Royal Dutch Shell pushed SA on Wednesday to decide on its application, now nearly four years old, to explore for shale gas in the Karoo, a pristine semi-desert that may contain some of the world’s largest reserves.
Shell’s application in early 2011 for an exploration licence in the Karoo, which the US Energy Information Administration says may hold up to 390-trillion cubic feet of technically recoverable reserves, caused an uproar from farmers and green groups, and an 18-month moratorium on the issuing of permits.
A year ago, several ministers — including then-mining minister Susan Shabangu — suggested hydraulic fracturing, or fracking, exploration licences were about to be issued but none has been forthcoming.
The mining ministry has failed to clarify reasons for the delay, either to Reuters or Shell.
“Why it is taking so long is a conundrum that we are trying to figure out,” Shell SA chairman Bonang Mohale told a news conference.
“We were hoping that by now we would have at least started the exploration process.”
With energy firms chasing large natural gas finds in places such as Mozambique, Brazil and China, SA could ill-afford to carry on delaying much longer, he added.
“Capital is moving,” he said. “My guess is that we are probably months away, not years away, from the issuing of exploration rights.”
The US estimates give SA the world’s eighth-biggest shale reserves, with nearly two-thirds the deposits estimated in the US.
Shell says it is committed to investing $200m in gas exploration in the area, which lies at the underdeveloped heart of Africa’s most advanced economy.
A Shell-commissioned study by Cape Town-based consultancy Econometrix suggests extracting 50-trillion cubic feet of gas would add $20bn, or 0.5%, of gross domestic product annually for 25 years to an economy that has always been a major energy importer.
The study also suggests it would create 700,000 jobs, a major draw for a government trying and failing to come up with answers to persistent 25% unemployment.
Opponents of shale gas fracking say the government has failed to introduce a suitably robust regulatory framework to prevent damage to the delicate environment, ecosystems and water supplies of the Karoo.
The spokeswoman for the mining ministry did not respond to requests for comment.
The department of energy will be devoting almost R1-billion to cementing South Africa’s nuclear energy expansion ambitions.
In her budget vote speech on Monday, Energy Minister Tina Joemat-Pettersson said that R850-million had been allocated to the department and its relevant agencies to undertake further research and development into nuclear energy, especially in regard to nuclear safety matters.
“Regulations for the handling of hazardous materials, in terms of international obligations, and the development of nuclear policies and legislation to ensure the peaceful use of nuclear energy will also be pursued,” she said.
How South Africa will finance the expansion of nuclear energy, beyond its single atomic power station Koeberg remains key. The procurement of 9 600MW of nuclear power is expected to cost between R400-billion and R1-trillion.
The state in the meantime has worries of its own, including a large budget deficit and rising government debt levels.
The minister did not reveal the final details of the new Cabinet subcommittee on energy security, which will be integral to plotting the course of nuclear in the country’s energy mix. It will replace the erstwhile Cabinet body responsible for nuclear procurement – the national nuclear energy executive coordinating committee. But she said the “process is being refined and Cabinet will pronounce on this matter shortly”.
Alongside nuclear plans, the department will be turning a renewed eye on the opportunities for gas, including shale gas, in the country’s energy mix.
The lack of infrastructure, including pipelines and storage facilitates had made it difficult for gas to feature as a major energy carrier in South Africa, said Joemat-Pettersson. This was despite the discoveries of extensive reserves in the region, including in neighbouring Mozambique, and off South Africa’s west coast.
The much-anticipated gas utilisation master plan would outline the infrastructure necessary “to open up the gas market for the residential, commercial and industrial sectors”. A draft of the plan was being finalised and would be taken through the Cabinet before being opened for stakeholder consultation, Joemat-Pettersson said.
The plan’s scope includes “investigating the development of a gas- receiving and storage terminal for liquefied natural gas, and to meet the gas to liquids requirements at the Mossel Bay refinery, as well as investigating the conversion of Eskom’s diesel plants,” she said.
This year, the department would also continue to refine the Independent Systems and Market Operators Bill. The Bill, which foundered in the legislature last year, is key to overhauling the electricity sector and improving the access of independent power producers.
Shale gas exploration, currently planned in the Karoo, won’t only negatively affect the environment and water resources in that region, but could pose significant health risks to surrounding communities, a Cape Town academic has warned.
These include cancer and the risk of tuberculosis.
