Under pressure: Exploring the Karoo Basin’s shale gas reserves has created controversy

Since 2009, murmurs about shale gas potential in the Karoo Basin have become a cacophony of controversy. On the one hand, international and domestic hydrocarbons firms are calling for significant exploration efforts to establish whether the expected deposits are commercially viable, suggesting that any major discoveries could be game-changers for South Africa. On the other hand are many local residents and landowners, who have instructed lawyers to block applications for exploration rights, as well as environmental lobby groups, many of which are in large part worried about the ecological implications of the fracking technique for the extraction of shale gas.

Estimates suggest that deposits in the Karoo could be the fifth-largest in the world, totalling 485trn cu feet (tcf) of technically recoverable shale gas according to “World Shale Gas Resources: An initial assessment of 14 regions outside the US” produced by the US Energy Information Administration in April 2011. Royal Dutch Shell is perhaps the most prominent firm interested in exploring the region, but many others – including South Africa’s Sasol and Bundu Gas and Oil Exploration, London-headquartered Anglo American and Toronto-listed Falcon Oil & Gas – are eyeing shale gas opportunities. For South Africa, heavily dependent on coal-fired power stations for its electricity and crude oil imports for its fuel, an alternative local energy source – even another fossil fuel – will have a major impact on the country’s energy security. But preferring to proceed cautiously, Susan Shabangu, the minister of mineral resources, placed a moratorium on all applications for prospecting licences through the end of February 2012 to allow for an investigation into fracking, as well as public consultation on the issue.

THE KAROO BASIN: Found trapped in dense, sedimentary rock formations, shale gas is an increasingly important energy source as pressure on conventional fuels grows. New technologies developed over the past decade have made the extraction of shale gas economically viable, while its abundant presence around the globe – including in South Africa – has provoked excitement across the energy sector.

A significant shale gas industry has developed in the US, where natural gas from shale has been the fastest-growing contributor to total primary energy. Some analysts believe that increased shale gas production in North America could reduce the influence of Russia and states in the Gulf such as Qatar and Iran, all major natural gas exporters, over natural gas pricing. According to the International Energy Agency (IEA), unconventional gas resources, including shale, are estimated to be as large as conventional resources.

Although shale gas was extracted in the 1800s, the first economically viable extractions only took place after several decades of research and development in the second half of the 20th century. Combining technologies, including massive hydraulic fracturing, or fracking, microseismic imaging and horizontal drilling, opened up a number of extraction methods.

FRACKING: The fracking technique injects fluid into a well at such a high pressure that the structure cracks and gas can subsequently be retrieved. Slickwater fracking, which adds a variety of chemicals to the fracturing liquid to increase fluid flow, was used in the first commercial shale gas extraction, and is often applied when developing tight-gas reservoirs.

The Karoo Basin, which occupies a significant proportion of South Africa’s land surface, had previously been a target for conventional, but unsuccessful, petroleum exploration in the 1960s and 1970s. It also hosts some of the country’s principal coal reserves, including the Waterberg coalfields, which are widely expected to become South Africa’s most important future coal resource. Hydrocarbons exploration has returned to the Karoo Basin, focusing on a number of unconventional plays including shale gas.

The southern part of the main Karoo Basin contains the primary targets for shale gas exploration, in particular the Whitehill, Prince Albert and Tierberg formations. In 2009 the Petroleum Agency of South Africa (PASA) – responsible for managing the country’s petroleum assets and exploration activities – awarded Shell a one-year technical cooperation permit (TCP) to determine the Karoo’s natural gas potential. Several other firms, including Falcon and Sasol in joint application with Norway’s Statoil and US-based Chesapeake Energy, were subsequently awarded one-year TCPs to assess shale gas deposits in the region.

PUBLIC REACTION: Opposition to extraction mounted in December 2010, when Shell submitted applications for exploration licences for three areas of 30,000 sq km each, in the Western Cape, Eastern Cape and Northern Cape. Soon after Shell’s submission, Shabangu froze any further applications or decisions until a study into the impacts of fracking could be completed. The decision to place a moratorium on prospecting in the Karoo was in part provoked by an intense reaction from landowners and farmers in the region, as well as the environmental lobby and a number of public figures. The Karoo region – home to important tourism and farming activities – hosts a diverse ecosystem and the anti-fracking lobby cite major environmental concerns about the extraction process.

Water is central to the debate on shale gas extraction, with opponents warning that fracking activities – which use very large quantities of water – may draw on supplies used by local communities. Reports commissioned by the Treasure the Karoo Action Group (TKAG) suggest that the 24 exploration boreholes planned by Shell could use up to 144m litres of water, creating direct competition with local residents and wildlife. The company has, however, assured the population that it would source its own water. There is also concern about the water left over from the fracking process, which may contain harmful substances. In December 2011, the US Environmental Protection Agency acknowledged for the first time that fracking may be causing groundwater contamination at a site in Wyoming, having detected compounds associated with fracking chemicals. Any companies that want to drill in the Karoo have to apply for a separate licence relating to water usage under the National Water Act.

While shale gas is often cited as a “clean” energy source, its life cycle emissions may be significant, and flaring – which can be used during extraction – also produces emissions. An IEA assessment suggests that if shale gas is extracted according to “proper standards of environmental responsibility”, the “well-to-burner” emissions are slightly higher than they are for conventional gas. In April 2011 lawyers commissioned by TKAG issued statements describing information about Shell’s activities as “incomplete”, meaning that regulators would be unable to assess them properly. TKAG has also warned that the fracking technique could violate parts of the country’s constitution relating to the right to water. “Hydraulic fracturing is a well established process that has been routinely used in the industry for more than 60 years with a good safety record. However, Shell recognises the concerns and will adopt the best international practices in its exploration programme, including thorough consultation,” Paul O’Dwyer, the general manager of supply and distribution at Shell South Africa, told OBG.

Minister Shabungu announced in August 2011 that she would extend the initial six-month moratorium by a further six months. Since the announcement of the moratorium, Sasol confirmed in December 2011 that it would be withdrawing from the shale gas sector in South Africa, having completed its technical study and following the expiry of its TCP.

While the anti-shale lobby celebrated the withdrawal as a victory, the company said the main reasons for abandoning its plans were economic, given the relatively high cost of extracting shale in South Africa compared to other countries. It did, however, say that it would continue “to monitor the South African shale-gas landscape for new developments”.

POTENTIAL: Oil and gas firms keen to invest in the Karoo Basin have highlighted the potential shale gas has to ease South Africa’s energy deficit and carbon footprint, as well as attract foreign direct investment. An alternative to the country’s coal-fired electricity base would be welcome, especially as coal reserves begin to decline. A number of sector players believe the shale gas deposits in the Karoo have the potential to turn South Africa into an energy self-sufficient country. According to remarks made by Jan Willem Eggink, the upstream general manager at Shell South Africa, to local press, “If the volumes are even half the amount that the [US] Energy Information Administration quotes at the moment, then there will be sufficient energy for decades to come for South Africa.”

Major international oil and gas players are lining up to invest in the region, with promised spending set to increase massively if exploratory drilling is successful. Shell stated in September 2011 that it would spend $200m on exploration alone and that any development activities would run into billions of dollars. The company also said that if exploration yields deposits that are commercially viable to extract, production of shale gas could be expected within the decade.