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INVESTIGATION OF HYDRAULIC FRACTURING
IN THE KAROO BASIN OF SOUTH AFRICA


EXECUTIVE SUMMARY
The Working Group (of the Task Team) on Shale Gas and Hydraulic Fracturing was
chaired by the CEO of Petroleum Agency SA and comprised representatives from
the following departments and institutions: Departments of Environmental Affairs and
Water Affairs, Science and Technology, Energy, Mineral Resources, the Petroleum
Agency of South Africa, Council for Geoscience, SKA South Africa, Water Research
Commission, and ESKOM.

The terms of reference of the Working Group study are derived from the terms of
reference of the Task Team and focus on evaluating both the positive and negative
aspects of shale gas exploitation. The study aims to evaluate the potential
environmental risks posed by the process of hydraulic fracturing as well as the
negative and positive social and economic impacts of shale gas exploitation. This
report and recommendations are not claimed to be fully comprehensive — new
reports and technical developments continue to emerge. Further work is required in
a number of critical areas.

The study comprises reports written by specialists in their various fields as well as
the results of a study tour to the United States which included field trips to
Pennsylvania (Marcellus Shale) and Texas (Eagle Ford Shale) and visits to the
Environmental Protection Agency and the Railroad Commission of Texas, both being
US regulatory organisations directly involved with shale gas exploitation.

The following major issues were considered:

The estimate of the potential resource

The United States Energy Information Administration has made a first pass estimateof a technically recoverable resource of 485 trillion cubic feet (Tcf) of gas in the

Karoo Basin. The Petroleum Agency evaluated this assessment and concluded that,
owing to the limited amount of available data in the area, it is impossible to quantify
the resource accurately, other than to say that it is potentially very large. It is
essential that additional, modern subsurface information be obtained through drilling
or a geophysical survey to constrain these estimates.

While the existence of a significant gas resource in the Karoo would have
implications for South Africa’s energy security by reducing national dependence on
other fossil fuels, the magnitude of this potential is subject to considerable
uncertainty owing to the difficulties in quantifying the resource.

Technical aspects of hydraulic fracturing
Hydraulic fracturing is an integral part of the production of gas from low-permeability
unconventional reservoirs such as shale, tight sandstones and coal. The technique
is highly specialised and comprises complex mechanical and chemical processes.
Hydraulic fracturing has been used in the oil and gas industry for more than 50 years
and, in the last 20 years, together with the practice of horizontal drilling, has been
instrumental in making the exploitation of unconventional resources technically and
economically feasible. The initial stages of exploration can be conducted without the
use of reservoir stimulation. However, in order to assess the ‘producibility’ of a
resource during the later stages of exploration and, finally, in order to produce the
gas, hydraulic fracturing is essential. The process requires the use of significantly
large quantities of a base fluid, usually water, together with a small fraction of sand
and chemicals pumped into the reservoir with sufficient pressure to create artificial
fractures, thereby improving the permeability of the rock and allowing the gas to be
produced.

Environmental and socio-economic implications of hydraulic fracturing
The use of large volumes of water together with chemical additives makes it
essential that the environmental and social implications of this process are
considered. The present study considers the impact of shale gas exploitation on
land use, water use and air pollution. Whereas existing environmental regulations
adequately cover most of these factors, an immediate and important concern
requiring additional attention is water usage and disposal: in particular, the volume
and transportation of the water, the potential contamination of water resources and
the disposal of ‘used’ fracturing fluid. The use and disposal of water in such large
amounts is expected to require a water use licence under the National Water Act.
Further research is required to investigate all potential sources of input water, as well
as means of water disposal.