Professor Bob Mash, head of family medicine at Stellenbosch University, said while fracking might reduce carbon emissions associated with the use of coal and had substantial economic benefits for the country, the drilling and fracking processes – which released hundreds of harmful chemicals, including silica – not only posed health risks to workers, but to other people as far as 200km away.
South Africa is about to embark on exploratory high-volume hydraulic fracturing to extract huge reserves of natural gas contained in the shale rock.
The government is expected to publish final regulations for hydraulic fracturing, otherwise known as fracking, this month, but President Jacob Zuma has already labelled the development of shale as a “game-changer” for South Africa’s economy.
Writing in the SA Medical Journal, Mash said exposure of workers to silica over long periods not only resulted in lung diseases such as silicosis and TB, but use of potential carcinogens during fracking, such as benzene, cadmium, ethylbenzene, formaldehyde, nickel sulphate and boric acid, could result in the development of various cancers.
Cadmium was linked to lung cancer as well as kidney, breast and prostate cancer while ethylbenzene was a possible carcinogen with links to kidney damage. Formaldehyde was linked to leukaemia and brain tumours.
Mash said no comprehensive health assessments had been done as part of the decision-making up to now, prompting him to call for a precautionary approach to fracking in South Africa.
Exploratory fracking was expected to cover an area of about 200 000km2, including the Karoo, parts of the Free State, Northern Cape, Eastern Cape and portions of KwaZulu-Natal.
“The voice of the health profession should be part of the debate, and a full health assessment is required before companies are given the go-ahead to drill,” Mash said.
South African petrochemicals group Sasol Ltd is keen to invest in a domestic shale industry once it gets off the ground, its chief executive said, in a potential challenge to oil major Royal Dutch Shell.
South Africa’s cabinet proposed new regulations to govern exploration for shale gas late last year after it lifted a 2012 moratorium on the activity in the central Karoo region.
Fracking in the region might tap what is believed to be some of the world’s biggest reserves of the energy source and the government wants to develop an industry that it sees as a potential game-changer in Africa’s largest economy.
“I am very excited because of the technologies we can bring to the table. We’ve got shale gas upstream experience in British Columbia,” Sasol Chief Executive David Constable said on Monday.
“We want to get involved and participate and monetize that gas in country with gas to liquid, gas to power, gas to chemicals,” he said after the group posted a 26 percent rise in half-year earnings.
Shell has applied for an exploration licence and once all of the new regulations are in place it is expected to be near the front of the line.
Constable said Sasol wanted to take part. “We are really interested in what is going in the Shell block and would love to farm in or take a piece of it. Shell is issuing profit warnings and pulling back capex right now,” he said.
Shell said in January that it planned to cut capital spending to $37 billion this year from $46 billion in 2013, following a profit warning.
Shell was not immediately available to comment on Monday.
Constable said the government should take Shell’s strategy into account.
South Africa’s Public Investment Corporation (PIC), which is Sasol’s biggest shareholder with a 13 percent stake in the company and manages 1.4 trillion rand ($130.3 billion) in civil servant retirement funds, has also said it wants a big slice of the shale pie.
Fracking involves pumping pressurised water, chemicals and sand underground to release gas trapped in shale formations and the prospect of it occurring in the semi-arid and sparsely-populated Karoo region, known for its big skies and scenery, has raised concerns anong conservationists.
Constable said Sasol’s experience in British Columbia would enable the company to carry out the process “in an environmentally friendly fashion.”
The government will take a 20% “free carry” in all new oil and gas projects, and reserve the right to buy another 30% at market-related rates, which will allow it to take its interest in projects to an effective 50%, it emerged on Thursday.
Mineral Resources Minister Susan Shabangu broke the news when she announced that the technical regulations for shale gas hydraulic fracturing (fracking) in the Karoo and other petroleum sector technical regulations had been approved by the Cabinet.
The regulations will be published in the Government Gazette next week.
However, it was not yet clear yesterday whether the free carry and the reserve will be included in these regulations.
The size of the free carry stake has surprised the industry.
Ms Shabangu told a post-Cabinet media briefing that Cabinet had approved the free carry and reserve last November, but did not explain why they had not been made public until now.
Free carry in the oil and gas sector takes place when a government is able to take a percentage of production without having contributed to the capital and exploration costs of the project.
Ms Shabangu said previously the mining sector had contributed little to the country’s direct economic development.
“The petroleum industry is completely new and the state will have to also be a free carrier … the reason for the technical regulations, particularly for the hydraulic fracturing, is how is it going to happen,” she said.
