South Africa to invest $15.4 million in shale

South Africa flag
Source: DollarPhotoClub

On Wednesday, Nhlanhla Nene, South African Finance Minister announced an investment of R108 million ($15.4 million) for research and regulatory requirements for licensing shale gas exploration and hydraulic fracturing.

There is evidence that South Africa might be rich in shale gas and oil, with the Karoo Basin in central and southern parts of the country estimated to have technically recoverable resource of 485 trillion cubic feet (Tcf) of gas.

So far, several companies – including Falcon Oil, Shell, and The Sasol/Chesapeake/Statoil joint venture – have moved to explore for shale gas in the Karoo region, resulting in a strong opposition from the local inhabitants and environmental groups.

Commenting on the Minister’s pledge, Jonathan Deal, CEO of Treasure Karoo Action Group (TKAG), called the investment a “double-edged sword.”

Speaking to The Citizen, Mr Deal said: “On the one hand, it is encouraging to see that the department realises the enormous amount of work and research that needs to be conducted before South Africa would be in a position to even consider shale gas exploration and production. On the other hand, our government appears to be ignoring international developments around shale gas which are showing documented negative impacts on communities, the fiscus and the environment.”

However, it might yet turn out that the opponents of fracking can sleep soundly. A report published earlier this week by the World Wide Fund for Nature-South Africa (WWF-SA) described the country’s unconventional resources as “marginal” and “a distant, if not unlikely, prospect”.

According to the report, entitled “Framework to assess the economic reality of shale gas in South Africa”, shale gas remains reliant on a high gas or oil price and reasonable tax incentives, and may not provide as “cheap” a source of domestic energy as contended by private firms and State agencies.

“There is a possibility that if the economics of shale gas works out, it could be a complementary component of an offshore and regional integrated gas market,” the report stated, adding that “on its own, shale gas is likely be a tough prospect because of other needs like pipelines, storage and other infrastructure.”

However, another report – published by McKinsey & Company –  argues that natural gas has the potential to account for more than 40 per cent of the electricity generated in sub-Saharan Africa (SSA) from 2020 onwards, with South Africa being the biggest contributor.

The study projects that SSA could consume nearly 1 600-terawatt hours by 2040, with gas having the potential to dominate the energy mix by 2040, comprising 44 per cent of supply, followed by coal (23 per cent), hydro (16 per cent) and solar (8 per cent).

With the large gas discoveries in Mozambique and Tanzania over the past half-decade, McKinsey’s Adam Kendall estimates that there is a potential for about 400 GW of gas-generated power, with Mozambique, Nigeria and Tanzania alone representing 60 per cent of the total capacity.

“[But] Africa is significantly underexplored from a gas perspective, so there is the real possibility of further gas discoveries on the east or west coasts. Tapping such sources could result in a much cheaper levelised cost of energy,” he says.

The report also underlies the importance of unconventional resources in the region with countries like Mauritania, Nigeria and South Africa abounding in shale gas and coalbed methane.

“The effect of unconventional gas on the power markets will depend on where the gas is discovered and the resulting cost of power. Shale gas in South Africa will potentially have the biggest effect on the markets,” the reports suggests, arguing that it could displace regional coal-fired power that would otherwise be built.

In the meantime, the members of the anti-fracking lobby are planning to vocally oppose the new budget.

“We will be writing to the Minister to enquire about the nature of the budgeted items this money is earmarked for,” Jonathan Deal said.

“It is critical that any money spent is on actions to clarify the fundamental issues that have characterised the discourse on shale gas. All necessary aspects must be thoroughly dealt with to avoid a waste of tax payers’ money and an unworkable energy policy in South Africa. If not, more tax payers’ money would be wasted and this exercise would have been an expensive afterthought.”

“TKAG and AfriForum are determined to ensure constitutional adherence, transparency, accountability and good governance with regard to shale gas,” Deal concluded.

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