Electricity to ‘anchor’ gas roll-out, but progress mired in policy uncertainty

A lack of hard information about the size and nature of the country’s unconventional gas resources was highlighted as a particular constraint.

In fact, Mike Rossouw, who is the former chairperson of the Energy Intensive User Group and is currently on contract to Eskom, described as “bizarre” the fact that planning for gas in the energy mix was proceeding in the absence of information that could only be feasibly secured through exploration.

It was estimated that South Africa’s Karoo basin could hold as much as 320-trillion cubic feet of recoverable shale gas, which, if proven would make it the eighth largest country resource globally.

However, there was a moratorium on exploration activities, while the proposed amendments to the Mineral and Petroleum Resources Development Act (MPRDA) had raised fresh uncertainties for potential gas investors.

Earlier Mineral Resources Minister Ngoako Ramatlhodi indicated that the MPRDA Amendment Bill, which had not been supported by the oil and gas industry, could be referred back to Parliament. He also revealed that he had been personally convinced that oil and gas should have its own legal framework.

Speaking during the panel discussion, Shell South Africa Upstream’s Niall Kramer said there was a misconception that the energy major was gearing up to produce gas across large swathes of the Karoo. Instead, it was only preparing to “drill for data” and to use the information from 6 to 24 holes to inform its future investment decisions.

Similarly, Challenger Energy, whose subsidiary Bundu Gas and Oil Exploration had made application to explore in an area covering 4 300 km2 in the Karoo, required policy, legislative and regulatory certainty before it could firm up its resource.

However, MD Robert Willes said the ASX-listed group was optimistic about finding gas in the relatively small permit area, which was based on a discovery well drill by Soekor in 1968. Gas from the well had flowed to surface from a vertical unstimulated well, which was a “promising indicator of potential”.

Given the absence of pipeline infrastructure, “gas-by-wire”, or generating electricity that could be transported through existing power lines within 60 km of the target area, was the preferred commercialisation option. All going to plan, Willes believed there could be gas-fired generation from the territory by the “early 2020s”.

Dynamic Energy partner Darryl Hunt concurred that power generation was the natural anchor for the development of the domestic gas sector, saying that other applications could follow.

Eskom’s Prish Govender foresaw an “incremental” gas roll-out and indicated that the State-owned utility was keen to expand the role of the carrier, particularly as the demand for mid-merit capacity expanded as a back-up for renewable-energy generation.

But Eunomix MD Claude Baissac warned that South Africa would fail to extract the full potential from gas unless appropriate legislation, regulation and policy was in place to unlock its potential.

He argued that the current framework was “broken” and urged the oil and gas industry to play a far more “muscular” role in shaping the legislative framework should the MPRDA Amendment Bill be returned to Parliament.

Both Kramer and Willes agreed that there were potential environmental risks associated with the exploitation of shale-gas in the water-stressed Karoo. But Kramer stresses that it had experience in mitigating these risks, while Willes said he was more than willing to engage with local communities ahead of any exploration campaign.

All panellists called for the level of debate to be raised surrounding the risks and opportunities associated with exploiting unconventional gas in South Africa. However, none of the opponents to shale-gas mining in the Karoo was represented.

Anti-fracking lobbyist Treasure the Karoo Action Group (TKAG) recently called for a fresh moratorium on hydraulic fracturing in South Africa until concerns raised by opponents over the past three-and-a-half years had been addressed.

TKAG argued that draft fracking regulations outlined in 2013 were “flawed”, while government had given no indication as to whether the final regulations would take account of public submissions.

Concerns also lingered over the composition of the task team assembled by the Department of Mineral Resources to finalise the framework under which shale-gas exploration and development could proceed.