The production of commercial shale gas has been regarded as a major breakthrough in the oil and gas industry in the recent decade. Shale gas is an unconventional gas found trapped in shale sediments deep in the earth. The successful roll out of the Barnett Shale, a shale gas producing well in Texas, United States (US), using fracture stimulation and horizontal drilling, has caused a global frenzy in shale exploration. By 2008, the Barnett Shale was the leading gas producer supplying 7% of the total natural gas produced in the US in that year,⁽²⁾ and the US Government's Energy Information Administration envisages the figure jumping to 45% of overall gas supply by 2035.⁽³⁾ This has inspired gas exploration in South America, Africa, Australia, Europe and Asia.⁽⁴⁾

In South Africa, hydraulic fracturing, also known as 'fracking', has been the subject of heated debate. International oil companies, notably Shell SA, Bundu Gas & Oil and Falcon Gas & Oil, applied for shale gas exploration permits in the Karoo in 2010.⁽⁵⁾ Environmental groups, such as Treasure the Karoo Action Group (TKAG), which believe fracking will cause irreparable damage to the Karoo's biodiversity and underground and ground water reservoirs, fiercely contested this. This ultimately forced Government to place a moratorium on shale gas exploration in April 2011 to allow a ministerial task team to conduct a cost-benefit analysis in the activity. However, on 7 September 2011, upon recommendation from the task team, cabinet lifted the 17-month suspension on shale gas exploration, paving the way for shale gas development in South Africa. The fight has not ended yet for environmental groups who have vowed to challenge Government's decision in court.

This CAI paper explores the global shale gas revolution using the US, China and South Africa as case studies. A critical evaluation is then carried out on the potential impact of fracking in the Karoo. The lack of a conclusive scientific consensus on the environmental externalities and economic benefits of fracking is evident by the severity of speculation and scepticism surrounding the subject. However, this paper hopes to shed some light on some of the critical aspects to be considered in the on-going debate on fracking.

The global shale gas revolution

Energy demand continues to rise worldwide; the International Energy Agency (IEA) estimates that global energy use grew by 39% between 1990 and 2008.⁽⁶⁾ Brent crude oil prices have also been on an upward spiral from about US$ 96 to US$ 113 a barrel from January 2011 to September 2012.⁽⁷⁾ This has pushed a lot of research into the exploration of alternative sources of energy.  A new school of thought suggests that gas is the solution, as it burns cleaner than coal. Shale gas, in particular, has attracted the greatest attention due to its success in the US and its perceived global abundance. The success of shale gas will result in natural gas prices remaining below US$ 5 per 1,000 cubic feet until 2023, according to the US Energy Information Administration's 2012 Annual Energy Outlook.⁽⁸⁾ It is also considered that shale gas might generate more fossil energy than all global oil and coal combined.⁽⁹⁾

Shale gas comes from shales, which are believed to be the most abundant sedimentary rock on earth.⁽¹⁰⁾ Previously mistaken as impediments in drilling for limestone and sandstone reservoirs, engineers and geologists discovered shales hold fast oil and gas secured in underlying sediments.⁽¹¹⁾ Extracting gas from shale formations requires a unique technique commonly known as 'fracking'. Fracking is a stimulation method of pumping water, sand and chemicals under massive pressure down drill shafts to force hydraulic fracturing, thus releasing the gas.⁽¹²⁾ The process is extremely water intensive requiring about four million litres to complete a fracked well in a single direction.⁽¹³⁾ Modern drilling technology allows the drill to extend horizontally at depth from the vertical drill hole, enabling gas to be extracted from a larger geographical area than before.⁽¹⁴⁾

China  1 275                Poland  187
United States  862       France  180
Argentina  774             Norway  83
Mexico  681                 Chile  64
South Africa  485         India  63
Australia  396              Paraguay  62
Canada  388               Pakistan  51
Libya  290                   Bolivia  48
Algeria  231                Ukraine  42
Brazil  226                  Sweden  41

Technically recoverable shale gas resources, top 20 countries (trillion cubic feet) ⁽¹⁵⁾

