To date, exploration applications have been received from Royal Dutch Shell International, Falcon Oil and Gas with partner Chevron and Bundu Gas. However, no actual exploration permits have been approved.
“The companies have ‘Technical Cooperation Permits’ which basically delineate areas that they can go in and potentially explore someday, but the actual exploration permits have not been granted – that’s my understanding,” Reig told AFKInsider.
Challenges
Though there are a large number of shale gas reserves across the globe, high extraction cost and the huge amounts of water needed during the processes remains a major challenge.
The Sept. 9 World Resources International report evaluated shale energy development potential around the world in relation to water resources. In their research, World Resources International looked at the only two countries where shale gas and oil has been commercially extracted using fracking – Canada and the USA – and found the range of the volume of water usage varied greatly. And that range is “dependent on a number of things,” according to Reig, such as the type and depth of rock formations.
“So what we’re seeing is that their water requirements vary tremendously, not only between plays but within plays,” Reig told AFKInsider. “You really need to look at a specific location to determine the actual volume you might need and even then sometimes the estimates are off.”
Remaining Cautious
The on again, off again development of South Africa’s Karoo shale gas has been playing out since 2008 when international companies first showed interest in developing the area. But due to opposition from environmental groups, farmers and the local community over the threat to aquifers and agriculture, the South African government issued a moratorium on gas activities in the region in April 2011 until the potential impacts could be studied.
That ban was lifted in September 2012 based on a technical task team study and backed-up by another report from Econometrix, a South African think tank and sponsored by Royal Dutch Shell, that argued fracking Karoo would bring needed jobs where unemployment is running at 25 percent.
“Although the moratorium was lifted late in 2012, environmental opposition continues to be strong, focusing not only on water impacts, but also vehicle movements and other aspects of unconventional gas production,” according to the International Energy Agency’s Oct.13 Africa Energy Outlook report.
The South African government maintains that if they go through with exploration and it becomes apparent that it is damaging the Karoo Basin, they will pull the plug. But some fear that the allure of energy independence and the prospect of creating jobs will trump that decision.
According to the World Resources International report, there has been some confusion on when development might start. “Some argue that it will take a few years, and that no exploratory licenses will be granted until an appropriate law is in place. Others say that it could start as early as 2015, after the South African cabinet announced that exploration licenses will be granted before the elections of 2014,” states the report.
The legal framework and technical regulations for shale gas drilling found in the draft Minerals and Petroleum Resources Development Amendment Bill has been delayed. Mineral Resources Minister, Ngoako Ramatlhodi, said earlier this month that the bill could be sent back to Parliament.
“The government is taking a supportive but measured approach to the development of its nascent gas industry, with significant work still to be done on the regulatory framework before any commercial shale gas activity begins in earnest. In our projections, development of shale gas in South Africa is assumed to start in the 2020s,” according to the International Energy Agency’s Africa Energy Outlook report.
The Petroleum Agency of South Africa remains equally cautious.
“Karoo shale gas is considered to be only a prospective resource at present, and will remain undiscovered until a hydraulically fractured test well produces enough gas to be of commercial interest. The economic value of Karoo shale, in turn, will only be known once a statistically significant number of well flow rates have been measured,” states the Petroleum Agency’s website.
But new regulations and careful testing may be a moot point if the risk remains high.
“What we found out in our report is that one of the biggest water-related risks moving forward is the uncertainty around demand for water in a given location, and also the uncertainty around the available water,” World Resources International’s Reig told AFKInsider. “So what you end up seeing is that on both supply side and demand side, the uncertainty around the global conditions is huge. And if you translate that to business terms, where you see uncertainty is where you see business risk.”
