To ignore fracking is “an opportunity lost”

Paraphrasing the Working Group task team’s Fracking Report

Because of the uncertainty regarding the extent, or even existence, of economically producible reserves, any assessment of the potential economic impact of fracking is subject to enormous uncertainty”, says the government’s Working Group tasked to report  back on the possibility of shale gas extraction in the Karoo.  The report goes on to add that the economics of “opportunities lost” are so great that it would unwise to halt exploration and research at this stage.

The task team was set up by the minister, Susan Shabangu, last year to investigate the hydraulic fracturing or fracking of shale gas in the Karoo and at the same time, the minister imposed a moratorium on the exploration.

The task team’s report has now been approved by cabinet and the moratorium on exploration lifted but the minister has also said that exploratory fracking would not be allowed during the 6 to 12 months it would take to formulate “appropriate regulations, controls and coordination systems”. (Refer separate report)

While the existence of a significant gas resource in the Karoo would have implications for South Africa’s energy security by reducing national dependence on other fossil fuels, the magnitude of this potential is subject to considerable uncertainty owing to the difficulties in quantifying the resource, the report argues.

Consequently, says the report, “Extensive hydrological and geohydrological studies before exploration and production drilling will be required in order to minimise or eliminate potential impacts.”

The report is also quite clear that the impact on the national economy would be great and the report draws some parallels.

“If 1 trillion cubic feet (Tcf) was sufficient to launch PetroSA’s gas-to-liquids project in Mossel Bay, which provides approximately 5% of the national demand for liquid fuels and now entails 1500-1600 jobs, by making a moderately optimistic assumption that ultimately 30 Tcf will be produced (in the Karoo project) and using an indicative pricing of US$ 4 per thousand cubic feet of gas and an exchange rate of R8 per US dollar, the gross sales value would be almost R1 trillion”.

Aside from the ability to cut South Africa’s reliance on oil imports, the production of shale gas must have, the report assumes, an effect as an economic contributor, to South Africa’s growth “and its GDP would be enhanced by the necessary creation of service industries with all the attendant implications for sales of goods and services.”

Even though this process would be spread over a period of 20–30 years, the report notes that “the production of shale gas would thus clearly have the potential to make a major impact on the national economy.”

On this subject, the report notes that, “Although income tax and royalties accruing to the fiscus depend on profitability, it is expected that such amounts will run into tens or hundreds of millions of rand, augmented by VAT. The potential long-term direct employment opportunities are likely to number in the tens of thousands, with similar numbers in the industries consuming the gas extracted”.

Already, world production of shale gas has sent coal process plummeting down, even to a small degree affecting South Africans exports, although these are much protected from lower prices by the devaluation of the rand. However, the Working Group’s fracking report does not report on the effects on the coal industry or the coal fired energy market but confines itself to the viability and advisability of gas fracking alone.

Nevertheless, commentators note that the USA has cut its oil imports by 20% as a result of fracking.

The report, now released in full after the lifting of the moratorium on fracking but with a limitation on the start date of the hydraulic fracking process itself, is really all about a recommendation to proceed on exploration therefore and undertaking a lot more research particularly on water resources and the hydrological effects of fracking.

This raises the question of how limited the exploration will be from a hydrological viewpoint unless  some sort of limited fracking is done as testing. The second question on the need to draw lines of engagement on environmental issues during the exploration period.

The report notes that initially the projects involved deal with some thirty drilling points using two hectares of land per drill site and this over three years. Most job opportunities will be specialised skills from overseas. The location of the boreholes is yet to be decided.

On the subject of water use, the report says, “Hydraulic fracturing has been used in the oil and gas industry for more than 50 years and, in the last 20 years, together with the practice of horizontal drilling, has been instrumental in making the exploitation of unconventional resources technically and economically feasible.”

It goes on, “The initial stages of exploration can be conducted without the use of (water) reservoir stimulation. However, in order to assess the ‘producibility’ of a resource during the later stages of exploration and, finally, in order to produce the gas, hydraulic fracturing is essential in the exploration process.”

“The process requires the use of significantly large quantities of a base fluid, usually water, together with a small fraction of sand and chemicals pumped into the reservoir with sufficient pressure to create artificial fractures, thereby improving the permeability of the rock and allowing the gas to be produced.”

The report acknowledges that should the exploration period eventually result in large scale production, it is essential that during the earlier exploration period the possible later use of large volumes of water and chemical additives make it essential that the environmental and social implications of this process should be worked out and considered.

Presumably with the acid mine experience from mining operations in Gauteng over the years and with new legislation coming into place to bolt this down, the report remarks “Whereas existing environmental regulations adequately cover most of these factors, an immediate and important concern requiring additional attention is water usage and disposal: in particular, the volume and transportation of the water, the potential contamination of water resources and the disposal of ‘used’ fracturing fluid.

“There has to be further research in this area to investigate all potential sources of input water, as well as means of water disposal before any large scale operation gets off the ground and its seems that the exploration period is part of this. The use and disposal of water in such large amounts is expected to require a water use licence under the National Water Act.”

On dust and air pollution the report seems quite dismissive, saying that, “Noise, dust, emissions and naturally occurring radioactive mineral (NORM) contamination levels will differ at different stages and locations and can be controlled under existing legislation.” There will be no piles of rock and sand, the report says, “as seen in the mining industry”.

“South Africa’s regulatory framework must be robust enough to ensure that, if hydraulic fracturing associated with shale gas exploration and exploitation were approved, any resultant negative impacts would be mitigated”, the report warns.

The report goes into considerable detail regard astronomic effects on the Square Kilometre Array but says in conclusion that this can be controlled by the use of the Astronomy Geographic Advantage Act which clearly can and could control where fracking may and may not be undertaken.

“Astronomy research projects and shale gas in the Karoo may be mutually exclusive”, the report adds, “but the ‘footprint’ of the astronomy installations is only a fraction of the area presently considered to be prospective for shale gas.”

In its summing up, the report measures the “economic values of an “opportunity lost” against concern that the volumes of water required that may compromise other uses for this resource but says whilst the exact “hydrogeology of the Karoo at depth is unknown, potable aquifers are expected to be far removed from shale gas target formations and safe from contamination from injected fracking fluids”.

Presumably that is now is believed by the Working Group and what has to be proven.

Furthermore, the report says whilst the report is working on 30 Tcf, figures of up to 500Tcf have been expressed  and “further drilling, sampling and testing will be required to improve confidence in the existence and, subsequently, extent of the resource. A large resource would have the potential to reduce national dependence on other fossil fuels and may contribute to energy security and the reduction of our carbon footprint. These factors are a powerful justification for further investigation.”

In the event that a real resource is proven, the report adds, “It is possible that its size will be sufficient to justify proceeding to production which maybe coupled with, for example, the establishment of additional gas turbine electricity generation installations or gas-to-liquids (GTL) plants with associated employment opportunities in field operations and plant operation, potentially numbering in the thousands.”

“There would then also be significant implications for the GDP, with as much as R960bn added over 20–30 years. [Calculated at 30 Tcf @ US$ 4/Mcf and R8/US$].

Based on the conclusions set out above, the Working Group “considered a spectrum of options that might be recommended to the minister, ranging from (1) an outright ban; (2) unconditional approval of hydraulic fracturing under the existing regulatory framework.”

“Neither of these extremes was deemed suitable and, thus, an intermediate option (Option 3), specifically the ‘conditional approval of hydraulic fracturing”, was considered to be most appropriate” the report concludes.

Ongoing research is now to be conducted and facilitated by all relevant institutions and appropriate government departments

* the full report is available on http://www.dmr.gov.za

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