South Africa is currently undergoing various changes to its energy supply, from introducing renewable energy, a potential nuclear build, two new coal plants, and the possibilities of shale gas exploration. As the country is a net importer of gas from its neighbouring Mozambique and Namibia, efforts are increasing to secure oil and gas domestically. Momentum for hydraulic shale gas fracking has been growing since the country was cited to have one of the top ten technically recoverable shale gas resources in the world, with estimates at 390 trillion cubic feet (tcf) (EIA, 2013). The location for potential shale gas is located in a semi-desert region called the Karoo, spanning approximately two-thirds of the country. A few sites in the Karoo had been drilled before in 1965-1975 with the state-owned company called Soekor. Although gas reserves were detected, the technology for deep exploration was not yet available, and it was only in 2008 when commercial interests had started. As of 2013, there were five companies that signed a Technical Cooperation Permit (TCP) with the government. These were Royal Dutch Shell (with the biggest land mass), followed by Sasol/Chesapeak/Statoil joint venture, Anglo Coal, Falcon oil and gas, and Sunset Energy of Australia (EIA, 2013).
The Karoo basin contains significant geological complexity and formations of igneous sill intrusion, such that the quality of shale gas is impacted, and increases the risk for exploration (EIA, 2013). Furthermore, the thermal maturity of the potential region is categorized into the dry gas window, and this means the formation is over-mature. As a note of reference, dry gas is natural gas that consists mostly of methane but has little liquid hydrocarbons. Wet gas contains methane though in much smaller amounts, which is also the case for ethane, and higher amount of hydrocarbons. It is wet gas that is more marketable because the hydrocarbons are useful to petrochemical companies, and ethane can be converted by steam cracking into ethylene, a valuable compound in many industrial processes.
I believe that there are several arguments why shale gas exploration in the Karoo should not be pursued. Firstly, the geological maturity of the Karoo is such that the dry gas window will require companies to drill more in order to meet cash flow targets, which is at present not economically worthwhile (Fakir, 2015). Importantly, according to a recent report by Fakir (2015), the US shale gas experience is not necessarily applicable to South Africa, due to variety of reasons. The US has an extensive pipeline and gas storage infrastructure that covers midstream and downstream of the gas value chain, in addition to a well-developed gas market, the availability of cheap commoditised services and equipment for the commercial development of shale gas, long settled capabilities in drilling, well engineering, and knowledge of their specific geology. None of these factors are present in South Africa. If it intends to make it a viable sector, the capital outlay is one aspect, but it also has to consider the infrastructure to ensure value for the downstream process.
Although it can be argued that, given time and financing, these factors could be overcome, the question remains at what expense? South Africa is a water scarce country, and therefore the allocation of water needs to be contextualised within other economic sectors that may serve the country more particularly in terms of sustainable development. Knowledge of geological formation where fracking was to occur is important because it can have an impact on ground water contamination, as well as consequences of seismic faults in what is termed ‘induced’ quakes. The South African government has countered these concerns by emphasizing stringent measures and drafting technical regulations for petroleum exploration and exploitation. Whether it has the ability to impose and monitor these activities is subject to governance. So far, the track record for state-owned entities has not fared well with the electricity utility undergoing regular blackouts in part due to inconsistent leadership, irregular decisions regarding energy investments, and not meeting electricity supply targets.
In terms of economic profitability, not all wells are productive. In fact, breakeven costs cannot be assumed to be the same in any given shale play. Moreover, shale gas wells are reported to have high decline rates, even as much as 80% within the first two years in operation (Fakir, 2015). In this context, learning rates are an important part of productivity. The learning rates for drilling time outside the US has reportedly been low, with China averaging drilling time at eleven months, compared to the US with less than 30 days (Fakir, 2015). Furthermore, the US scenario sits within a context of high domestic demand, rapid technology learning and efficiencies, and importantly, was in line with its mature experience in the oil and gas sector. Thus, shale gas development needs to be in line with other broader sector developments that are conducive for it to succeed. South Africa does have a historically entrenched resource based economy, particularly an energy intensive electricity sector. These are attributed to its dominant use of coal, and mining activities which contribute to around 20% of the GDP (directly and indirectly). Therefore, the decision to go ahead with shale gas should be seen within the context of its overall commitment to future sustainable energy development.
Can it justify the environmental impact and uncertain economic costs, given its need for energy security? Despite highly uncertain economic costs, gas (shale and off shore) is increasingly being seen as a transition resource from coal. It is framed in such a way that the vast recoverable shale gas in the Karoo can bring lasting economic development to the country. However, shale gas exploration should consider the country’s water scarcity, its historically detrimental environmental practices, the geological maturity, the lack of infrastructure to support the shale gas market, the dependence on oil and gas prices which are undergoing uncertain dynamics, and reports that the US experience cannot be replicated. I would argue that the negative trade-offs for shale gas are too steep for it to be justifiably exploited. It should rather move away from fossil fuel base resources in favour of more sustainable options. It needs to take into consideration that global trends are increasingly moving towards greener choices. These choices are not limited to technologies, but also include fossil fuel divestment campaigns which are systematically changing investment patterns. It can be argued that continued reliance on fossil fuel resource as a certain investment is increasingly challenged due to the unpredictable dynamics of oil prices. South Africa should not go ahead with exploiting the shale gas in the Karoo as it is a step back to the same approaches from the past, and would entail continued reliance on extractive industries. The same amount of effort could instead go into exploring sustainable technologies for energy supply, diversifying its economy whilst staying in line with trends towards sustainable energy developments.
Energy Information Agency (EIA), (2013). Technically recoverable shale oil and shale gas resources, an assessment of 137 shale formations in 41 countries outside the United Sates.
Fakir, S., (2015) Framework to assess the economic reality of shale gas in South Africa, World Wide Fund for Nature (WWF), South Africa.
Blanche is a Doctoral researcher at SPRU. Her interests are energy transitions in resource base economies particularly in Africa and Latin America. She has 9 years working experience focused on environment, energy and sustainability, in the private sector, research council and government.Follow Sussex Energy Group
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