Cape Town – South Africa is about to be “fracked”, as the government gives the go-ahead for shale gas exploration in the southern Karoo and elsewhere, a move it describes as a possible “game changer” for the economy.
Today Independent Newspapers can exclusively reveal that the final regulations for hydraulic fracturing, or fracking, will be published in the middle of next month, after which the search for the new “black gold” will begin.
That was the word this week from officials in the Mineral Resources department, and comes just weeks after President Jacob Zuma told Parliament in his State of the Nation address that the development of shale gas could be a “game changer” for the economy.
“Having evaluated the risks and opportunities, the final regulations will be released soon, and will be followed by the processing and granting of licences,” Zuma told Parliament.
Royal Dutch Shell PC is already on standby for an exploratory fracking licence in the Karoo, and is expected to pump more than R1billion into the process, creating a few hundred jobs.
In essence, Shell will be carrying out the exploration on behalf of the government, as any reserves they might tap into will remain the property of the state, in accordance with the Mineral, Petroleum and Resources Development Act.
However, if they find significant reserves, as expected, they will get preference in the allocation of future fracking rights.
The extent of the Karoo shale gas reserves is unclear, though. In a study by Econometrix a few years ago, the amount was estimated at 485 trillion cubic feet (tcf), but the Petroleum Agency of South Africa has since drastically revised that figure down to 40tcf.
“The truth is that no one knows until the exploratory fracking begins,” said Anthony Leiman, a professor of economics at UCT.
“This is about the value of information versus the price of ignorance. If you don’t know there’s anything there, you can’t make an informed decision. To determine the quantities, fracking is what needs to be done.”
The go-ahead follows years of intense lobbying by environmentalists, activists and residents of the Karoo, who believe fracking will wreak environmental havoc, and drain and contaminate already scarce water supplies.
While the amount of water required for exploratory fracking is not necessarily the issue, it is the vast amounts that would be required for the later process of commercial fracking that raises concern.
How the fracking companies plan to dispose of the contaminated water is another bone of contention, and something Shell has been reticent about discussing.
The Karoo residents’ bottom line is that the economic benefits will not outweigh environmental impact, despite the government’s insistence that this is a “once-in-a-lifetime” development.
In a soon-to-be published paper in the Southern African Business Review, a number of academics have sided with the anti-fracking lobby, arguing that the multi-national oil companies will benefit most – and that it is the same companies who have controlled the debate to date by commissioning private sector studies that favour fracking and its benefits.
However, the added twist is the amendments to the minerals act that were pushed through Parliament last week, which would dampen the enthusiasm of any prospective gas company.
Under the new legislation, the state could claim up to 100 percent of new mining and petroleum ventures. It had always been envisaged that the state, as the custodian of the resources, could claim a 20 percent stake.
“What was a surprise was the 80 percent which was made by the portfolio committee,” said mining lawyer Peter Leon. “I think the original proposal was that the state would have the ability to pay for an extra 30 percent, but it would certainly not be able to exercise up to 80 percent. So that I think is the real shock to the industry,” he said.
Shell was more cautious in its response.
“We are following the process closely,” it said in a statement this week.
“It is well known that the exploration of oil and gas requires significant investment and, as such, the hydrocarbon extraction industry needs a stable as well as attractive legal, fiscal and regulatory environment to encourage investment.”
Exploratory fracking will take about two years to complete. If it throws up promising results, then the sensitive Environmental Impact Assessment process would begin. Only after that is completed could commercial fracking take place, which would take about 10 years to produce any results.