1 iNtrODUctiON
1.4 Overview
Recently, there has been considerable interest in the possibility of developing a shale gas industry in the Karoo in areas that include parts of the Eastern, Western and Northern Cape provinces of South Africa where it is generally accepted that large shale gas resources potentially exist.
However, it also needs to be appreciated that there are considerable uncertainties associated with the development of a shale gas industry.
These include the following:
• The quantum of shale gas in this area is still unclear with estimates ranging between 19 tcf and over 400 tcf (US EIA, 2013). None of these reserves has yet been proven.
• Shale gas exploitation requires the use of relatively large quantities of water. Given that it is unlikely that potable groundwater will be used for any such exploitation, greater clarity is needed on the availability of underground saline water, which is widely considered today to be acceptable for use in hydraulic fracturing.
• Baseline studies need to be carried out to ascertain with greater certainty the deep level (>3 km underground) geological characteristics of the area.
• Given that currently South Africa is experiencing a serious skills shortage in terms of the high-level technical competencies that would be required to implement such an industry, strategies need to be set in place to develop in the long term the skills that will be required for the sustainable development of the shale gas industry.
• International experience has highlighted the critical need to have all the necessary legislative and regulatory structures in place, as well as sufficient number of regulators with the required skills before a shale gas industry is launched.
• The implementation of a shale gas industry in an area such as the Karoo may have major socio-economic impacts on the local population and it is important to ensure that there is a full understanding of these potential impacts and that plans are developed to manage them.
• The industry will require significant infrastructural development that needs to be quantified and funded.
These uncertainties are indicative of the risks and challenges associated with the establishment of a shale gas industry in South Africa. It is also necessary to appreciate that a shale gas industry in many respects is akin to a manufacturing industry and hence requires degrees of certainty that are normally associated with similar cost-driven industries. This will require government to give attention to creating an enabling environment to encourage investment in the industry without in any way compromising on the need to ensure that all operations are fully compliant with international best practice and that the state and, particularly, local
communities, benefit from the development of this industry. This will require that all companies engaged in the shale gas industry are aware of the need to be fully compliant with all relevant legislation and regulations.
It is also critical that an appropriate degree of clarity exists regarding the pricing structures that may prevail when the industry would begin to exploit the shale gas reserves. Such clarity would also be important in enabling appropriate decisions to be made when evaluating the best options to adopt in addressing the energy challenge. If shale gas is to be a significant contributor to the energy mix in South Africa then it will be important to encourage the operators, while at the same time stimulating the market. Such an exercise is obviously predicated on the need to have a clearer understanding than exists at present of the potential quantum of the known reserves.
Given the complexity of the opportunity presented for the development of a shale gas industry, a ‘whole-of-government’ approach is required.
This will require, inter alia, that appropriate steps are taken to ensure that there exists a structure to facilitate and coordinate all the activities relating to the industry.
It also needs to be recognised that the lead time for the full implementation of a shale gas industry in South Africa will be, arguably, ten or more years from the time of the award of the first exploration licences. The award of a production licence, which would proceed after the satisfactory completion of the terms associated with an exploration licence, would also require the operators to have demonstrated in a defined time frame that their processes will be compliant with all the relevant legislation pertaining, inter alia, to well construction and drilling, water management and contribution to skills development.
It is also important to appreciate that the development of such an industry requires the state to engage proactively with all stakeholders, particularly local communities. In this context it should be recognised that there is widespread suspicion in the public domain regarding the promotion of the industry by operators with a vested interest in the industry. Thus the government has an important role to play as an ‘honest broker’ of key information on the short, medium and long-term ramifications of the implementation of a shale gas industry.
In summary, it is the view of the panel that before South Africa can consider itself to be technically ready to implement a shale gas industry much needs to be done to ensure that there is in place a clear legislative environment and a rigorous regulatory and monitoring structure which will ensure that operators, in using their exploration and production licences, apply best-practice technologies that are fully compliant with the rules and regulations governing the industry. The report concludes by presenting a set of recommendations which it is proposed needs to be addressed,
some urgently, such as the commencement of baseline studies, in order to ensure that South Africa does indeed become technically ready if a shale gas industry is implemented. The panel is of the view that no licences for exploration or production should be issued until the recommendations of this report have been implemented in order to ensure that an environ- mentally safe industry is created.