South Africa's 'Game Changer' Karoo Shale Gas Prospects Face Environmental Interrogation

JOHANNESBURG--February 4, 2011--Researched by Industrial Info Resources (Sugar Land, Texas)--In 2010, synfuel and chemical major Sasol Limited (NYSE:SSL) (Johannesburg, South Africa) said that the discovery of major shale-gas reserves could be a "game changer" for the South African energy market. Although the country does not have an extensive gas pipeline infrastructure, it does have a well-developed national electricity grid, which could take power from gas-fed, combined-cycle power stations.

Falcon Oil & Gas (OTC:FOLGF) (Denver, Colorado) was the first company to apply for a permit and was allocated 30,000 square kilometers. Royal Dutch Shell (NYSE:RDS-A) (The Hague, Netherlands) was the second to obtain a permit, for an area of 185,000 square kilometers. The permit allows the company the exclusive right to study for 12 months, if there is potential for exploration. The permit precludes any surface activity or drilling. Sasol applied for a permit at the end of 2010 and was shouldered out of the main Karoo area; with partners Statoil ASA (NYSE:STO) (Stavanger, Norway) and Chesapeake Energy (NYSE:CHK) (Oklahoma City, Oklahoma), Sasol was awarded permits in the northeastern part of the region, which is adjacent to a long stretch of coal-bed methane prospects that could, if the shale gas is found in commercial quantities, provide synergies in pipeline construction and end-user distribution. Anglo American (LSE:AAL) (London, England) is one of a number of other companies active in the area, and a new round of alliances may emerge as the first clear indication of shale-gas reserves in the market.

Shell is proposing to explore 90,000 square kilometers of the southwestern Karoo Basin, which has roused the official opposition party, the Democratic Alliance (DA), in South Africa's parliament to request Pasa to put a hold on exploration until a peer-review study into the geology of the Karoo Basin and an independent assessment of available water resources has been undertaken. At the centre of the request is concern about the oil extraction process technique of "fracking," which requires large volumes of water to create hydraulic fracturing in the rock to release the gas and, claims the DA, has the potential to contaminate the surrounding water bodies with pollutants. The DA maintains that not enough is known about the deep geology of the Karoo, and questions whether the mainly dry region could provide water in the volumes needed for fracking.

Shell has responded by saying that the company is compiling an environmental management plan, is engaging affected stakeholders in the area, and will conduct specialist studies which will include soil surveys, surface and groundwater surveys and noise, and social and heritage impact assessments. Shell's vice president for communications in Africa, Phaldie Kalam, said: "In the Karoo, we expect that thousands of meters of rock separate the natural gas formations from the shallow groundwater aquifers. The risk of seeping gas into aquifers or to the surface is extremely low."

With high-profile stakeholders such as eco-conscious Johann Rupert, the chairman of global luxury goods company Richemont (XETRA:RITB.DE) (Geneva, Switzerland), family farms, and Princess Irene of the Netherlands, who has a game farm in the area, the focus on the environmental impact of any shale gas projects will be intense and sustained. Missing from the scenario at present is confirmation that there is a large shale-gas source available; this confirmation, if and when it comes, will be the real game changer.

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