Business

Fracking spin-offs trump concerns

Lynley Donnelly

Nine pages - that is all South Africa got after months of silence over hydraulic fracturing for shale gas in the Karoo.

Minerals Minister Susan Shabangu announces Shell’s fracking application. (David Harrison, M&G)

It was the executive summary and a list of seven recommendations from a much-anticipated report that proposes "conditional approval" for a process widely known as fracking.

But the department of mineral resources has given assurances that it is simply a precursor. The full report, which apparently runs to 3000 pages, including annexures, will be made available within a week. The tome needs some "professional editing" to cross the Ts and dot the Is, according to the department.

But after months of "no comment" from the government on the subject, it is little wonder that Mineral Resources Minister Susan Shabangu, clutching the stunted nine pages in her hand, was greeted with scepticism. Journalists, civil society members and even the odd corporate representative with arched eyebrow were present at the press conference on Tuesday.

Their questions focused on issues such as why public consultation was taking place only after the moratorium on exploration was being lifted. There were repeated requests for clarity on whether fracking would take place during the exploration phase and what effect that could have on South Africa's scientific jewel – the square kilometre array radio telescope.

The mood of the conference prompted the deputy minister, God­frey Oliphant, to step in and remark that he had expected more excitement from those in attendance. "But we look very down," he said.

Inferred
According to Oliphant, South Africa has massive "inferred" gas resources and is a world leader in gas-to-liquid fuels technology. "We are changing the landscape of this country when it comes to energy generation," Oli­phant said, using a rather unfortunate turn of phrase.

The pages hint at what a game-changer shale gas could be – a potential R1-trillion boon to the economy. But they also warn that no assumptions can be made without further study and the economic gains will not be immediate, because a mature shale gas industry will take 20 to 30 years to develop.

But the biggest challenge is to beef up the country's laws to manage the development of the potential industry and do it in a way that ensures the environment and wellbeing of the people are protected.

"The primary conclusion reached in this report is that 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 states.

Compliance monitoring and the implementation of often progressive laws are the government's Achilles heel. The devil will be in the legislative detail.

But this is unlikely to stem enthusiasm for shale gas. By May this year, Bundu Gas & Oil, Falcon Oil & Gas, Shell Exploration, Sungu Sungu Gas and Sasol Petroleum International with Statoil and Chesapeake Energy Corp were listed as having applied for exploration rights in the Karoo basin, according to the Petroleum Agency of South Africa. A company called Msix has also applied for exploration rights for natural gas in an area with coalbed methane potential. The applications were frozen under the moratorium and Sasol subsequently stated that it has relinquished its technical co-operation permit with Statoil and Chesapeake.

The report refers to the often-cited United States Energy Information Administration's estimate of a technically recoverable 485-trillion cubic feet. The more "moderately optimistic estimate" of 30-trillion cubic feet, which the local industry is understood to believe, could see a gross sales value of nearly R1-trillion, assuming a price of $4 per 1000 cubic feet of gas and an exchange rate of R8 to the dollar, it states.

Proven reserves
Shale gas "clearly has the potential to have a major impact on the national economy". Its potential for energy security, in both liquid fuels and electricity, depends on the confirmation of significant proven reserves, which could not be ascertained without research, the report states. An extended ban "would delay or prevent an improvement of the understanding of the real extent of the potential resource, hamper the development of coalbed methane and other hydrocarbon resources in low-permeability reservoirs and remove the potential economic benefit to severely deprived communities in the Karoo".

The document does not claim to be comprehensive, because "new reports and technical developments continue to emerge" and "further work is required in several critical areas".

One of these is environmental impact, particularly concerning water management and the extensive hydrological and geohydrological mapping that needs to be done before exploration or production drilling for shale gas can begin.

"The effects of dolerite intrusions, kimberlite fissures and existing facture systems are relatively unknown and further investigations and ­modelling" is required.

Although the country's environmental laws are sufficient to monitor the impact of shale gas exploitation on land use, water use and air pollution, an immediate concern is water use and disposal – notably the "volume and transportation of the water, the potential contamination of water resources and the disposal of used fracturing fluid".

According to the report, the current regulatory framework, which involves several Acts, needs to be reviewed and overhauled. A "detailed assessment and augmentation … of the framework applicable to the upstream petroleum industry as a whole to ensure robust regulation and compliance monitoring" is needed.

But questions of compliance, which will be mainly under the purview of the minister for mineral resources, are of particular concern.

Polluter pays
Oliphant said the department was "doing its best" and the "principle of the polluter pays" is part of local law. "There are licensing conditions as to how people must behave when they mine in the country, and we take them as responsible corporate citizens that must take care of the environment as well," he said.

One of the report's recommendations is the establishment of a monitoring committee to oversee the "comprehensive and co-ordinated argumentation of the regulatory framework and supervision of operations", which is expected to take six months to a year.

The Mineral and Petroleum Resources Development Act, which is meant to be a pillar in the framework to govern fracking, has been up for amendment for more than a year. Vagaries in the law contributed in part to a fight over mineral rights between Kumba Iron Ore ArcelorMittal and Imperial Crown Trading.

The report recommends that normal exploration, excluding actual fracking, is permitted to go ahead under the existing laws.

Only once the monitoring committee is established, the regulatory "augmentation" process is complete and the departments of science and technology and mineral resources develop mechanisms for the satisfactory coexistence of radio-astronomy projects and fracking in the Karoo can hydraulic fracturing start. It can only take place under the strict supervision of the committee and, "in the event of any unacceptable outcomes, the process may be halted".

It also recommends  that research into the development of shale gas and its impact should continue.

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