Is Shell losing interest in the Karoo?

Jacob Zuma
Source: WikiCommons

Royal Dutch Shell has made it known that it’s putting a damper on the South African shale operations in response to low oil prices and licencing delays.

Shell SA chairman Bonang Mohale stated to the media that the company had “critically reviewed the competitiveness” of its projects and plans internationally.

“As part of this review, we have adjusted activities in tight/shale oil and gas opportunities outside the Americas as well as the local exploration resources, such as staffing in SA,” he was quoted as saying.

“The reason to go to a low cost holding position … is as a result of a difficult period for world [prices],” Mohale said, adding that the prices would have to rebound back up to $60 to $80 per barrel for the situation to improve.

Mohale also said that the company needed clarity on the Mineral and Petroleum Resources Development Bill, which was passed a year ago. President Jacob Zuma sent the bill back to Parliament earlier this year due to constitutional considerations.

The biggest obstacle when it comes to shale legislation in South Africa is the stipulation that the state gets a 20 per cent free stake in new oil and gas projects before the companies launching them have had a chance to recoup their costs. This stake can be significantly increased at “an agreed price” once the project is profitable.

Meanwhile, it has emerged that Shell has started withdrawing their top men from the country, with Business Times reporting this week that Jan-Willem Eggink — whom Shell sent to South Africa from Libya to monitor South Africa‘s shale gas opportunity — would be pulled out of the country in coming weeks. Other highly skilled staff would follow him.

Officially at least, Shell has not abandoned it’s interest in South African shale.

“Should attractive commercial terms be put in place, the Karoo project could compete favourably within Shell’s global tight/shale gas and oil portfolio,” Mr Mohale assured the media.

This statement prompted the anti-fracking group the Treasure Karoo Action Group (TKAG) to suspect Shell of underhand methods to put pressure on the government to speed up the Karoo development.

“Shell is a seasoned campaigner and what may at first blush appear to be a withdrawal from Karoo shale gas, may just be a Trojan horse,” TKAG head Jonathan Deal said in a statement.

The Karoo Basin in central and southern South Africa is a major sedimentary basin, extending across nearly two-thirds of the country, which contains thick organic-rich shales. At around 485 trillion cubic feet of estimated shale gas reserves, the U.S. Energy Information Agency (EIA) puts South Africa’s Karoo desert at the fifth place when it comes to world shale gas deposits.

The government is eager to explore these riches. Two State of the Nation speeches ago President Jacob Zuma said hydraulic fracturing, or fracking, for shale gas in the Karoo would be a ”game-changer” for the region and the broader 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,” he said.

Deal criticised Zuma’s enthusiasm for fracking, saying: “To state publicly before even the most cursory exploration that ‘shale gas will be an economic game changer’ is irresponsible of President Zuma.

“The government knows full well that it has to commit to a scientifically structured and holistic investigation in the form of a strategic environmental assessment.”

Image: President Jacob Zuma

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