Shale Gas developments in SA: CSIR, ASSAf & Department briefing

Meeting report

Briefing by the Academy of Science of South Africa (ASSAf) on South Africa’s Technical Readiness to Support the Shale Gas Industry

Professor Cyril O’ Connor, ASSAf/SAAE said that the exploitation of South Africa’s shale gas deposits was of current significance given the country’s energy supply challenges since it presented a significant opportunity for power generation.

A Few Key Recommendations:

• The foremost priority for South Africa is the accurate determination of the quantity of potentially recoverable shale gas. It is recommended that the Department of Mineral Resources (DMR) should assess the option of dividing exploration licencing into two phases (Phase I and Phase II), linked by continuous environmental monitoring. In this way, exploration is detached from Pre-publication 111 production via continuous environmental impact analyses that can account for the environmental and operational baseline data obtained during exploration Phase I.
• Immediate steps should be taken to establish a new, or strengthen an existing, government agency whose overall function is, inter alia, to enable and facilitate the development of the shale gas industry in South Africa. This task arguably falls within the responsibilities of the Inter-Ministerial Committee on Hydraulic Fracturing. This designated agency must coordinate licensing and monitoring functions in consultation, as necessary, with the relevant government departments.
•  As a matter of priority, a review of all pertinent policies and plans which impact on the development of shale gas in South Africa should be undertaken with the aim of ensuring their effective alignment across all government sectors.
•  Steps should be taken to ensure that all regulations relating to shale gas accommodate the ongoing rapid technological developments in the exploitation of such gas and include requirements for the adoption and implementation of internationally recognised state-of-art best practices across the technical, environmental, social, economic and political spheres.
• The award of any licences for shale gas development must require that such developments do not prejudice the sustainable use of potable surface and ground water, and must not compete with fresh water requirements of humans, animals and ecosystems. In the context of precautionary principles, local water licence holders should be required to use deep saline water reservoirs where available and
• An assessment of the economic implications of shale gas development for South Africa must be undertaken to critically assess the supply and demand situation. This should include an assessment of the potential of shale gas to significantly impact on the national energy requirements. It will be necessary to commit public sector funding to gas transmission and distribution infrastructure in order to develop gas markets which are currently based on imports. Previous such assessments should be reviewed in the light of recent economic developments in the oil and gas industries. The GUMP must be incorporated into the national plan for the implementation of a shale gas industry and such information must be incorporated into the field development model.

Ultimately the successful implementation and compliance monitoring off the industry would depend on the availability of adequately trained personnel and the development of the necessary skills and capacity needs to enjoy high priority.

Briefing by the Council for Scientific and Industrial Research (CSIR) on Scientific Assessment of shale gas development in South Africa

Ms Zanele Tshwete, Manager, CSIR, said she was from the Implementation Unit of the CSIR and this was not just about research, it has to be ensured that research had an impact on the lives of ordinary people. The Implementation Unit was looking at how to package science and engineering technology and all the methodologies to support service delivery and enterprise development. One of the issues that had to be looked at was what were the risks and the economic opportunities that were related to shale gas development. CSIR and other partners were contracted to conduct strategic environmental assessment.

Mr Paul Lochner, Environmental Scientist, CSIR said there was also a need for trusted and transparent information gathering and sharing to address the core question of ‘what are the risks and opportunities of shale gas development in the central Karoo’

The Potential risks were as follows:

• Industry outpaces research, regulation, governance and infrastructure;
• Increased GHG emissions (leakage);
• Water use, contamination & legacy risk; and
• Surface disturbance by physical infrastructure.

The Potential opportunities were:

• Economic benefits;
• Energy security; and
• Reduced greenhouse gas (GHG) emissions (e.g. when replacing coal)

The Chairperson handed over the Chairpersonship to Mr N Koornhof (ANC).

Discussion

Ms A Tuck (ANC) her question was for ASSAf. She referred to the Recommendations on page 7 where it was stated that the cement for PPC (Pollution Prevention Control) was not good enough and should be rectified. She asked if this rectification was in process already, and what was the progress so far.

Professor O’ Connor said they were informed by Lafarge, PPC and immanent experts in concrete that this was not a difficult issue to address. At the present time the country did not need to produce the cement which satisfied those various specifications, but his understanding was that this would not be a huge exercise for the current cement manufacturers to produce cement of the quality required for best international practice. In terms of technical readiness South Africa was not at ‘first base’ yet with some of these issues.

