But we are at the beginning of a journey that requires technical risk reduction, environmental stewardship, stakeholder alignment and, in case of success, significant future capital investment," Haan added.

South Africa's domestic resources of hydrocarbons are very limited.

The Sasol/Statoil/Chesapeake TCP covers an area of 88 000km2, primarily in the Free State, but also covering areas of the Eastern Cape and KwaZulu-Natal.

A TCP is a permit to do a desktop study and is issued when there was a high degree of uncertainty about the potential of an area being explored.

It does give holders an opportunity to look at the results of previous exploration, while reserving a place for the first right of application for an exploration right and access to the surface.

All three groups have only TCPs at the moment, with 12 months to complete the TCP before applying for exploration rights.

It is conceivable that the first well demonstrating produceable gas could be developed within five years, but even that would be pushing things, Mining Weekly Online understands.

The main Karoo Basin is huge and there is only a very thin scatter of boreholes, which were drilled by the former State-owned Soekor.

At the stage that Soekor was drilling, very little attention was paid to the presence of gas and shale would not normally have given rise to a noticeable anomaly in the gas record.

Even if the shale is now found to be suitable for shale gas extraction, that would not have been registered in the old records.

So, in essence, the companies are starting from scratch, which means that the awarding of TCPs is appropriate.

The Sasol/Statoil/Chesapeake bid appears to have been pipped at the post, as the area in South Africa's Karoo Basin of most interest is the area that has now been completely taken up firstly by Falcon Oil & Gas and then by Shell.

Falcon, the first to apply, has got 30 000 km2; Shell bid a couple of months later and secured about 100 000 km2; and Sasol/Statoil/Chesapeake was a week or two behind Shell, with Anglo American coming in fourth.

When, towards the end of last year, the Sasol consortium made an application for a full exploration right, it was aware that Shell had lodged a prior application ahead of it for much of the area that it was applying for, and that it was likely not to get all it wanted.

In fact, Mining Weekly Online understands that, by the time Petroleum Agency SA had processed Shell's application, there was nothing left for Sasol, which is why Sasol is now having to contend with the outer, more distal part of the Karoo Basin.

Falcon got what it asked for; Shell wanted that as well, but was too late, which is why the area that Shell was granted in December has an east-west window cut in it, which is where Falcon's area is.

In a nutshell, the main core has gone to Falcon and Shell; the Sasol/Statoil/Chesapeake consortium is having to be content with the periphery, and what is left for Anglo is only a fraction of what it applied for, and Anglo will probably end up with a TCP for only about 10 000 km2.

Anglo apparently applied essentially for the same area as the one for which Sasol/Statoil/Chesapeake has received a TCP, but a couple of days later.

Shell, which Mining Weekly Online understands took a shotgun approach and applied for virtually everything, has been doing TCP work for several months, gathering up of old exploration data and identifying rocks.

One of the key factors in the identification of a potential target is to look at a parameter called total organic carbon, by going back to boreholes that the Council for Geoscience may hold and going into the field and negotiate with farmers to take surface samples.

In the US there is a hugely well-developed network of gas pipelines, but it is only recently that shale gas has featured as a result of a technological drilling breakthrough.

The technique of "fracking" was developed, which involves the pumping of liquid into the ground to fracture the shale and to allow gas to escape through what had previously been impervious rock, and this was combined with horizontal drilling. The technologies together are able to create sufficient fracture to enable gas flow in large volumes.

Commercial viability in the US is enabled by the ease of access to infrastructure, whereas in South Africa it will be a different story, because there is no gas infrastructure and the commercial possibilities still have to be determined.

Also, Mining Weekly Online understands that there is unlikely to be a drilling rig in South Africa capable of drilling the kinds of holes that are required.

Some of the coalbed methane permits in the area that abuts the Sasol/Statoil/Chesapeake area have already run through their first three-year period and are being renewed for further exploration.

The Sasol/Statoil/Chesapeake permit allows the joint venture partners to evaluate existing and available geological information within the area to determine the potential for shale gas.

The study work will include the sampling and analysis of existing geological cores that were drilled by Soekor in the 1970s and 1980s, during its search for shale oil.

The same shale formations are now being assessed for potential gas production.

If the geological evaluation proves successful, the partners will consider committing to a more extensive exploration programme in the Karoo Basin

Shale gas, which is a clean natural gas produced from shale, has become an increasingly important source of natural gas, not only in the US, but also in Canada and Europe.

Petroleum Agency SA – headed by CEO Mthozami Xiphu and entirely separate from PetroSA – is designated by the Mineral and Petroleum Resources Development Act to regulate and promote oil and gas exploration in South Africa.

It is understood that Petroleum Agency SA is also close to issuing a permit to BHP Billiton for exploration offshore of South Africa's West Coast, where it owns the lead percentage interest in the rights to explore block 3A/4A, in which Sasol and South Africa's State-owned PetroSA also own percentage interests. The water depth of block 3A/4A, where gas is the likely target, is typically 100 m.

BHP Billiton also has the lead percentage of the block 3B/4B rights, together with US company Global Offshore Oil Exploration South Africa. The water depth of this block, where oil is the likely target, is 1 500 m to 2 000 m. BHP Billiton will almost certainly act as operator in both blocks.

Petroleum Agency SA has some 30 issued exploration rights for coal-bed methane gas onshore rights, which are considerably smaller in area than the offshore rights.

The two groups currently dominating the coal-bed methane rights process are Highland Exploration & Production, a subsidiary of Molopo Energy, of Australia, and NT Energy Africa, in association with South Africa's State-owned Central Energy Fund (CEF).

Highland Exploration has eight exploration rights in the Virginia/Welkom area of the Free State province, and two in the Evander area of Mpumalanga province.

The Virginia/Welkom gas is not fully defined and may be below coal in the gold-bearing reef.

The NT Energy Africa/CEF combination has rights in Mpumalanga and KwaZulu-Natal provinces and in the Soutspansberg and Musina areas of Limpopo province, besides rights in the Virginia/Welkom area.

BEE company Budimo is consolidating four coalbed methane rights into two, and other rights holders include a faith-based organisation searching for oil in Lydenburg, and the JSE-listed Coal of Africa, which has acquired coal-bed methane rights in conjunction with its coal rights.

The southern part of South Africa is the area of pursuit of shale gas, which, like coalbed methane, is one of a number of ‘unconventional' sources of natural gas.

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