Are the Frackers Fracked?

By Julienne du Toit

Pictures by Chris Marais

As of 5 March 2014, things took an unexpected turn for oil and gas companies in South Africa – notably the would-be frackers of the Karoo.

On that day the ANC suddenly unveiled its intentions to take up to 100% of new Oil and Gas ventures in South Africa, taken the big oil majors completely by surprise.

The turnaround started in the late afternoon during discussions on amendments to the Mineral and Petroleum Resources Development Act (MPRDA) in Parliament’s mineral resources portfolio committee meeting. The very next day the Portfolio Committee rammed the new amendments through.

James Lorimer, the Democratic Alliance’s shadow Minister for mineral resources said two days later that this move showed “a depth of economic illiteracy that is hard to fathom”. He also said it was “likely to end any prospect of oil companies spending on exploring what is thought to be major oil and gas reserves off South Africa’s coast. It may well make drilling for shale gas uneconomic.”

Oil and gas companies like Shell had already expressed their unhappiness with the ANC’s previously stated intention to have a 20% carried interest in all exploration and exploitation of oil and gas in the country, plus the right to acquire an additional 30% of the venture.

Now it seemed the Government could take up to 80% at “an agreed price”, in addition to the free carry.

Only President Jacob Zuma’s signature is needed to sign the controversial amendment into law. Analysts have called the move ‘catastrophic’.

Companies like Shell and Anadarko have publically voiced concern, and the latter has suspended exploration pending more clarity.

This development also surprised the anti-fracking Treasure the Karoo Action Group. In a statement on Friday 7 March, they commented:

“This activity by the ANC appears to have left the Oil and Gas Industry reeling and other stakeholders bewildered. Stakeholders consulted by TKAG are of the opinion that much of this activity could be viewed as a ‘last-minute’ attempt by the ANC to garner votes. Whatever the motivation, the fact is that this state of affairs clearly highlights the lack of a sensible, coordinated and transparent approach to managing South Africa’s mining affairs.”

All this came scant weeks after the Petroleum Agency of South Africa (PASA, which regulates the country’s new oil and gas ventures) announced that it was lowering its estimate of the Karoo Basin’s shale gas potential to 40 trillion cubic feet (tcf).

It was a staggering drop down from the 485 tcf that the US Energy Information Administration floated as a possible figure a few years ago.

David van der Spuy, PASA resource development manager, told the Parliament’s energy committee that 40tcf was “our best estimate”.

“Shale gas estimates are extremely uncertain at this stage,” confirmed South African geohydrologist Dr Chris Hartnady. “But PASA has long been sceptical of the EIA’s massive hype,” he added.

In fact John Decker, principal geologist at PASA, was quoted in Mining Weekly in August 2013 mentioning an even lower figure of 30 tcf.

But this is by no means the lowest estimate. Hartnady mentions that even pro-frackers like Michael Farina of General Electric are using estimates of 21tcf for the Karoo’s shale.

“And I think he is being wildly optimistic,” added Hartnady.

Shell South Africa’s Upstream general manager Jan-Willem Eggink has also been hedging his bets. In an interview with financial journalists Alec Hogg and Gugulethu Mfuphi in November 2013. Eggink said:

“Are we sure that the gas is there?  No, not at all.  There’s also a good chance that it’s not there, but that’s why we need to drill these wells.”

PASA’s revised estimates constitute “extremely interesting confirmation of the impact of doleritic intrusions on the available amount of shale gas in the Karoo,” says Dr David Fig, a Fellow of the Transnational Institute in Amsterdam and a research associate of the Environmental Evaluation Unit at the University of Cape Town.

“It is exactly why Sasol and its partners initially pulled out of exploiting the Karoo basin.”

Dolerite, also known as ironstone, was magma that rose steadily from deep underground 183 million years ago. Many noted geologists think it likely that the molten rock would have contributed to the degassing of the Karoo Basin.

Shell’s official response to the lowering of PASA’s estimate was this: “As you may know, Econometrix conducted a study on the economic modeling over 25 years and based this on two scenarios, one of 20tcf and one of 50tcf. This has yet to be confirmed and the ESHIA process and exploration will give us more data on which to decide the viability of the project on multiple dimensions eg safety, environmental, cultural as well as economic. So in essence 40tcf is a possible outcome, however, we are of the view that exploration will assist us in understanding the commercial viability of gas in the Karoo.”

After years of talking up the Karoo’s shale gas reserves, Shell seems to be rather pessimistic all of a sudden. On 11 March they said there there was no certainty that fracking for shale gas would be financially viable.

On 30 March City Press carried a report quoting Eggink saying that given the costs of building pipelines and importing water into the dry Karoo, Shell or its competitors would need to find 20tcf of recoverable gas within an area of 40 square kilometres to make the extraction viable.

But he remains clear about one thing: “It is very possible we find nothing, but we need to drill holes.”

By June 2014, Shell and the other companies were still waiting for clarity, and in the case of shale gas, for exploration licences.