Mr Steve Hrabar, Fellow SAAE (South African Alternative Energy Association), CSIR said one of the things in the United States of America (US) was the failure of the cement and that was why there was the leakage of gas into the water. The universities in America were now studying what cement mixture had to be used. Even if the cement could be made in South Africa (SA), it still had to be tested so that it did not become degraded with the gas flow. 

Ms Tuck referred to slide 8 – of the ASSAf Report - where the 30km buffer zone around each research station was spoken about. She asked if it was enough and how was the 30km decided upon, and if it was going to be adopted as a process. She asked if it should not be converted into a law to protect activities related to astronomy.

Professor O’ Connor replied that one of the experts on the SKA (Square Kilometre Array) wrote that section of the report and if he was not mistaken that was the distance that was prescribed in the AGA (Astronomy Geographic Advantage) Act which was part of the Department of Science and Technology’s (DST’s) purview. His understanding was that the 30km buffer zone was part of legislation that was already in place. Whether it should be revisited was an important question. One of the issues that the CSIR brought up and the ASSAf was alerted to by the SKA people was electromagnetic induction. It was not known whether the large machinery that was going to be brought in place during hydraulic fracturing may interfere with radio astronomy.

Mr Mike Shand, Fellow SAAE, replied that the other concern was light pollution, particularly with regard to Sutherland. 30km was regarded as adequate but again this should be revisited. The use of flares for releasing excess gas was considered as not the most desirable way of proceeding.

Ms Tuck referred to the first two bullet points on Existing local water sources and Surface spills under the heading ‘Outcomes – Risks from exploration and production’ on slide 17 of the CSIR report and asked what the plans were for existing water sources and surface spills. She asked this because she did not see plans for what was going to happen in these two areas, what the plans were for existing water sources and surface spills.

Mr Paul Lochner, Environmentalist CSIR, said that had identified drilling fluids, drilling activities, what were the chemicals used, what chemicals were stored on site at the drilling well pad and what the potential risks were and impacts associated with those different chemicals.

Ms Tuck asked if it was only in the Central Karoo that studies had been done, and why.

Mr Mthozami Xiphu, Chairman, SAOGA (South African Oil and Gas Alliance), replied that the Karoo was not the Karoo as the man in the street knew it. The geological Karoo was different from the geographic Karoo. The geological Karoo covered most of the country and the area that was more prospective for shale gas was in the centre of the geological Karoo. This was why studies focused on the central Karoo.

Mr N Paulsen (EFF) asked the ASSAf and the CSIR to talk a bit about Mozambique and gas.

Professor O’ Connor said that the issue of Mozambique and gas was the elephant in the room. The proposition that there was about 400 TCF (Trillion Cubic Feet) of reserves was very robust. Mr Hrabar could explain the economic challenges of piping, reticulating gas from Mozambique through to Gauteng and from there onwards was not a cheap exercise.

Mr Hrabar said that at present SASOL was importing gas from Temani fuel offshore, which supplemented the Secunda plant plus the reticulation to the Gautrain region and Richard’s Bay. So, there was sufficient gas from the Temani fields. Now the new fields discovered offshore was about 400 TCF, and were owned by Anadarko and Eni. At the moment the plans were to sell them on the international market. Studies done in the past showed that the piping was very expensive. It was more than a million dollars per kilometre, and it was more than 13 hundred kilometres from Gauteng. It was because of the bridges and one had to dig at least two metres below ground, also there was the problem of people stealing fuel from the pipeline. Also crossing rivers and things like that all added to the cost. Hence the cost was prohibitive.

Mr Shand commented on the use of the gas and how it could be used for power generation. Renewables at the moment generated wind when it blew, the sun when it shone. There was more in terms of storage, but SA had a power peak early in the morning and in the evening, and gas turbines could be effective in meeting such a peek. That was where the gas would probably be utilised.

Mr Xiphu added that Mozambique was a different country. They would sell to the international market and there were no guarantees that South Africa would get the gas from Mozambique. It would be too simplistic to say ‘why bother with the central Karoo and not just get the gas from Mozambique’. South had to look at the potential of its own resources. Again, one may talk about 5 TCF and 20 TCF but SA would never know until it did the study and until it drilled. Estimates could be anything from 0 TCF to 390 TCF. The latest estimates of the petroleum agency were about 200 TCF at the moment. Until the drilling was done one would never really know.  

