South Africa still serious about shale despite low oil prices

Drilling rig in Africa
Source: DollarPhotoClub

Low oil prices are likely to do little to dissuade South Africa from exploring its shale potential, the portal Money Web reported yesterday. Speaking to Money Web, Robert Willes, managing director of Challenger Energy, whose subsidiary Bundu Gas and Oil Exploration was the first company to apply for shale gas exploration rights in the Karoo, made it clear that he is not likely to go for knee-jerk reactions. To evaluate the feasibility of shale exploration and production in South Africa, he pointed out, will require a more long term oil price scenario.

“Firstly, the exploration and appraisal phase of the project is expected to take a number of years, during which the longer-term oil price scenario is likely to become clearer; secondly, in the interim, the cost of exploration may be reduced as oilfield service companies become more competitive; and thirdly, we expect that a substantial proportion of the market for shale gas in South Africa is likely to be for power generation,” he explained.

South Africa has the eight largest shale gas reserves in the world – a prize worth fighting for, especially in a country suffering from power shortages.

In May, South Africa’s Departments of Minerals Resources, Environmental Affairs, Science and Technology, Water and Sanitation and Energy announced the formation of a two-year Strategic Environmental Assessment of Shale Gas Development that was to explore the practical aspects of shale development in the country.

This was followed by the country’s President, Jacob Zuma, announcing in August that a licencing round for shale gas exploration and drilling was imminent, although he stopped short of naming the date.

The initial government assessment showed the Karoo Basin in central and southern parts of the country to have 390 trillion cubic feet of recoverable gas reserves, later raised to 485 trillion cubic feet (Tcf). But there are some – like deputy Minerals Affairs Minister Godfrey Oliphant – who believe that the potential could range between 18 and 72 trillion cubic feet, although that would still lead to an explosion of economic growth.

A report entitled “South Africa’s Big Five: Bold Priorities for Inclusive Growth” published in September by the global management consultancy McKinsey & Company, made a case for South African shale gas arguing that adding natural gas to the country’s coal-dominated energy mix could solve an emerging energy supply gap that the country is likely to face after 2020.

“Gas could play an important role in South Africa’s energy portfolio, particularly in terms of meeting the country’s base-load energy needs between 2020 and 2030, before more diversified capacity comes into operation,” co-author Christine Wu told Mining Weekly.

According to the report, South Africa is expected to face a power shortage of up to 10GW by 2025, as nearly 14GW of ageing coal plants will be decommissioned between 2020 and 2030 and as energy consumption continues to grow. However, with the introduction of natural gas into the energy mix, the country could gain 20GW of gas-fired power generation capacity, to provide flexibility to at least 10GW of renewables capacity and creating demand for 28.3bn cu/m of gas annually.

At present South Africa imports 77 percent of its natural gas from Mozambique, so if the country were to commit to gas-fuelled power generation it would have to complement its imports with shale gas exploration in the country’s arid Karoo region in the Northen Cape province.

These circumstances put South Africa in a very different position to many other countries considering betting on shale. This also goes a long way to explain why Robert Willes remains upbeat about South Africa’s unconventional resources. “Momentum continues to build, as does the economic and political pressure to resolve the power crisis and grow the economy. The potential of natural gas to address these issues is increasingly appreciated and promoted, and the foundations for gas in South Africa’s future energy mix are clearly being laid,” he said.

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