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SA Business
Sep 21 2012 12:45PM
On the Watchtower: Fracking controversial
YET TO BE CONVINCED: Anti-frack protesters demonstrate at a conference on fracking, yet the technique has been used in the oil and gas industry for 50 years. Picture: SAPA
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Barry Sergeant

The Department of Mineral Resources (DMR) this week released the detailed version of the report it commissioned on hydraulic fracturing – fracking –after a moratorium was placed on the practice in April 2011. The moratorium, specifically on fracking for shale gas, was conditionally lifted two weeks ago.

Fracking for shale gas is controversial, mainly on concerns that it could lead to environmental damage.

On the other hand, the potential benefits are enormous. South Africa ranks among the top ten global owners of shale gas resources, and may even rank number five. As such, every thinking South African needs to take shale gas seriously.

The lead in shale gas comes from the US, where the benefits have been significant for the US economy as a whole. Based on data recently released by the US Energy Information Agency (EIA), carbon dioxide emissions in the country for the first five months of this year indicate that the overall figure for 2012 would decline by at last 800 million tons. This would represent a fall of 14%, from the peak in 2007, and would be at the lowest level in two decades.

One overwhelming factor lies behind this apparent miracle: the monumental switch to natural gas, as shale gas operations have come on stream.

Traditionally, the US derived 50% of its electricity from coal and 20% from gas. This has changed over the past five years, accelerating exponentially. In April 2012, coal’s stake in electricity output was a far more modest 32%, now the same as gas.

The US’s seemingly magical and on-going conversion to gas follows three decades of technological innovation.

During 2007, two key technologies – fracking and horizontal drilling – coalesced in a breakthrough that allowed the commercial exploitation of shale gas. In the US, natural gas prices have plummeted by around 80% over the past four years to levels last seen 35 years ago. Bjørn Lomborg, writing for Project Syndicate, said: “US carbon emissions have dropped some 20% per capita, and are now at their lowest level since Dwight D Eisenhower left the White House in 1961. The amazing truth is that fracking has succeeded where Kyoto and carbon taxes have failed.”

This is going to be a bitter pill for all kinds of vested interests.

In South Africa, the debate over fracking has a long way to go.

The DMR’s working group of the task team on shale gas and hydraulic fracturing has concluded by recommending a middle road between an outright ban and the full green light.

Exploration for shale gas will be allowed for now. Fracking, as such, has not been given the green light, but may be after augmentation of the country’s regulatory framework.

The working group anticipates that the establishment of “appropriate regulations, controls and coordination systems is expected to take 6-12 months”.

Until now, the DMR has been widely criticised for allowing the working group on fracking to operate in apparent secrecy. There were even concerns expressed over the identities of the individuals comprising the group.

That is now all out in the public domain. The group was chaired by Mthozami Xiphu, CEO of Petroleum Agency SA (Pasa). He was assisted by representatives from a number of departments and institutions – Environmental Affairs, Science and Technology, Energy, Mineral Resources, Water Affairs, the Pasa, Council for Geoscience, SKA South Africa, Water Research Commission and Eskom. Individuals have been named.

As would be expected in the circumstances, the working group adopted a “broad church” approach.

While the EIA has made a “first pass” estimate for South Africa of a technically recoverable resource of 485 trillion cubic feet (tcf) of gas in the Karoo Basin, Pasa has, on the basis of existing data, concluded that “it is impossible to quantify the resource accurately, other than to say that it is potentially very large”.

The working group uses a “moderately optimistic assumption” that ultimately 30tcf will be produced. Applying indicative pricing of $4 per thousand cubic feet of gas and an exchange rate of R8 to the dollar, the gross sales value would be almost R1 trillion. For perspective, just 1tcf was sufficient to launch PetroSA’s gas-to-liquids project in Mossel Bay which provides about 5% of the national demand for liquid fuels and entails 1500-1600 jobs.

The working group anticipates that the contribution of shale gas production to the growth of the economy and GDP would be enhanced by the creation of service industries “with all the attendant implications for sales of goods and services”. The development process has a very long term effect, spread over a period of 20-30 years.

There would be a “major” impact on the national economy. It is anticipated that up to hundreds of millions of rands would accrue to the taxman.

Perhaps shale gas could create potential long-term direct employment opportunities running into the tens of thousands, “with similar numbers” in the industries consuming the gas.

The formulations of the regulations for fracking in South Africa can draw on a substantial international knowledge base.

Fracking is now an integral part of gas production from low-permeability unconventional reservoirs such as shale, tight sandstones and coal.

Yet fracking has been used in the oil and gas industry for more than 50 years. Over the past 20 years, along with horizontal drilling, the practice has opened mankind to an entirely new era of energy. As mentioned, various technologies combined five years ago to enable the commercial production of shale gas.

For environmentalists, the two major concerns are that fracking for shale gas uses lots of water and a certain amount of chemicals.

Maria van der Hoeven, executive director of the IEA says that the shale gas industry “must win public confidence by demonstrating exemplary performance; and governments must ensure that appropriate policies and regulatory regimes are in place”.

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