Extensive hydrological and geohydrological studies before exploration and
production drilling will be required in order to minimise or eliminate potential impacts
on other users. Because of the uncertainty regarding the extent, or even existence,
of economically producible reserves, any assessment of the potential economic
impact is subject to enormous uncertainty. However, making a moderately optimistic
assumption that ultimately 30 Tcf will be produced, and using indicative pricing of
US$ 4 per thousand cubic feet of gas and an exchange rate of R8 per US dollar, the
gross sales value would be almost R1 trillion. Similarly, 1 Tcf was sufficient to
launch PetroSA’s gas-to-liquids project in Mossel Bay which provides approximately
5% of the national demand for liquid fuels and entails 1500-1600 jobs. It is expected
that the contribution of shale gas production to the growth of the economy and GDP
would be enhanced by the necessary creation of service industries with all the
attendant implications for sales of goods and services. Even though this process
would be spread over a period of 20–30 years it clearly has the potential to have a
major impact on the national economy. Although Income Tax and Royalty accruing
to the fiscus depend on profitability it is expected that such amounts will run into tens
or hundreds of millions of Rand, augmented by VAT. The potential long-term direct
employment opportunities are likely to number in the tens of thousands, with similar
numbers in the industries consuming the gas.

The regulatory framework
The primary conclusion reached in this report is that South Africa’s regulatory
framework must be robust enough to ensure that, if hydraulic fracturing associated
with shale gas exploration and exploitation were approved, any resultant negative
impacts would be mitigated. This will require a comprehensive review of the
adequacy of the existing framework in order to identify any shortfalls or omissions
and to ensure that it is sufficiently detailed and specific. The use of existing
regulations from mature regulatory environments to inform the development of South
African regulations in this matter is recommended.

Astronomy research projects in South Africa
The low level of population density in the Karoo, making this area an ideal site for
astronomical observation, constituted the basis of South Africa’s bid to host the
Square Kilometre Array. Unmitigated radio-frequency emissions produced by the
operation of heavy industrial equipment in shale gas exploration and production are
expected to be detrimental to radio-astronomy operations. Although this matter
requires more detailed analysis and investigation, the current study suggests that
suitable mitigatory measures be established to accommodate both. It is expected
that there will be a process of areas that will delineate areas where exploration and
production activities of shale gas will be precluded. Site-specific analysis will be a
prerequisite for operations in areas defined by the Astronomy Geographic Advantage
Act.
Economic implications of a ban
While considering the implications of hydraulic fracturing, it is important to note that
the effect of an extended ban, moratorium or stringent regulation can best be
described as a reduction of economic opportunity (opportunity cost). Such measures
would delay or prevent an improvement of the understanding of the real extent of the
potential resource, hamper the development of coalbed methane and other
hydrocarbon resources in low-permeability reservoirs, and remove the potential
economic benefit to severely deprived communities in the Karoo.
Synthesis
In the current technological environment, any exploration for and economic
exploitation of shale gas in South Africa will require the use of horizontal drilling and
hydraulic fracturing.
The use of hydraulic fracturing in shale gas exploration is perceived to have the
attendant risk of polluting sources of drinking water by fracturing fluids and/or
methane, and induced seismic events.

In the Karoo, there is the additional concern that the volumes of water required may
compromise other uses and, in a large part of the area, there is a further geological
risk entailed by the presence of extensive intrusions of dolerite and kimberlite, the
influences of which are not easily predicted.

The technique of hydraulic fracturing requires relatively large volumes of water which
may be difficult to source in the Karoo. Groundwater pollution can be minimised
through good borehole construction and the maintenance of the well bore integrity,
coupled with intensive and close monitoring which can be achieved through the
application of industry best practice.

The hydrogeology of the Karoo at depth is unknown, but potable aquifers are
expected to be far removed from shale gas target formations and safe from
contamination from injected fracking fluids, as the latter are immobile under normal
conditions with no ‘drive’ once the fracturing operation has been completed.
However, the effects of dolerite intrusions, kimberlite fissures and existing fracture
systems are relatively unknown and further investigations and modelling are
required.
Noise, dust, emissions and naturally occurring radioactive mineral (NORM)
contamination levels will differ at different stages and locations and can be controlled
under existing legislation.

Potential resource and energy security: Various estimates of the technically
recoverable resource, ranging from 30 to 500 Tcf, have been expressed. However,
there are presently insufficient data to accurately assess the size, quality and
extractability of the shale gas resource and, therefore, it is not possible to accurately
assess the implications in respect of energy security. Further drilling, sampling and
testing will be required to improve confidence in the existence and, subsequently,
extent of a resource. A large resource would have the potential to reduce national
dependence on other fossil fuels and may contribute to energy security and the
reduction of our carbon footprint. These factors are a powerful justification for further
investigation.