The table above reflects the world's wealth of shale gas based on the US Energy Information Administration. Although the US has the second largest reserves, it already has a massive head start in terms of shale gas development compared to the rest of the world. The US experience of shale production has sparked global exploration interest which seems to be gaining momentum worldwide. Although 20 years ago the US was seriously warned that supplies of natural gas were diminishing, the country now enjoys a lush long-term supply of natural gas thanks to fracking.⁽¹⁶⁾ The abundance of shale gas has effectively made the US an exporter of energy and major player in the shale gas market.⁽¹⁷⁾ Moreover, a study by PricewaterhouseCoopers (PwC) in the US found that, in 2009, the oil and gas industry supported 9.2 million jobs and contributed 7.7% of gross domestic product (GDP).⁽¹⁸⁾ According to the Shale Gas Market Report 2012-2022, the global shale gas market is quite lucrative, having been valued at US$ 36.95 billion in 2012.⁽¹⁹⁾ Many countries are beginning to examine the potential of shale gas as an alternative source of fuel as part of their energy security strategies.

China is the leading country in terms of technically recoverable shale gas. The country is starting to extract its own shale gas and has made shale gas exploration and development a priority of its latest five-year plan (2011-2015).⁽²⁰⁾ As of 2000, the country's gas demand has risen by 15% per year as a result of the economic boom.⁽²¹⁾ Shale gas should supply 6% of China's energy requirements by 2020.⁽²²⁾ With very little knowledge on the technique, China has been importing skills and technology from America by encouraging domestic producers to strategically partner with their American counterparts.⁽²³⁾ On 9 June 2012, the state-owned oil giant Sinopec kick started drilling the first of nine scheduled shale gas wells in Chongqing.⁽²⁴⁾ Despite many obstacles, including the absence of a pipeline and unique shale geology and water constraints, China is not deterred from proceeding with fracking.

In Africa, South Africa has the continent's most promising shale gas reserves but energy companies have been facing strong opposition. The South African Government imposed a moratorium in April 2011 to conduct further research into the pros and cons of conducting fracking in the Karoo.⁽²⁵⁾ However, the moratorium was lifted in September 2012 and the Department of Mineral Resources announced that, although actual fracking remains prohibited until mining regulations have been modified, it would evaluate licence applications for the Karoo.⁽²⁶⁾ Furthermore, the first two years of the exploration phase will be dedicated to comprehensive environmental impact assessment.⁽²⁷⁾ This decision was informed by a feasibility study carried out by an Inter-Ministerial Task Team on Shale Gas and Hydraulic Fracturing set up by the department. It particularly investigated the possible costs and benefits of fracking in South Africa, including environmental concerns.⁽²⁸⁾ Oil companies interested in the Karoo's shale gas, such as Shell SA, Bundu Gas & Oil and Falcon Gas & Oil, have applied for exploration permits in the Karoo.⁽²⁹⁾ These companies stand to benefit from the revocation of the moratorium. The oil major, Shell, alone is looking to invest US$ 200 million (ZAR 1.74 billion) in six wells to explore for shale gas in the Karoo.⁽³⁰⁾ The company's application covers exploration rights for 90,000 km² in the area.⁽³¹⁾

Potential benefits

Shale gas exploration could be beneficial to South Africa for a number of reasons. To begin with, the country faces an imminent energy crisis as its current demand exceeds supply. Shale gas could very well be a long-term solution to South Africa's dire power problems as 85% of the nation's electricity currently originates from coal.⁽³²⁾ By weaning the country off coal, gas could be used as an alternative for electricity generation at a much cheaper cost and with a relatively smaller carbon footprint to coal.⁽³³⁾ Mineral Resources Minister, Susan Shabangu, argues that shale gas will uphold South Africa's efforts of reducing its carbon emission by 42% by 2025 under the Copenhagen Accord.⁽³⁴⁾ Shale gas could also be diversified into an energy source for industrial and residential heating and chemical feedstock production.⁽³⁵⁾ This will result in reduced oil imports which will have a favourable balance of payments effect.

