Cape Town - The exploitation of shale gas as a cheap energy source in South Africa is a distant – and possibly unlikely – prospect as claims of its being a “game-changer” are based largely on the US experience, not always replicable in other countries.
This is one of the findings of a WWF-South Africa report which assessed the “economic realities” of future fracking in this country.
The report says the shale gas experience in the US is unique. This is borne out by the fact that shale gas exploitation in China, Australia, Mexico, Poland and some other European countries has not only proved difficult, but has also proved less economical than envisaged.
The WWF-SA report is based on its own research, on interviews with specialists and analyses of studies. It was a response to the fact that the fracking conversation in South Africa has focused on the politics of the issue, with little attention to whether it would be commercially viable.
“Based on our current knowledge and assessment, shale-gas extraction has, at best, marginal economics, and its commercial success is largely dependent on five key drivers,” the report said.
These factors remained constant, whether one was in favour of fracking or not. They are:
* the rate at which technological capability is learnt;
* understanding the geology;
* a high enough price for gas and oil plus other incentives;
* the timing and scale of drilling;
* and lessening the cost, during fracking and afterwards, of “externalities” – the costs borne by the environment and society, which are not captured in the market price. This includes issues like water pollution or loss of agricultural livelihoods.
The report argues that, unlike South Africa, shale gas fracking developed in the US, where there was already a well-developed and mature oil and gas industry, with specialised drilling expertise and a knowledge of the geology.
The US also had extensive pipeline and gas storage infrastructure, including in the downstream part of the chain.
It has a well-developed market of gas users, and gas prices are deregulated, allowing easy clearance and trade in gas.
Technological innovation was largely done by US entrepreneurs. South Africa has none of these things.
The report quotes research by Leonardo Maugeri of Harvard Kennedy School, which says shale gas exploration in countries that do not have these endowments would lead to higher costs in exploiting shale gas reserves.
In the US,shale gas exploitation was simply an extension of an existing system, so costs were lower.
The report is at www.wwf.org.za/economic_reality_of_shale_gas
Cape Times