“The policy agreed to by the Cabinet of November says the state will have 20% free carry, but it also says if the state has another interest it can be up to 50%, but the 30% can be market related.”
During last month’s public hearings on amendments to the Mineral and Petroleum Amendment Act, oil and gas companies, especially ExxonMobile and Royal Dutch Shell, criticised the draft law for not having stated up front what the free carry obligations would be.
Several other oil and gas representative bodies complained that leaving the free carry and other state interests to regulations and not including them in the act made their planning and risk assessment very difficult.
They also pointed out during their oral presentations that the world norm was for governments to take a 10% free carry.
ExxonMobile’s SA GM Russ Berkoben told Parliament last month that South Africa’s potential offshore oil and gas reserves were possibly located in some of the most dangerous seas in the world, entailing significant exploration risks.
Therefore, he said, the fiscal and regulatory terms had to be as attractive as possible to encourage investment in the sector, otherwise companies would rather go to other countries with more accessible resources and simpler laws.
The regulations to be published next week will allow for a 30-day public consultation.
The immediate reaction from Royal Dutch Shell, Sasol and the South African Oil and Gas Alliance to Ms Shabangu’s announcements was that they welcomed the clarity emerging from them. However, they would have to study the regulations extremely carefully before making further comment.
Shell is exploring prospects off the west coast, while Exxon plans to search for crude and natural gas after acquiring rights to blocks near Durban.
Webber Wentzel partner Jonathan Veeran said that “10% ( free carry) was what one would have expected”. While the clarity on the percentages is helpful, it does mean that companies would have to test whether it would still be economically viable to continue with their projects, he said.
Mr Veeran said South Africa had a very underdeveloped upstream oil and gas sector and this meant it would still have to be seen whether even local companies could absorb this state interest.
Democratic Alliance MP James Lorimer said: “If the Cabinet was deliberately trying to sabotage the prospects of South Africa developing an offshore oil industry, they could hardly be going about it any differently to how they are behaving.”
He added that after listening to what the industry said in the public hearings on the new mineral and petroleum bill, the minister should have been moving towards realism rather than descending into “kleptocratic fantasy land”.
Treasure the Karoo Action Group and civil rights organisation Afriforum said yesterday that they did not believe this to be a proper consultation and were preparing to stop fracturing in the Karoo in the courts if necessary. Treasure the Karoo Action Group CEO Jonathan Deal said: “Government is effectively embarking on a business plan without proper consultation with the public.”
He said that should the government go ahead with its plans to frack in the Karoo, it would effectively lead to another e-tolling saga where a lot of money is invested with no real return and no popular support.
“The fact of the matter is that government has not heard the total story about fracking and is only listening to one side. It is not just about the ecology, but also that fracking is not a sustainable option,” he said.
Ms Shabangu said one of the report’s main recommendations was to ensure that the regulatory framework was robust enough to mitigate any negative effect should fracking be approved.
Mr Deal referred to comments by outgoing Royal Dutch Shell group CEO Peter Voser in the Financial Times this week that he regrets entering his company in the US fracking sector where it had to take a $2.1bn impairment. – Business Day
Science and Technology Minister Naledi Pandor is disappointed at the delay of the announcement of whether South Africa would host the world’s largest radio telescope, the Square Kilometre Array (SKA), she said on Wednesday.
“I am disappointed at the delay. I hope that the SKA organisation will make a decision in the first half of 2012 and that the decision will reflect the best scientific outcome,” she said in statement.
On Tuesday, the SKA organisation met in the Netherlands and decided more time was needed to investigate how investments made by the candidates –Australia and South Africa — could be maximised, according to a statement on the SKA website.
Information leaked to the media last month suggested the committee, which conducted its assessments earlier this year, had recommended the project be awarded to South Africa.
The five SKA member countries that will take the final decision are Canada, China, Italy, the Netherlands, and the United Kingdom.
Pandor remained optimistic that South Africa would be chosen as the host country.
“We believe we have an excellent site at which exciting science will be done. We in Africa are ready to host the SKA,” she said.
South Africa has partnered with Botswana, Ghana, Kenya, Madagascar, Mauritius, Mozambique, Namibia, and Zambia to host the 3,000 antenna that will make up the SKA.
Half of these will be located in a five-kilometre diameter central region in the Karoo, while the rest will be spread up to 3,000 kilometres from this central concentration.
South Africa winning the bid for the SKA — one of the world’s biggest science projects — would provide a huge boost for the country’s economy, especially in the construction, engineering, and IT sectors.
– SAPA
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