The potential socio-economic impacts increase progressively through exploration
and appraisal to production. In the early phases, much of the work will be done by
specialists brought in from other countries and the impact on the local economy will
be slight. As confidence in the potential of shale gas increases, the training of local
personnel for longer-term operations becomes viable and the impact on the local and
national economy increases. In the event that a real resource is proven, it is
possible that its size will be sufficient to justify proceeding to production which may
be coupled with, for example, the establishment of additional gas turbine electricity
generation installations or gas-to-liquids (GTL) plants with associated employment
opportunities in field operations and plant operation, potentially numbering in the
thousands. There would then also be significant implications for the GDP, with as
much as R 960 billion added over 20–30 years. [Calculated at 30 Tcf @ US$ 4/Mcf
and R8/US$] South Africa does not have the infrastructure (service industries and pipelines) in
place that facilitated the success of shale gas production in the United States.
However, the demonstration of a large enough resource would drive the
development of the necessary infrastructure.

Astronomy research projects and shale gas in the Karoo may be mutually exclusive,
but the ‘footprint’ of the astronomy installations is only a fraction of the area presently
considered to be prospective for shale gas. There is scope for collaboration
between government and industry on mitigating measures with a view to minimising
the areas closed to exploration and production operations.

The existing regulatory framework, drawn from a number of acts, emphasises the
protection of the environment covering the broad aspects of concern. It is the
conclusion of the Working Group, however, that there is a need for detailed
assessment and augmentation, where necessary, of the framework applicable to the
upstream petroleum industry as a whole to ensure robust regulation and compliance
monitoring. In order for the regulations to be effective, better co-ordination between
departments and adequate resourcing of regulatory and enforcement agencies is
required. Regulations relating to water usage and disposal, in particular, require indepth
study and analysis.

The published estimate of the shale gas resource potential requires further and coordinated
investigation to expand the quantitative database required to support
assessments of the inherent economic potential of the resource. Appraisals of the
possible socio-economic impacts of shale gas development are of necessity based
on an estimate of the resource. There is therefore an urgent need for further
research on the entire Karoo Basin to reduce the uncertainty in the resource
estimation and increase confidence in the associated assessments of the potential
socio-economic impacts. That type of research is what oil and gas companies carry
out under exploration rights.
Options
Based on the conclusions set out above, the Working Group considered a spectrum
of options that might be recommended to the Minister, ranging from (1) an outright
ban to (2) unconditional approval of hydraulic fracturing under the existing regulatory
framework. Neither of these extremes was deemed suitable and, thus, the
intermediate option (Option 3), specifically the ‘conditional approval of hydraulic
fracturing’ (3C) was considered to be most appropriate. The options considered are
tabulated in Annexure G.
Recommendations
The following recommendations are made:

• Allow normal exploration (excluding the actual hydraulic fracturing), such as

geological field mapping and other data gathering activities (e.g. hydrological
studies) to proceed under the existing regulatory framework.

• Constitute a monitoring committee to ensure comprehensive and co-ordinated

augmentation of the regulatory framework and supervision of operations.

•  Augment the current regulatory framework. The establishment of the appropriate

regulations, controls and co-ordination systems is expected to take 6–12
months.

• Departments of Science & Technology and Mineral Resources to collaborate in

developing mechanisms for the co-existence of the Astronomy Research
Projects and development of shale gas in the Karoo.

•  Once all the preceding actions have been completed, authorise hydraulic

fracturing under strict supervision of the monitoring committee. In the event of
any unacceptable outcomes, the process may be halted.

• Ongoing research to be conducted and facilitated by relevant institutions to

develop and enhance scientific knowledge in respect of the development of
Karoo shale gas. This includes, albeit not limited to, geo-hydrology of the
prospective areas, methodologies for hydraulic fracturing in RSA and
environmental impacts.

• The actions required to give effect to the proposed conditional approval must be

properly resourced, incorporated into the programmes of the relevant
departments and agencies and capacity developed.
*Please note the full report is available on www.dmr.gov.za