Mr Paulsen asked if there was not another model to use in exploiting this gas.

Professor O’ Connor said South Africa did not have a gas economy at the moment, SA did not have a tradition of using gas as was the case in Europe where gas from Russia was parked all over Europe or the United States. One intervention could be to begin promoting a gas culture so to speak by importing gas. That was a view that was being expressed by a few of the provincial governments to get people to start using gas because the small-scale scenario of the SCA report of 5 TCF could generate significant domestic use of gas in the Eastern Cape and in that way, benefit the indigenous people.

Mr Paulsen asked if money would not be better spent investing in renewable energy.

Professor O’ Connor said he had in front of him the Department of Energy’s current version of the IRP (Integrated Resource Plan), where the introduction of nuclear was predicted for 2037, and the amount was about 1400. At that stage it was proposed in the current IRP that wind would generate about 1600. Wind plus photovoltaics could arguably generate significantly more energy than nuclear - leaving out the gas. If one looked at the whole energy mix, he thought it would be folly – in other words he was supporting Mr Paulsen – to proceed with the hydraulic fracturing industry before full cognisance had been taken of the opportunities presented by the enormously rich gas. Reticulation losses were getting smaller and smaller as the technology improved and of course the politics of all this was going to be the devil in the detail.

Mr Paulsen asked a series of questions: who owned shale development; how does one optimise benefits for locals; where would profits go; what were the benefits for local people; how do indigenous communities fit into the broad scheme of things and should we not revisit the way we usually do explorations in extracting minerals from the earth where we give it to some company to explore? In terms of ownership one could be providing employment to many people or alternatively allow people of the surrounding area to have real ownership in what could potentially be a very valuable resource. He was totally opposed to anything that could potentially harm the environment. If there was going to be benefit to anyone in terms of ownership, it should be to the people of the Central Karoo whether indigenous or not. They should have a real benefit stake in this resource.

Mr Lochner said these were important questions – how do the licenses get issued? What sort of ownership does government have in the shale gas development project? But these were not the questions he was qualified to answer. Quite a lot of learning could be drawn from the experience in South Africa, and from the independent power producer programme in SA. SA has had a social investment programme which has been well lauded internationally but there was also lots of room for improvement. The question: ‘what if government or state entities shared in shale gas development’ begged the question ‘how did that get written into licenses’? Those were the questions that would need to be answered from a political and State perspective. Those were not questions which the CSIR undertook to address.

Mr Xiphu said on ownership, the current regime that existed before the proposed amendments to the MPRDA (Mineral and Petroleum Resources Development Act, 28 OF 2002.) provided that there shall be 10% BEE for every licence, and there shall also be 10% BEE for the State. Now that was not necessarily the law at the moment, but it was certainly written in the licences that were given out. This was the directive that had been given. This was the current situation, in other words, for any production right, the State, through an entity chosen by the state - which was currently PetroSA – would have that 10%. This was quite apart from the social and labour plans and all other CSIR involvements that the rights provided for. The current proposal of the MPRDA provided that the State would have 20% of each right. This included the Exploration Right as well as the Production Right. The state would first have 20% of the right and reserve the right to have a further percentage. The state could take a much higher percentage, it could even go up to 50%. But the discussions at the moment were about whether the state would just make a declaration and assume that further percentage or whether the state would have a pre-emptive right in the event that the holder wanted to farm out from the current right that it had. But certainly, the state would be participating, that was apart from the royalty, the corporate tax, and everything else that the state had access to.

Mr Koornhof said that shale gas was very controversial, but he could see the long-term benefits. He was not a supporter of shale gas as yet, but he acknowledged it and could go along with it.  While there was an expert on Moss gas here he asked what the future of Moss gas was. If one delved into the Mozambique gas reserves, would that development not obviously go to Richards Bay?

Mr Hrabar said that Moss gas was designed for 2.5 TCF. They have used about 1.5 so it was running out of gas. He was the main contractor and felt the question should be directed to Mr Xiphu who was the Director of PetroSA.

Mr Xiphu said that the gas was in steep decline and should be depleted by 2020. At the moment PetroSA was looking at how to supplement the gas by further exploration for a start, and what other options there were to supplement the gas. In terms of the future there was the intention to continue with that refinery and continue producing Moss gas.

Mr Koornhof said that shale gas was an energy supplier. He asked if it was cheaper as coal or was it cheaper as nuclear energy. He just wanted to see the comparison between nuclear, shale and coal.