Econometrix economist and principal analyst in the Karoo shale gas report, Tony Twine, supported swift action in shale gas exploration in order to satisfy the country's future energy needs and realise the significant contribution it will have on GDP, adding up to ZAR 200 billion (US$ 23 billion), and the establishment of up to 700,000 jobs.⁽³⁶⁾ The report also states that if the shale gas estimates were confirmed, the country would have 400 years' worth of energy supply.⁽³⁷⁾ This effectively means that South Africa's energy woes will become history and for generations to come, energy requirements will be guaranteed. A similar report by PricewaterhouseCoopers (PwC) finds that there is significant benefit in natural gas exploration and development in South Africa.⁽³⁸⁾

The Karoo is a semi-desert area with very limited economic activities, such as sheep rearing and eco-tourism, but this could change in the near future. Fracking would not only provide an alternative source of employment in the area but would also bring infrastructural development and billions of rands in revenue. Poverty and inequality are also rampant in the region due to high unemployment levels. Fracking could potentially stimulate economic activity in the area and contribute to poverty reduction. On a national scale, the socio-economic development ripple effects envisaged from shale gas exploration would help redress the country's current inability to meet the 2015 United Nations Millennium Development Goal target of poverty reduction.⁽³⁹⁾

These combined benefits would foster economic growth as South Africa's GDP expands from the contribution of shale gas. Long-term investment in the energy industry would secure the country's long-term needs. The creation of direct and indirect jobs across the various sectors in the economy would be a positive externality. The prospects of cheaper energy would help reduce production costs in a range of industries that could be passed on to consumers resulting in lower inflation levels. Fracking may be just what South Africa needs.

Concerns

Conversely, the controversial drilling technique has instigated global protests and debate over its environmental impact. Locally, environmental lobby groups such as Treasure Karoo Action Group (TKGA) and the Southern Cape Land Committee have openly challenged shale gas exploration in the Karoo, expressing their fears over the environmental and human health risks. TKAG national coordinator, Jonathan Deal, is disappointed that Government disregarded that fracking technology has been prohibited in more than 155 jurisdictions internationally such as France.⁽⁴⁰⁾ He added that future generations would have to bear the brunt of fracking whereas the country should be looking into renewable energy sources or different energy mixes.⁽⁴¹⁾ TKAG vowed to take the matter to the Constitutional Court, if necessary, to stop fracking on environmental grounds.⁽⁴²⁾ A climate and energy activist at Greenpeace Africa, Ferrial Adam, lamented that Government's decision could have devastating consequences for the region.⁽⁴³⁾ Earthlife Africa representative, Muna Lakhani, cautioned that water in the Karoo could be contaminated causing dire consequences for an area that was already dry.⁽⁴⁴⁾

Geologist, Chris Hartnady, asserts that environmental costs and geophysical threats of fracking are very high.⁽⁴⁵⁾ The biggest worry is that fracking uses vast amounts of clean water fused with chemicals to split underground rocks to withdraw shale gas. There exists the possibility of polluting surface and underground water through this exercise. A 2011 report by a team of researchers at the University of Manchester concluded that there is an apparent risk of contamination of ground and surface water from shale gas exploration.⁽⁴⁶⁾ Generally, water contamination arises from mistakes in construction and operation whose risk of occurring is high and will inevitably cause ground water pollution.⁽⁴⁷⁾ Surface water pollution can, however, be reduced with high quality hazard management.⁽⁴⁸⁾ Professor Gerrit van Tonder of the University of Free State is of the opinion that the greatest risk of contamination occurs once the gas has been shut down, when polluted water will eventually flow upwards and taint freshwater reserves.⁽⁴⁹⁾

There has been talk of 'green' fracking fluids in an effort to reduce the potential water pollution, but because they are expensive, there is doubt that cost-cutting corporations will use them. Besides, these fluids do not mitigate the amount of water used. Can the country afford to sacrifice millions of litres of clean water required for a single well at the expense of its people and animal life? South Africa is already a water-scarce country and the Karoo is a particularly dry area. Fracking is clearly not sustainable under current conditions.

