Government’s inter-Ministerial hydraulic fracturing (fracking) monitoring committee is still working on fine-tuning regulations for a draft report on the governing of fracking in the Karoo basin, which potentially holds 390-trillion cubic feet (tcf) of technically recoverable shale gas resources, according to the latest US Energy Information Administration (EIA) study.

Originally planned for completion in July, the draft report aims to strengthen fracking regulations to ensure that environmental concerns are given due diligence. Once published, the report will be open for further public consultation, which is likely to be concluded before the end of the 2013/14 financial year.

Meanwhile, international oil companies that have applied for shale gas exploration licences in the Karoo, including Shell, Challenger Energy subsidiary Bundu Gas & Oil Exploration, Falcon Gas & Oil, Statoil and Chesapeake, are awaiting exploration licences from the Department of Mineral Resources (DMR), despite the lifting of the moratorium on shale gas exploration in September last year.

The DMR is awaiting the promulgation of the necessary regulations, including the draft Mineral and Petroleum Resources Development Act Amendment Bill, which has been tabled before Parliament and is due for discussion at the relevant National Council of Provinces Committee meeting on September 10.

With this in mind, Shell South Africa upstream GM Jan Willem Eggink hopes that the DMR will grant Shell an exploration licence in the coming months, once the drafting of additional regulations has been concluded.

This is likely to happen before next year’s election, according to Trade and Industry Minister Dr Rob Davies, who indicated last week, at a briefing following Cabinet’s fortnightly meeting, that government could authorise shale gas exploration before the end of the current administration.

Davies said Cabinet believed shale gas could be a significant game changer in terms of South Africa’s energy situation and assured antifracking lobbyists that government would proceed with exploration in an environmentally and socially responsible manner.

Nevertheless, environmental groups strongly opposed to fracking in the Karoo – including the Treasure the Karoo Action Group and AfriForum – have vowed to legally appeal the issuing of licences as soon as the DMR awards the first permit, which will further delay the exploration process for several months, if not indefinitely.

Eggink, however, joins the clamour of other fracking proponents for awarding exploration licences as a matter of urgency to, at least, ascertain the commercial and, therefore, economic, viability of shale gas in the region.

Even those experts who consider themselves to hold neutral ground in the fracking fray – such as Rhodes University economics professor Gavin Keeton and University of the Free State Faculty of Natural and Agricultural Sciences associate professor Gideon Steyl – stress the need to drill exploratory wells to better inform stakeholders about the potential costs and benefits of developing a shale gas industry.

“Debate about the development of our [potential] shale gas reserves and future electricity supply is taking place in an emotional, but largely uninformed fashion. We will not know how much gas can be extracted, at what cost and how best it can be used until exploratory wells have been drilled and geologists have examined the extracted data,” Keeton advocated in an opinion editorial published last month in Business Day.

In the piece, he acknowledges the legitimate environmental complications that may arise as a result of the fracking process – including waste management, the deterioration of air quality, groundwater contamination and the migration of gas to the land’s surface – but believes the risks associated with preliminary exploration are “relatively minor” and can be managed by existing regulations.

“Let us at least reach a point where we know what it is we are debating. The sooner the geologists get drilling, the better,” he argues.

Steyl agrees. Having spearheaded a 2012 Water Research Commission study on the impact of shale gas development and as a listed adviser to the inter-Ministerial working group on hydraulic fracturing, he is concerned about the long-term effects of the process, but believes he would support fracking, should proper risk-mitigation measures be in place.

Meanwhile, the National Planning Commission has suggested that exploratory drilling take place within the next five years as part of the National Development Plan’s (NDP’s) short-term steps that are necessary to move South Africa to “a different energy context” by 2030.

The NDP states that this will help identify whether economically recoverable shale gas reserves exist in the Karoo, while environ- mental investigations will ascertain whether sustainable exploitation of the resource is possible.

Assuming reserves are proven and environmental concerns alleviated, the NDP further promotes fast-tracking the development of the shale gas industry, as a result of its significant potential to contribute to South Africa’s energy needs.

“We are desperate for baseload power at competitive prices, as it is a necessary but insufficient condition for economic growth,” explains Econometrix MD Rob Jeffrey, who believes that electricity and employment growth are key to South Africa’s economic, social and political prosperity.

As a result, Jeffrey fully advocates the NDP’s suggestion that South Africa explores gas as an alternative resource to coal for energy production, as it will cut South Africa’s carbon intensity and greenhouse-gas emissions and lessen the blow of excessive coal-powered electricity costs, which will positively impact on South Africa’s global competitiveness.

