SHELL says there is no certainty that fracking for shale gas in the Karoo will be economically viable.
Niall Kramer, Shell’s upstream manager, told delegates at a roundtable discussion on fracking yesterday that only once the oil company had completed exploration work would it be able to assess whether fracking would be economically viable.
“Many people think this gas is a done deal. That’s not the case. We want to go into exploration. As you get to understand the geology underground you can work out what is the economically recoverable volume... then you can come to a viable return,” Kramer said.
Estimates about the quantity of Karoo shale gas have changed radically. Initial estimates done by a US institute years ago put the amount of Karoo shale gas at 485 trillion cubic feet (tcf). This was later revised to 370 tcf. Now the Petroleum Agency of South Africa (Pasa) estimates Karoo reserve to be around 40 tcf.
“But the reality is no one knows that number,” he said.
Shell wants to put down between six and 24 exploration wells. If it finds reserves which are “attractive and economically viable” it would apply for a licence to frack, Kramer said.
This expression of uncertainty from Shell comes after President Jacob Zuma claimed last month that shale gas would be “a game changer for the Karoo region and the South Africa economy”.
An Econometrix study commissioned by Shell, found that if there were 20 tcf of economically viable shale gas, this would translate into R80 billion, or 3.3 percent of GDP; if there were 40 tcf, this would translate into R200bn, or 9.6 percent of GDP. The first estimate could result in 300 000 jobs and the second 700 000.
Kramer said these jobs were estimates and would not be created by Shell, but by other industries which would be likely to expand “on the basis of stable and reliable power”. He conceded that the Econometrix study had not taken the negative costs of fracking into account, including externalities.
Julia Schünemann, a researcher from the Institute for Security Studies, told delegates that a research project on the future of fracking in South Africa had looked at various scenarios, including one in which the government levied an excise tax on gas from fracking, in addition to the energy tax, which would be invested in renewable energy production and infrastructure. South Africa would capitalise on the economic gains from shale gas by investing in renewable energy, which would drive long-term sustainability.
Investment in renewable energy could drive production up to over 1.6 billion barrel of oil equivalent (BBOe) by 2050, making it a larger source of energy in SA than coal today.
Gas would peak in the 2040s as the cost effectiveness of fracking declined. Schünemann said the increase in production would lead to increases in spending on health, education and infrastructure.
The study cautioned that because of the damage fracking could have on scarce water supplies, this should be the primary constraint on shale gas fracking.