The World Wide Fund for Nature (WWF) is of the opinion that South Africa can feed its rising energy demands by using more feasible and sustainable alternatives without relying on shale gas.⁽⁵⁰⁾ The country already has conventional gas of about 22 trillion cubic feet (tcf) off the West Coast and 9 tcf along the South Coast at its disposal ⁽⁵¹⁾ Moreover, it can tap into regional sources such as Mozambique with at least 130 tcf, Tanzania around 45 tcf, Angola estimated 12 tcf and Namibia at least 5 tcf.⁽⁵²⁾ These have been confirmed and are within South Africa's immediate geographical surrounding. One would assume that it is best not to tap into this gas in the meantime, as further research into fracking is conducted so as to avert a potentially irreversible environmental disaster.

The feasibility study by the Ministerial Task Team was criticised for not being explicit on the impact of fracking on the Karoo's agricultural sector. The lack of representation of the Department of Agriculture in the task team was also raised.⁽⁵³⁾ Sheep and game farming currently dominates in the Karoo. Lobby groups and the civil society have also shown frustration in being excluded from the task team. The Econometrix report, ironically funded by Shell, has also been criticised as "poorly researched in respect of the holistic facts on shale gas mining," "lacking in substance" and "ignoring social costs" by TKAG.⁽⁵⁴⁾ Moreover, there has been some doubt as to the accuracy and reliability of the forecasts.

South Africa lacks the experience, expertise, infrastructure or regulation required in the gas industry ⁽⁵⁵⁾ to conduct fracking successfully and, as a result, a lot of these important components would undeniably be imported. The country's academic and research institutions do not have the capacity to work at the cutting edge of this rapidly advancing science and technology.⁽⁵⁶⁾ Consequently, the arguments of this debate are based on the experience of Northern America and Europe which have not been fracking for a sufficient time to gather conclusive evidence regarding the safety of the technique.

Importantly, the Karoo is also the location for the multi-billion dollar Square Kilometre Array (SKA) telescopes; a collaborative project between South Africa and its partner countries - Botswana, Ghana, Kenya, Madagascar, Mauritius, Mozambique, Namibia and Zambia.⁽⁵⁷⁾ Winning the larger share of the bid against Australia in May 2012 was a huge achievement for South Africa and the continent, having worked hard on the proposal since 2003. However, there are reservations as to whether fracking and the SKA projects in the Karoo are compatible. There is belief that a vague causal relationship exists between fracking and small earthquakes, and fears are that seismological activity from fracking could provide interference for the SKA project.⁽⁵⁸⁾ Dr. Adrian Tiplady of SKA SA questions if shale gas exploration activities will conform to the protection requirements of radio astronomy and denounces the activity outrightly.⁽⁵⁹⁾ The SKA project is also protected by the Astronomy Geographic Act of 2007, which states that areas of distinctive optical and radio astronomy significance should be conserved and guarded.⁽⁶⁰⁾ Minister in the Presidency, Collins Chabane, was confident that there would be adequate buffer area to ensure that neither of the two activities will disturb the other.⁽⁶¹⁾

Concluding remarks

Evaluating the Government's decision to lift the moratorium on fracking in the Karoo is not an easy task as the issue is highly controversial and both sides of the coin are not conclusive. The dilemma stems from the lack of decisive research evidence on fracking. It is possible that the semi-arid Karoo could be transformed into an economically viable region, improving the country's dire unemployment levels, reducing oil imports and the dependence on coal as well as providing a long-term complementary source of electricity. Shale gas exploration and development in the Karoo could easily propel South Africa's economic growth prospects upwards. The country is also set to benefit from the rapidly growing shale gas industry with increased energy security.

Conversely, the estimated shale gas reserves are not yet confirmed and ironically fracking will be needed to do so. The long-term effects of fracking remain unknown. The Karoo's dry conditions make it susceptible to serious ecological damage and the long-term destruction of ecosystems by large multinational companies in the Niger Delta and the Gulf of Mexico is enough reason for legitimate mistrust of such corporations. The Government and people of South Africa have a moral obligation to protect the country's resources for themselves and future generations. Is it worthwhile to gamble with the future of the country based on speculation?