He explains that mining and manufacturing, which are electricity-intensive industries, are adversely affected by electricity price hikes, the implication being that incorporating a greater share of gas into the energy mix for power production can stall rising energy costs, assuming the price of gas remains steady.

GAME PLAN

The NDP suggests that South Africa focus first on establishing a natural gas industry by developing infrastructure for gas-to-power projects in the short to medium term. These would initially use imported liquefied natural gas (LNG) from proven reserves in neighbouring countries to support State-owned power utility Eskom’s transmission grid.

Thereafter, should shale gas resources in the Karoo basin prove commercially feasible, the relevant infrastructure, such as small-scale gas-fired power plants, could transition to using locally procured natural gas in the long term.

Jeffrey further points out that, while South Africa’s advancing renewable-energy sector has significant benefits – especially in domestic applications – it is not reliable enough to drive the country’s energy-intensive industrial processes.

Developing a natural gas industry will, therefore, complement renewable energy as a baseload power, which dovetails with the NDP’s long-term plan to promote a natural gas industry, supplemented by LNG imports, to supply a growing share of the country’s power production.

Nevertheless, Jeffrey reiterates the need for South Africa to first establish whether shale gas exists in South Africa in commercially viable quantities. “Thereafter, subject to the establishment of safety and other necessary regulations, shale gas can be developed as a component of the country’s energy mix,” he avers.

Eggink, therefore, maintains that one of the major benefits of a significant shale gas reserve will be to secure energy supply for South Africa.

He tells Mining Weekly that, as a net importer of gas energy, it is important for South Africa to emulate the US which, less than a decade ago, was considering tenders to bring LNG into the country. Currently, however, the country is considering the establishment of LNG export terminals. This is, however, the best-case scenario for South Africa.

However, Jeffrey warns stakeholders to differentiate between South Africa and the US, as South Africa lacks the supporting gas infrastructure that already existed in the US when it started developing its shale gas industry.

He adds that, while it will take time to develop the necessary supporting infra- structure, this type of development will present significant investment opportunities for South Africa. “It also means that the full commercial exploitation of any potential shale gas deposit will take years,” he adds.

World Wide Fund for Nature South Africa (WWF-SA) Living Planet unit head Saliem Fakir, concurs. “One has to be careful in making the comparison between the US and South Africa and assuming that, because of what has happened in the US, shale gas development in South Africa is going to be cheap.”

He explains that there were certain enabling conditions in the US that made shale gas development easier to establish, such as the country’s ability to apply technology at a rapid pace, enabling industry to become more efficient in the extraction process.

Further, the US had less stringent environmental provisions, with an abundant supply of water and methods to dispose of it, he notes.

EXPLORATION LIMITATIONS

Fakir has openly criticised the 2012 Econometrix Karoo Shale Gas Report, commissioned by Shell, to determine the potential economic benefits of shale gas in South Africa.

Following a preliminary review of the study last year, he mentioned that the study was designed to create hype, justify exploration and present a picture of shale gas that might not be warranted.

“This study is not enough to substantiate why shale gas investment in South Africa is a better trade-off, compared with conventional gas imports from neighbouring States,” argues Fakir.

WWF-SA is officially opposed to hydraulic fracturing in any form and does not believe that exploratory fracking is necessary, despite Shell’s protests that disallowing all fracking activities will not be sufficient to adequately determine the economic viability of shale gas in the Karoo.

“Shale gas development is still a long way away, which is why we don’t support fracking in any form. We feel that there is enough time for rigorous studies to be done in the meantime,” explains Fakir.

Having lifted the moratorium on shale gas exploration in the Karoo last year, the DMR recommended nonintrusive surveys at the time – including seismic surveys and drilling without the process of hydraulic fracturing – which Fakir says should be sufficient, as it enables oil and gas companies to determine the amount of gas available in the region.

Both drilling and fracking are, however, integral to the shale gas exploration process, with the drilling used to confirm the existence of the shale formations and fracking to prove whether the gas will indeed flow from the shale.

Like Fakir, Petroleum Agency of South Africa principal geologist John Decker considers the Econometrix Karoo Shale Gas Report to be “fairly optimistic” in its assumptions that South Africa would produce between 0.8 tcf/y and 2 tcf/y over 25 years, as they imply high production rates.

This is despite the study’s reportedly conservative assumptions, compared with the EIA’s estimate that South Africa potentially holds 390 tcf of technically recoverable shale gas.

“The numbers assumed by Econometrix’s models are typical of production rates recently achieved in the US’s best shale plays, where there is already a significant domestic market and established gas infrastructure,” says Decker.