Professor O’ Connor said that this question had been answered.

Mr Koornhof said in terms of the infrastructure investment in shale gas, if compared with nuclear, was nuclear far more expensive, and in the end, would nuclear energy be better beneficially because it was slightly cleaner or maybe cheaper.

Professor O’ Connor said that at the moment the gas was priced at Henry Hub prices. The current Henry Hub price for gas in the United States was round about $3.5 per thousand cubic feet. If one spent more than $3 million dollars sinking a well and the Henry Hub price was below three, this was not on. The economics of the whole situation was critical; however, the cost of sinking wells was dropping dramatically. The technology was improving significantly so it was a moving target. He could not comment on nuclear other than to say again that if nuclear – according to the Department of Energy’s IRP (Integrated Resource Plan) nuclear was due to come on board 2037 so over the next 20 years how the game was going to change in terms of the technology advances meant that one was into scenario stuff.

Mr Koornhof said that Professor O’ Connor had scared him a bit more, as he was not a sympathiser of shale gas, because if everything was not in place, regulations, departments did not know what to do if we copy and greed came in then shale gas would destroy this country without any doubt.

Professor O’ Connor said he thought they had emphasised in their report the critical importance of an alignment of all the cognate departments in any policy development, and just to emphasise what Mr Lochner had already alluded to, there was a significant degree of scepticism out in civil society about the country’s ability as it was very good at developing very good regulations but implementation required skilled people. Here SA could learn from the United States where in Pennsylvania there were about 6000 wells and 16 inspectors and it was considered chaos. It was just impossible for 16 inspectors to ensure compliance. Again, the difference between SA and the US was that in SA the State owned the right, and in the US the farmer owned the right.

Mr Koornhof said that he thought the Astronomy Management Authority should be invited to present some of their views in terms of shale gas close to the SKA.

Professor O’ Connor said this has been addressed as it was covered by the AGA (Astronomy Geographic Advantage) Act of 2007 quite thoroughly.  Rob Adam has been regularly consulted on the ASSAf Report and as was known he was the current CEO of the SKA.

Mr Koornhof said if one looked at Moss gas and 1 TCF– and looked at the scar on the development when one entered the Garden Route – the scars of Moss gas were clear. What would 20 TCFs [trillion cubic feet of gas] look like? If they built a power station, where would they build it? On the spot in Willow Mall or on the spot in Beaufort West or Graaff Reinet, or would they move the gas and build it somewhere closer to the coast or closer to places where they could distribute it? He just wanted to see what the scars would look like in the Karoo

Professor O’ Connor said that power generation in the Karoo had been alluded to and the view of quite a lot of people was that one of the major opportunities of the gas was to smooth out peaks and troughs, and to open gas turbine technologies.

Mr Lochner said that this was linked to what Mr Koornhof had asked as to where a Gas Turbine cycle would potentially be located. The place where it would potentially be located was at Coega IDZ (Industrial Development Zone). One of options being looked at was a pipeline code from the central Karoo area to Coega. A study was being done at the moment with the Department of Energy, the Department of Environmental Affairs and the Department of Public Enterprises looking at where the future gas corridors for South Africa were. The study mentioned above was with those departments in January this year. Some of the colleagues from the DST were also involved with that. In parallel with the new study the group was looking at gas pipeline corridor planning and how coastal ports could be linked, for example Coega and Moss gas, and how a link could be established from the Karoo to Gauteng. Coega would be a viable option for combine cycle gas pipeline location.

Ms C King (DA) asked if the risk and health factors of workers had been considered, especially given that Silica could bring about lung diseases.

Professor O’ Connor replied that this issue did talk to dust pollution. Baseline studies were very important here. One had to have a good understanding of to what extent Silicosis was a serious health problem in the Karoo at the present time so that should it be evident that it became worse after fracking, litigation would need to have that information. Dust control was an important issue here; air quality and of course dust control talked to water consumption.

Ms King noted that Nelson Mandela University will be funded by the Eastern Cape Provincial. How much is Eastern Cape Provincial government taking out specifically if you have that figure? How much would the Eastern Cape government be funding the University of Nelson Mandela. She had heard that Shell was involved at the university in the Council for Geoscience Centre, – not actually funding it but involved. She asked for information about this.