Written by Rutendo Dhliwayo ⁽¹⁾

NOTES:

(1) Contact Rutendo Dhliwayo through Consultancy Africa Intelligence's Industry and Business Unit ( industry.business@consultancyafrica.com).
(2) Warlick, D., 'A current view of the top ten 5 gas shales', Oil and Gas Financial Journal, 1 February 2010, http://www.ogfj.com.
(3) Wood, R., et al., 'Shale gas: A provisional assessment of climate change and environmental impacts', A report commissioned by the Cooperative and undertaken by researchers at the Tyndall Centre, University of Manchester, January 2011, http://www.tyndall.ac.uk.
(4) Warlick, D., 'A current view of the top ten 5 gas shales', Oil and Gas Financial Journal, 1 February 2010, http://www.ogfj.com. 
(5) Vecchiatto, P., 'Cabinet lifts moratorium on shale gas fracking in the Karoo', Business Day Live, 7 September 2012, http://www.bdlive.co.za.
(6) '2010 key world energy statistics', International Energy Agency, 2010, http://iea.org.
(7) 'Crude oil (petroleum); Dated Brent monthly price', Index Mundi, http://www.indexmundi.com.
(8) Donnelly, L., 'Prospects of shale gas tantalising', Mail & Guardian, 24 May 2012, http://mg.co.za.
(9) De Wit, M.J., 2011. The great shale debate in the Karoo. South African Journal of Science, 107(7/8), pp. 1-9.
(10) Boyer, C., et al., 2011. Shale gas: A global resource. Oilfield Review Autumn 2011, 23(3), pp. 28-39.
(11) Ibid.
(12) De Wit, M.J., 2011. The great shale debate in the Karoo. South Africa Journal of Science, 107(7/8), pp. 1-9.
(13) Ibid.
(14) Ibid.
(15) 'Breaking new ground: A special report on global shale gas developments', Economist Intelligence Unit, The Economist, 2011, http://www.cfoinnovation.com.
(16) Boyer, C., et al., 2011. Shale gas: A global resource. Oilfield Review Autumn 2011, 23(3), pp .28-39.
(17) Pressly, D., 'Fracking wins hearts, minds and wallets in Wyoming's Karoo', IOL News, 3 June 2012, http://www.iol.co.za.
(18) 'API comments: Oil and gas industry remained strong throughout recession', Energy Global, 4 May 2011, http://www.energyglobal.com.
(19) 'The shale gas market report 2012-2022: Transforming the dynamics of natural gas', ASD Reports, May 2012, https://www.asdreports.com.
(20) 'Breaking new ground: A special report on global shale gas developments', Economist Intelligence Unit, The Economist, 2011, http://www.cfoinnovation.com.
(21) 'Global reserves: A world of plenty', The Economist, 14 July 2012, http://www.economist.com.
(22) Daly, J., 'It's official – China embraces oil shale and fracking', Oilprice.com, 2 September 2012, http://oilprice.com.
(23) Ibid.
(24) Yang, C. T., 'China drills into shale gas, targeting huge reserves amid challenges', National Geographic News, 8 August 2012, http://news.nationalgeographic.com.
(25) 'Breaking new ground: A special report on global shale gas developments', Economist Intelligence Unit, The Economist, 2011, http://www.cfoinnovation.com.
(26) Esterhuizen, H., 'Shale gas to 'dramatically' change global energy scene', Mining Weekly, 17 September 2012, https://www.miningweekly.com.
(27) Vegter, I., 'Fracking gets green light, but here's the risk', Daily Maverick, 11 September 2012, http://dailymaverick.co.za.
(28) 'Cabinet is going to allow fracking in the Karoo', Sowetan Live, 7 September 2012, http://www.sowetanlive.co.za.
(29) Vecchiatto, P., 'Cabinet lifts moratorium on shale gas fracking in the Karoo', Business Day Live, 7 September 2012, http://www.bdlive.co.za.
(30) Pressly, D., 'Fracking wins hearts, minds and wallets in Wyoming's Karoo', IOL News, 3 June 2012, http://www.iol.co.za.