South Africa, however, does not have adequate infrastructure to produce gas at the rates assumed by Econometrix, he explains, adding that significant investment would be required to achieve these production rates, even if the geology is suitable.

“This is why the question of how many trillion cubic feet of shale gas exist in the Karoo may remain a moot point, at least for the next couple of decades, as it will take some time for us to produce so much gas,” he says.

By right of reply, Jeffrey stresses that the figures mentioned in the Econometrix report – modelled on two scenarios of shale gas production, namely 20 tcf and 50 tcf – were based on the assumption that these production rates would only be met after several years of development and not immediately.

Meanwhile, as a contributor to the DMR’s task team report that investigated fracking in the Karoo, Decker identified 30 tcf as a likelier representation of the potential size of the Karoo’s shale gas resource, representing the amount of technically recoverable resource in the region, taking into account the potential impact of dolerite on shale gas resources. However, he says that any number in tens of tcf is possible.

GEOLOGICAL PERSPECTIVE

Decker tells Mining Weekly that there is a high degree of geological uncertainty around the commercial prospects of shale gas in the Karoo, which further predicates the necessity for exploratory fracking.

He explains that commercial explorers are looking to measure the rate at which the trapped gas, released through fracking processes, flows upward through a gas borehole.

“Shale has low natural permeability, which means that, unless hydraulically fractured, gas flows out at a very low rate, which is why explorers would, ideally, want to perform fracking during exploration and not just during production,” Decker says, adding that explor-ation without fracking would only provide limited geological information about the resource.

He further explains that, while geologists have known for decades about the presence of natural gas in the Karoo, it cannot – if ever – be classified as a discovered resource of natural gas until empirical evidence has demonstrated that an amount of concentrated gas, large enough to be potentially economically viable, exists in the area.

“In the case of shale gas, there are internationally accepted guidelines for the classi- fication of a ‘discovery’. These include the condition that at least one shale gas well has been drilled and has produced gas at an economically viable rate, which has not yet happened in the Karoo.”

Decker further explains that flow rates can differ dramatically from one well to another, which means that several wells need to be drilled during exploration to establish a statistical representation of what production in an area might look like – and whether it would be commercially feasible.

He highlights geological uncertainty as one of the major challenges hindering the empirical determination of whether the development of shale gas is a viable opportunity for South Africa.

This uncertainty comprises, among other unknowns, the undetermined porosity, permeability and gas content in Karoo shale.

“The only way to get this necessary geological information is to drill some wells. Even a single, deep vertical research well would, at least, enable us to measure elements such as porosity and gas content at a single location.”

Decker explains, however, that these determinations would still not be enough. “We need to conduct full-scale exploration and require several hydraulically fractured wells to establish the size of the potential resource and whether it can be developed.”

Meanwhile, Decker explains that the potential success of shale gas in South Africa could be thwarted by the existence of dolerite rock in the Karoo, as certain academic studies propose that the intrusion of dolerite 183-million years ago might have caused an explosive degassing of shale in some parts of the Karoo.

Thus, the possibility of shale gas in the Karoo may, in effect, have been lost long ago.

“Currently, we don’t know the extent of the dolerite’s effect. It is something that will have to be studied extensively during exploration processes,” he says.

Taking this and several other factors into consideration, Decker believes it is worthwhile for South Africa to know what petroleum resources exist in the country and, therefore, agrees that exploratory fracking should be pursued.

He adds that, irrespective of whether the Karoo hosts a commercially viable shale gas resource, exploration will generate valuable geological data, if only for scientific research.

Moreover, the data generated will also reveal more about the Karoo’s deep groundwater resources, about which little is known at present.

CALL FOR FORMALISED POLICY

Fakir concedes that environmental organisations alone may not be able to stop government and the oil and gas industry from moving ahead with shale gas development.

Therefore, he believes that all stakeholders should ensure that proper policy mechanisms are established, should development proceed, and stresses the importance for South Africa to treat shale gas not only as an energy source but also as a potential extractive industry that requires rigorous monitoring.

“While WWF-SA and its constituencies do not support fracking in any form, most gas industry stakeholders predict that we’ll start seeing development on the exploration side by the end of next year. We therefore believe that government should do a lot more homework on this issue,” says Fakir.

This should include the implementation of a formalised policy strategy – similar to Mozambique’s draft Gas Master Plan – to determine how the gas will be monetised, how markets will be developed and what the economic trade-off will be between investing in a local shale gas industry and importing conventional gas imports from neighbouring States.