It could even be a net exporter of both.
But that would depend on three things: that the estimates of shale gas reserves in the Karoo are accurate ; that government gives the go-ahead for exploration to at least find out if there are reserves; and, if the first two requirements are satisfied, that companies are allowed to drill for the gas .
The International Energy Agency (IEA) has estimated that the Karoo could be home to 485 trillion cubic feet (tcf) of shale gas reserves. That would make SA’s resources the fifth-largest in the world.
Most industry players think this number is probably inflated . Shell SA’s general manager for upstream operations, Jan Willem Eggink, says: “We agree there is probably shale under the Karoo, but we don’t know how much.”
But even if a tenth of the IEA estimate is proven (and economically viable ) it would be a significant find. To put it into perspective, Sasol’s gas-to-liquid plant in Qatar, which produces 32000 barrels of liquid fuel a day, will use 3,5tcf over its 30-year lifetime, according to Investec Securities analyst Campbell Parry.
Parry says with 50tcf, SA would be able to invest in additional gas-to-liquids plants, power generation, and possibly the development of a residential piped gas market in the Western Cape (which currently doesn’t have one).
The cost of electricity would drop as the supply of gas would be greater than demand . Nuclear power would probably be off the table. The days of worrying about load-shedding would be over.
But there’s a chance SA may not even be able to find out whether the reserves are there . The extraction of shale gas through what is known as fracking — injecting water and chemicals into the ground to fracture the rock and release the gas — is a highly contested topic.
The debate is between the economics and the environmental concerns around fracking. A burst of shale exploration and production has changed the US into an energy exporter, given it security of supply and brought gas prices down. US gas prices have more than halved in the past 10 years, says Eggink. But many believe these benefits are not worth the damage done in the process of getting the gas.
Environmental arguments focus on water risks, both of contamination and of availability of water, especially pertinent in a water-scarce country; risks to health; and social disruption from the arrival of the extractive industry.
Energy companies, on the other hand, promise they can extract the gas in an environmentally safe way. Eggink says Shell recently raised operating standards in the US; that the surface footprint of the development is small; and that water issues can be dealt with (through the possible use of brackish water found deep under the Karoo).
He also lists economic spinoffs, including a GDP boost and job creation. On top of this, Shell is risking its own capital, R1,5bn for the first phase , and more if exploration proves fruitful.
There is little way of knowing who is right. It’s easy to find case studies proving either argument . There are cases for regional economic growth, low gas prices and job creation; but there are also cases of ruined water resources.
Saliem Fakir, head of WWF SA’s Living Planet Unit , says the debate “has largely become parochialised as an energy vs environment issue” and suggests the focus should turn to a broader economic debate.
He says the argument should be about energy planning and whether fracking for gas would be the most economically viable energy option for SA.
The range of unknowns includes how much gas there is, the cost of extraction, the cost of getting it to market and where water would be sourced, says Paul Eardley-Taylor, Standard Bank’s head of energy, utilities infrastructure. The cost of infrastructure (which Eardley-Taylor says would be for government) is another major question mark.
“The economics of shale in SA cannot be compared to the US,” Fakir says. A large local resource works for an economy when the right policies are in place. SA lacks a policy for the exploitation of shale gas.
The effect of shale on the SA economy, says Fakir, depends on factors like gas prices (which he says would be higher in SA than in the US), incentives given to industry and environmental regulation.
Sasol, after a technical study in the Karoo, said at the end of 2010 it would not pursue exploration. It says while fracking is widely practised and regulated in the US it is new to SA, and a clear and well-regulated environment would have to be a precondition for an environmentally responsible industry. Others have postulated that Sasol’s decision is based on cost calculations, and that shale gas production in the US would be more economically viable than in SA.
It is in this context that the moratorium on exploration in SA is largely viewed as welcome.
Parry says many of the questions around the economics of shale can be answered only once the actual reserves are known.
Government will decide on the moratorium in March, after it has completed its study into fracking in SA.
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Article source: http://www.fm.co.za/Article.aspx?id=164563