South Africa is moving more rapidly than most countries with its plans to develop its potentially huge shale gas resources. But that gas is only accessible by hydraulic fracturing or “fracking” and that means finding large volumes of water, which some new reports say is a risky business challenge.
According to a Sept. 2 market research report by Allied Market research, Global Shale Gas Market – Industry Analysis, Trends, Share, Opportunities and Forecast, 2013 – 2020, the global shale gas market is forecast to reach $104.1 billion by 2020. Shale gas reserves in Africa are estimated at over 1.3 trillion cubic feet — with over 400 trillion cubic feet estimated to be in South Africa’s Karoo Basin, according to the report.
In fact, South Africa is the only sub-Sahara African nation moving forward with hydraulic fracturing to capture their shale gas.
But a Sept. 9 World Resources International report, Global Shale Development: Water Availability & and Business Risk, indicates that the lack of access to the needed freshwater to harvest that shale gas in South Africa’s Karoo region is likely to impact the development.
“There’s a concern that the location of the shale formation coincides with areas of very low surface flows – so there’s very little surface water available,” Paul Reig at World Resources International’s Markets and Enterprise Program and the report’s lead author told AFKInsider. “It also coincides with the fact that it’s a fairly remote location with currently very little industrial activity and therefore it’s one of the lesser developed area’s from a water infrastructure perspective.”
An earlier June 2014 Accenture Consulting report on international development of unconventional resources examined nine potential regions around the globe against eight critical criteria required for their development and investment prospects.
That report finds that in South Africa, the “Karoo Basin has been slow to develop due to concerns about hydraulic fracturing, water use and lack of infrastructure,” noting that “of the nine basins reviewed here, it presents the most challenges to development.” The report also cites “poor road infrastructure, no distribution network, and a limited oil and gas workforce.”
“Thirsty Land”
In South Africa, natural gas companies have targeted the shale gas that lies beneath the Karoo Basin. Derived from a Khoikhoi word meaning “thirsty land,” the name Karoo is appropriate for this semi-arid and ecologically sensitive region stretching some 800 miles between Johannesburg and Cape Town.
“Approximately 75 percent of the Karoo play is located in arid areas with high or extremely high baseline water stress. The Karoo play is over an aquifer that is already under stress, and that is being withdrawn at rates that far exceed its natural recharge rates,” according to the World Resources International report.
Karoo was originally believed to be covering 485 trillion cubic feet of shale gas, according to the U.S. Energy Information Administration. But EIA lowered its estimate to 390 Tcf in the most recent report “because the prospective area for the three shale formations in the Karoo basin was reduced by 15 percent.”
Separate resource estimates by the Petroleum Agency of South Africa put estimates much lower between 40 and 72 trillion cubic feet.
But no one knows exactly how much of that gas is commercially extractable.
According to the Petroleum Agency of South Africa, the amount of natural gas in the main Karoo Basin “is highly uncertain, but possible scenarios suggest that technically recoverable volumes may range from 30 trillion cubic feet to 500 trillion cubic feet.”
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.”