South Africa needs to get moving on exploring the potential of its suspected shale gas fields in the Karoo, a top economist said on Friday.
Speaking at an event sponsored by Shell - the oil company that is seeking permission to start test fracking for the gas - Econometrix economist Tony Twine, said this had to happen soon if the country hoped to meet its future energy needs and boost its coffers.
“This is big stuff in terms of contribution to GDP, in terms of employment potential. Even if the gas finds turn out to be a lot smaller than the estimate... we are talking about a mighty big fish,” he said.
Econometrix was commissioned to produce a report on the macroeconomics of the project.
First discovered around 1967, the Karoo shale gas is currently only a “suspected resource” of about 485 trillion cubic feet (tcf).
If this were correct and, using a projection model of four percent of the estimated resource, there could be an annual economic impact of more than R80 billion to GDP - 3.3 percent of 2010's GDP.
The average annual government revenue from 20tcf would be around R35 billion, according to the Econometrix report.
“The first step in harnessing such a potentially transformational economic resource has to be either proving or disproving its size and location. Only after that do prospects become bankable projects,” Twine said.
“Even under modest growth of the South African economy, we are going to need this exploration and a decision to move on it or not with minimum delay.”
Shell, one of three companies granted “desktop” exploration permits, wants to extract gas from a 90,000 sq km area - about the size of KwaZulu-Natal - that stretches from Bedford to Sutherland.
Falcon Oil and Gas from America have a permit to explore 30,000
sq km for gas, in an area one-and-a-half times the size of the Kruger National Park.
Sunset Energy from Australia has 35,000 km sq in areas around Graaff Reinet.
A consortium made up of Sasol, American Chesapeake Energy, and Statoil ASA has applied to explore an area of about 88,000 sq km, which includes a large portion of KwaZulu-Natal and the Free State, according to the Econometrix report.
The government has placed a moratorium on applications for physical exploration, which was extended when it expired in February to the end of March.
The Econometrix report said if the amount of shale gas - lying about 4000 to 5000 metres below the Karoo surface - were confirmed, it could provide the equivalent of 400 years' worth of energy consumption in South Africa.
Said Twine: “This is a big chicken; she is a big puppy.”
Information was needed to confirm the size of the resource and the distribution of the shale gas.
However, concerns over the environmental impact of fracking - the technique used to remove the gas, also called hydraulic fracturing - have dominated much of the debate around the planned project.
Fracking involves pumping a mixture of water, sand, and chemicals at high pressure down a borehole into the rock strata containing the shale gas.
The process releases the gas, which flows out of the borehole to the surface, where it is captured and contained.
Twine said the project could lead to the creation of up to 700,000 jobs in a proposed first phase to 2035, after the initial proposed nine-year exploration period.
The report said it could also reduce reliance on coal for electricity generation.
Speaking at the event, Shell's commercial general manager in South Africa Bonang Mohale, said his company had been working in the industry for many years and understood the environmental risks involved with fracking.
It also knew how to mitigate them.
He said that if the project were approved it could address the “energy poverty” experienced by at least 10 million people in South Africa.
“I think this will be bigger than the discovery of gold in Gauteng,” Mohale said.
Shell has, however, accepted the government's moratorium on the project.
“Democracy presupposes that the majority view will prevail.”
Asked if Shell was worried about the possible nationalisation of the resource, Mohale responded: “If we were worried we would not be pouring so much money into this.” - Sapa