Professor O’ Connor replied that the Eastern Cape was investing a significant amount of money into the research unit Ayon, which was doing a lot of work on hydraulic fracturing, and they had very significant support from the Eastern Cape government. With regard to the University of Johannesburg - the ASSAf had kept an arm’s length away from any company with a vested interest in fracking during their (the ASSAf’s) investigation - because Shell gave them a no strings attached donation to do whatever they wanted to with it. The bore holes that they sunk were far away from the ‘sweet’ spot and it was not surprising that they did not find any gas.

Ms King referred to Slide 3 page 4 where it was stated that Nelson Mandela University was going to do something remarkable –they were going to go deeper to about 10 000 feet. This was a concern for her because one did not know what could happen. And going that deep could have seismic activity. She asked what was the ASSAf and the CSIR’s take on that.

Professor O’ Connor said that all the literature from the US would suggest that this had been over estimated as an occurrence in hydraulic fracturing. There were certainly seismic events that had occurred, and these could be measured and monitored. It talked to understanding the geological texture down at those levels, because if one came across areas that geologist considered high risk in terms of seismicity that would mean that it was a no-go area. It was about managing risks.

Mr Lochner said that the Seismicity study was led by Professor Ray Durham from Witwatersrand University and CSIR. He looked at buffers around towns and buffers around areas. One of the ways to manage seismicity was to make sure that one was not doing hydraulic fracturing within the buffer zone set around the areas which could be affected.

Ms King referred to slide 5 on page 4, which dealt with water, sand and GHG (Greenhouse Gas) emissions. Hydraulic fracking took up to 8 million gallons and 30 000 cubic square metres to drill for oil. Given that research in South Africa, especially in areas that were being considered for impact studies; those were more water scarce areas. She asked if water was going to be offset against shale gas. Desalination had been spoken about. What was more important, water, energy or gas?

Professor O’ Connor said that they had emphasised repeatedly that no hydraulic fracturing should be allowed at depths shallower than one and a half kilometres to be absolutely certain that ground water was not interfered with. The issue of water supply was still contentious. One option was that one hoped to find deep level saline water that could be tapped for use in hydraulic fracturing.

Mr Shand said there were two challenges. The one had to do with the supply of water and until exploratory drilling and exploratory fracturing was undertaken it was very uncertain how much water would be required. So that was the first thing to determine how much water was actually required. Americans indicated to this country that the range that might be needed was typically one and a half litres per second. This was a typical average flow which was not huge. Beaufort West which was a ‘sweet’ spot was already very short of water. Ideally one should look for deep ground water. The other option was to try to purchase water from farmers in the area.

Ms King said that reservoir engineers were spoken about, and at the moment they would not be used in South Africa. Should there not be robust discussion with the Department of Higher Education to look at curriculum development to incorporate these skills so that in the next 10 years the country had these required skills.

Professor O’ Connor said he was very happy that this question was posed because this was a critical intervention that had to be done now and not wait for 10 years. There were different modes; SA had two of the premier departments of mining and engineering. There was a possibility of sending people abroad. An intervention like this was needed and it needed very careful planning. There was a need for all departments to be aligned, to develop rigorous, robust legislative context and the need to skill the people required when the country started doing this.

The Acting Chairperson echoed Mr King’s question but added how many people earmarked for this

Ms A Mfulo (ANC) asked if comparisons were made between the USA and the Karoo in SA in terms of climatic conditions and shale gas endeavours.

Professor O’ Connor said that the two biggest ‘plays’ (areas where one carried out shale gas) in the US the Barnet Shale (which was essentially Texas) and Pennsylvania. He did not think that one could compare those areas from a climatic point of view to the central Karoo. The water challenges of the central Karoo were arguably greater.

A speaker from the Department said that he noted the fears expressed by the Acting Chairperson and wanted to attempt to allay those fears. A Monitoring committee was formed and Cabinet took four decisions. One was to have a Monitoring Committee that would look at all the activities related to shale gas; two was that this Committee should develop the regulations; third was that departments should ensure that there was proper co-existence between astronomy, research and shale gas initiatives and the fourth decision was the promotion of independent research. So yes, there was interdepartmental co-ordination in terms of the planning and there was an attempt to get into the space of ensuring how to move towards implementation.

The Acting Chairperson thanked the ASSAf and the CSIR for their presentations and the Members for their well-researched questions. The Committee looked forward to further interactions with ASSAf and the CSIR and thanked them for the work they had done.