Magazine article African Business

Shale on Ice despite SA Power Woes: Shell's Decision to Pull Back from South Africa's Shale Oil Gas Industry Has Reignited a Debate over the Future of Fracking in the Country

Magazine article African Business

Shale on Ice despite SA Power Woes: Shell's Decision to Pull Back from South Africa's Shale Oil Gas Industry Has Reignited a Debate over the Future of Fracking in the Country

Article excerpt

When Eskom executives are summoned to Cape Town for their next parliamentary grilling, the journey from Johannesburg will offer more than a chance to dwell on the utility's boardroom battles. The flight over the Karoo--the vast semi-desert of the country's southwest--presents a tantalising glimpse of a future powered by the region's huge reserves of trapped shale gas; a potential panacea for South Africa's stricken power sector.

That vision now seems more like a desert mirage, after Shell announced that it is pulling back from its South African shale projects, citing regulatory delays and depressed global energy prices.

The oil major's public stance suggests that patience is wearing thin among industry players who have been waiting up to six years for regulatory certainty. However, widespread environmental concerns and a decision to engage with the Karoo's communities have led others to sympathise with the government's approach to fracking--a controversial process that attracts scrutiny well beyond South Africa's borders.

The US Energy Information Administration estimates that South Africa holds ntr cubic metres of technically recoverable shale gas, a world-class deposit which industry backers say could help alleviate South Africa's reliance on imported fuel.

Hydraulic fracturing--the process of releasing gas by pumping pressurised liquid into the ground--has attracted the ire of environmentalists from the south of England to the US's vast Appalachian Basin, with particular criticism focusing on the alleged poisoning of groundwater.

In response to such concerns, and under pressure from local organisations, such as the Treasure Karoo Action Group, the South African government placed a moratorium on exploration in 2011.

That freeze ended in late 2012, but discussions over key legislation, depressed energy prices and an ongoing community consultation process continue to prevent exploration from taking place.

"I think there's still a lot of hope, though at this time it's not progressing as we would have expected, says Elias Pungong, African oil and gas leader at Ernst & Young.

"It doesn't have any bearing on the long-term sustainability of the project, because the resource is there --and the government is ensuring that oil companies can explore in a responsible manner."

That consultation process, currently under way, seeks to gather the opinions of Karoo-dwellers towards the new developments--but industry hopes of a speedy resolution could be disappointed.

Lindiwe Mekwe, acting chief executive of Petroleum Agency SA--a government entity responsible for implementing legislation--says that the consultation will be a two-way process, harvesting the views of Karoo communities and feeding them back into the legislative process.

"To be safe I will say [it will take] four months. It will actually depend--the consultation will have to hear the views of the communities. [It may be] quite a long time and they may have to go back to the drawing board and amend certain provisions that will actually be incorporated," she says.

For now, the agency says that it is busy processing applications for shale exploration, but insists that the industry largely understands the time-consuming approach to community consultation.

In the case of Shell, who pointed to delays in obtaining their exploration licence as a critical factor, that may be wishful thinking. But other industry figures are content to give a more sympathetic hearing to government, even if there is a hint of frustration regarding the pace of developments.

"The industry is content with the process, but it would have been better if we were a lot further, because it's taken about six years and some of the original shale gas licence applications have not been processed," says Ebrahim Takolia, chief executive of the South African Oil and Gas Alliance, an industry group. …

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