Recently, the Department of Mineral Resources announced that it would begin issuing shale gas exploration licenses in the Karoo. There are five applications from three applicants (Shell, Bundu and Falcon).
No doubt this will lead to another great shale debate in the country, yet few hard facts are available.
There may, however, be at least six solid economic reasons why fracking the Karoo after all is not such a brilliant idea – aside from the ever-present environmental and social risks associated with shale gas development.
1. Karoo Geology
The more we learn about the complexities of Karoo Geology, the more it becomes clear that resource estimates are merely thumb-sucking in the absence of hard data.
In particular, the pervasive dolerite intrusions pose considerable risks for the Karoo, a deeply fractured shale basin with unpredictable properties. (For more on why dolerite is so problematic for frackers, Read Here.)
In fact, much of the existing gas may have been vented already by the dolerite when it rose by as magma 182 million years ago.
A consensus is emerging among South African water specialists that we simply know far too little about the deeper levels of groundwater and preferential pathways.
Contamination from fracking or drilling fluids might travel upward into the current drinking water supplies along dolerite dikes.
2. No Water
There is simply not enough water available for fracking. Even the industry admits this.
Alternative sources like deep-seated brackish aquifers are only assumed.
Trucking water from outside the Karoo (from where?) would be prohibitively expensive and unpractical.
Even outside the Karoo, South African water sources are scarce. Shell’s commitment to avoid competing with agriculture and municipal water supplies is hard to comply with.
Even more difficult will be the treatment of wastewater. The usual methods of evaporation ponds or deep well injection are prohibited by South Africa’s water laws, leaving only untested industrial wastewater treatment plants.
Many municipalities in the Karoo struggle already with simple domestic sewage.
3. No Infrastructure
But what if there is in fact gas to be mined from the Karoo? There is simply no infrastructure.
The industry plans for “well-head power generation”. That means small power-stations to burn natural gas for electricity generation.
Remember, most shale gas wells lose up to 70% of their production rates during the first years and then trail off at 10-20% of their capacity.
Thus, more and more wells need to be drilled, more power stations added or moved. This is hardly an economic model.
Even transmission lines would have to be erected first, as the grid is barely sufficient for low usage distribution.
Alternatively, the gas could be piped to larger power stations, but there is not a single metre of gas pipeline in the Karoo.
In addition, the rest of infrastructure, like road networks and water supplies are barely existent and would take a huge strain with such industrial usage.
Imagine hundreds of trucks on weakly founded gravel roads across the farmland of the Karoo!
4. US Shale Success Not Applicable
The extraordinary success of the shale gas industry in the US is not really an example that can be replicated here.
It is short-lived and based on 3 premises: gambling investors, greedy banks that risk insolvency because they know they will be bailed out, and landowners who own their mineral rights.
These conditions, particularly the third, are not as prevalent in South Africa.
5. Problematic Legal Framework
Another reason for the absence of visible progress on the ground is the lack of a legal framework.
The Mineral and Petroleum Resources Development Act (MPRDA) is largely inconsistent with the requirements of the onshore oil & gas industry and is in process of being re-written. (For more on why oil and gas companies are unhappy, Read Here.)
It still contains clauses of partial nationalisation. Legislation currently lacks technical guidelines that would flesh out the regulatory and monitoring details.
In this vacuum, no investment decisions can be taken. It may still be months if not years away until a satisfactory legal framework is in place that cannot be easily contested in court.
6. Poor Investment Climate
The spate of sometimes violent strikes in the country, Eskom’s inability to provide a reliable supply of electricity, much red tape and corruption at all government levels plus the imminent risk of down-grading South Africa’s credit rating all make for a very poor investment climate.
The industry reckons it would require in the region of R730 billion upfront to create the necessary infrastructure for gas to flow to consumers.
With the usual cost overruns and the high cost of capital itself, this could easily rise to R1 trillion.
International banks have serious reservations about investing in South Africa at present.
The South African Treasury in turn has voiced doubts as to whether that sort of money could currently come from internal sources.
Despite this, the new Minister of Mineral Resources Ngoako Ramatlhodi has already hinted that if the international gas industry is not interested in the Karoo shale gas, the Government could develop it alone…
- The high cost of gas production in the Karoo makes the huge infrastructure investments viable only at hugely higher energy costs than present.
- Local funding is not available and foreign funding largely inaccessible.
- Although Government is eager for shale gas, it will be industry and market forces that dictate feasibility, seeking low costs and high returns. This may not be possible in the Karoo.
The development of the Karoo should not rest on a pipe dream but rather on facts and figures.
It is one the fastest rising locations in the world with regards to Renewable Energy. Its abundant wind and solar resources could in fact power the nation and create endless opportunities in the process.
Dr (geol.) Stefan Cramer, SAFCEI Science Advisor, WITS Research Associate, Graaff-Reinet, November 2014
- For more fracking news via Dr Cramer, visit http://www.frackingsa.org.