(31) Donnelly, L., 'Prospects of shale gas tantalising', Mail & Guardian, 24 May 2012, http://mg.co.za.
(32) 'Cabinet is going to allow fracking in the Karoo', Sowetan Live, 7 September 2012, http://www.sowetanlive.co.za.
(33) Donnelly, l., 'To nuke of frack', Mail & Guardian, 17 May 2012, http://mg.co.za, Worstall, T., 'Why shale gas is closing coal plants: So why do the hippies hate shale', Forbes, 5 May 2012, http://www.forbes.com.
(34) Kings, S., 'Shale gas energises Government', Mail & Guardian, 14 September 2012, http://mg.co.za.
(35) 'The shale gas revolution', RSM Albazie & Co., January 2012, http://www.albazie.com.
(36) 'Economist: Get cracking on fracking', News24, 2 March 2012, http://www.news24.com.
(37) Davies, R., 'Department points out 'merits of controlled fracking', Mail and Guardian, 2 May 2012, http://mg.co.za.
(38) 'The gas equation', PricewaterhouseCoopers, 2012, http://www.pwc.co.za.
(39) De Wit, M. J., 2011. The great shale debate in the Karoo. South Africa Journal of Science, 107(7/8), pp. 1-9.
(40) Oelofse, J., 'Anti-fracking body vows 'fight for Karoo' in court', Business Day Live, 10 September 2012, http://www.bdlive.co.za; Eastwood, V., 'Concerns over 'insanity' of Shell South Africa fracking plans', CNN, 23 March 2012, http://edition.cnn.com.
(41) Eastwood, V., 'Concerns over 'insanity' of Shell South Africa fracking plans', CNN, 23 March 2012, http://edition.cnn.com.
(42) Oelofse, J., 'Anti-fracking body vows 'fight for Karoo' in court', Business Day Live, 10 September 2012, http://www.bdlive.co.za.
(43) Ibid.
(44) Eastwood, V., 'Concerns over 'insanity' of Shell South Africa fracking plans', CNN, 23 March 2012, http://edition.cnn.com.
(45) Ibid.
(46) Wood, R., et al., 'Shale gas: A provisional assessment of climate change and environmental impacts', A report commissioned by the Cooperative and undertaken by researchers at the Tyndall Centre, University of Manchester, January 2011, http://www.tyndall.ac.uk.
(47) Ibid.
(48) Ibid.
(49) Moolman, S., 'Experts warn fracking proponents to proceed with caution', Engineering News, 31 August 2012, https://www.engineeringnews.co.za.
(50) Alfreds, D., 'Earthlife Africa slams Karoo fracking', News24, 30 May 2011, http://www.news24.com.
(51) Ashton, G., 'South Africa: Quo vadis? Fracking, gas and its future in the Southern African energy matrix', The South African Civil Society Information Service, 18 October 2012, http://www.sacsis.org.za.
(52) Ibid.
(53) Davies, R., 'Karoo open for fracking business. Wide, wide open', Daily Maverick, 12 September 2012, http://dailymaverick.co.za.
(54) Nkabinde, S., 'Geologist warns of fracking risks', IOL News, 27 March 2012, http://www.iol.co.za.
(55) Prinsloo, L., 'Karoo fracking debate builds a head of steam', Sunday Times, 3 June 2012, http://www.timeslive.co.za.
(56) De Wit, M.J., 2011. The great shale debate in the Karoo. South Africa Journal of Science, 107(7/8), pp. 1-9.
(57) van de Groenendaal, H., 'SA gets most of SKA but what about fracking in the Karoo?', EE Publishers, 20 June 2012, http://eepublishers.co.za.
(58) Davies, R., 'Karoo open for fracking business. Wide, wide open', Daily Maverick, 12 September 2012, http://dailymaverick.co.za.
(59) van de Groenendaal, H., 'SA gets most of SKA but what about fracking in the Karoo?', EE Publishers, 20 June 2012, http://eepublishers.co.za.
(60) Ndenze, B. and Ordeson, C., 'Fracking battle heads for courts', IOL News, 10 September 2012, http://www.iol.co.za.
(61) Vollgraaff, R., 'Fracking gets green light', Sunday Times, 9 September 2012, http://www.timeslive.co.za.