Tv interview on CNBC Africa — Should Fracking Proceed in the Karoo
Published Forbes Africa Magazine October 2014 Issue
It’s a hard life for farmers who have lived for generations in the Karoo, South Africa’s vast expanse of nothing. Every day, they fight cutting winds and soaring temperatures in bone-dry valleys to nurture their stock. To the visitor, the Karoo is a barren place between Cape Town and Johannesburg. Here the communities are small, Twitter is scarce and there are more goats than people. Soon there could be more rumbling trucks than goats.
(insert vidoe graphic of what is fracking)
This is all because of a mining method called hydraulic fracturing, or fracking. It’s been hailed a savior of the United States (US) economy, during the 2008 recession, making it one of the largest producers of natural gas in the world. It is now on its way to South Africa, because the government and oil and gas companies believe, beneath the Karoo, lies an estimated 30 trillion cubic feet (tcf) of natural gas; enough to fuel the country’s economy for up to 20-30 years. It could also bring $100 billion and thousands of jobs.
The Bad Days Will Soon be Gone
For some, like Harry Memese, who grew up in the small town of Graaff Reinet, in the heart of the Karoo, the sound of thousands of trucks full of gas grinding along the highways could be music to his ears.
“I have worked as a petrol cashier for eight years, there is no job other than that in Graaff Reinet. The people are suffering. There are 30 youths here where I live, and only two of them are working in my street. Fracking is going to help the people get jobs. If you look around our townships, like here in Graaff Reinet, and the rest of the Eastern Cape, people are not working. Fracking is supposed to bring in 300,000 more jobs. If you look at the people, at least there is something they are going to earn,” says the 33-year-old.
Grey hair, from a life harder than the land he grew up in, makes Memese look older than he is. His life is a struggle and the $420-a-month he earns is barely enough to feed his wife, children and younger brother. The promise of fracking could mean a new lease of life for his family. He dreams of seeing his 19-year-old brother Ayanda one day qualifying as an electrical engineer on a fracking well.
Doubts Surrounding Reserves
No one really knows how much shale gas is in the Karoo. When estimates emerged in 2010, Econometrix, South Africa’s largest independent macro-economic consulting firm, believed there was 485 tcf, enough to make South Africa the fifth largest producer in the world.
But these days the figure is more modest. Another task team set by the Department of Mineral Resources (DMR), in September 2012, spearheaded by the Petroleum Oil and Gas Corporation of South Africa (PetroSA), believes there is a mere 30 tcf.
No matter the figure, companies want to explore large quantities of land. Shell, the largest bidder in the Karoo, wants to frack 90,000 square kilometers – the size of Sierra Leone.
“It’s a potential resource. It certainly can be a big player. Scientists initially thought it was 485 tcf but the latest from the same people is 370 tcf. If you listen to petroleum companies talking it could be fractions of that. To put things into scale, PetroSA has been running on 1 tcf for their gas to liquid plant in Mossel Bay. The challenging thing for South Africa is the environmental impact and the regulations. No one knows what’s going to happen there,” says Chris Bredenhann, PricewaterhouseCoopers’ oil and gas advisory leader in Africa.
Bredenhann thinks natural gas may have captured investor interest, but Africa has its challenges. In his company’s 2014 Africa oil and gas review, companies operating in Africa face fraud, corruption, theft, poor infrastructure and a lack of skills. Investors are also concerned about regulatory uncertainty.
“Some key players have delayed or canceled projects until further clarity can be sought in their respective jurisdictions as they cannot move forward with doubts given the long-term nature of the needed investments,” says Bredenhann.
According to the report, Africa has proven natural gas reserves of 502 tcf, with 90% of the continent’s annual production of 6.5 tcf coming from Nigeria, Libya, Algeria and Egypt. China has an estimated 1,115 tcf, the largest supply of shale gas. With African countries like Mozambique looking to exploit reserves, the competition for sales and investment is tough.
“There is also the fact there is tight international competition. Asia, who is the main consumer of gas, is being fed by the United States and the likes of Australia who managed to set up their operations far faster than expected. It means companies operating out of Tanzania and Mozambique, who have met various delays in operations, will lose out as the price decreases in a competitive market,” says Bredenhann.
Falling prices could spell disaster for the up-and-coming countries looking to sell their surplus gas.
“The sentiment of Africa being open is applicable to South Africa. Total, Chevron and Shell have made investments offshore. If you had this conversation five years ago this would have been a different conversation. The focus is shifting from traditional countries to the less obvious places,” says Bredenhann.
The only certainty for those who want to frack, is that they have a fight on their hands.
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