Shell

COMPANY PROFILE

2014

SHELL SOUTH AFRICA

www.shell.com/zaf.html | +27 11 996 7000

Does Shell hold the answer for South Africa?

Editorial: Roland Douglas

© Shell

“Some 10 million South Africans have no access to electricity, representing about 20% of the country’s population. The country has in recent years experienced power blackouts with dire consequences for the economy. South Africa is in a position where, because of the huge gap in the energy supply, it will need to invest in all types of energy sources, ranging from coal, to gas, to nuclear and to renewables,” Bonang Mohale, Shell South Africa Chairman said in a recent interview. The company is looking at the potential of fracking, but is this whole concept safe and effective?

One of the major problems for today’s modern South Africa

blackouts would continue after a coal silo at Majuba Power Plant

Johannesburg on November 2nd.

The fact that the country still

is energy. For a country with a population of 55 million people, it seems beyond belief that energy still poses such a conundrum.

Just last month, the country’s utilities provider, Eskom, announced that rolling power

cracked and collapsed, effecting output from the facility. “It is very likely that load-shedding will continue for the week,” the company’s Group Executive for Sustainability, Steve Lennon said when talking to journalists in

has to implement ‘load-shedding’ shows how the ever-increasing demand for energy is clearly outstripping the capacity of South Africa’s aging fleet of energy production resources.

So what is the answer to this

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SHELL SOUTH AFRICA important energy question? For a nation that is always developing and placing more and more demand on energy infrastructure, is there a solution that could bolster the energy industry for the foreseeable future? According to Shell South Africa and Chairman Bonang Mohale, the answer is shale gas.

“My sense is that some companies will end up saying ‘can’t we find other, better countries where we could do this much quicker?’ and the investment will end up going to Mozambique or Namibia where it is perceived that the ease of doing business is better.

“We will forever say ‘we thought we had gas in the Karoo’ but nobody was encouraged to go and definitively find out whether there is indeed shale gas and does it flow in sufficient quantities to be economically viable so that we can use the gas as a game changer to address the trilemma of challenges that are keeping us awake at night,” Mohale said during an interview with China Central Television in November.

Considering the government’s target to dramatically reduce the figure of eight million who currently live without access to electricity, perhaps exploration into shale gas is a viable option.

Around 90% of the country’s power is still generated by coal and South Africa is now looking for a cleaner energy source.

Shell South Africa says that the

as much as half of the CO2 that is produced using coal.

But of course there is one big issue – safety. Can the shale gas be extracted safely, in a way that does not impact on the environment and the people who live in the Karoo?

Currently the whole shale gas argument, that has been raging around the world and not just in South Africa, suggests that the controversial method of extracting the shale gas known as fracking (hydraulic fracturing) is unproven and while early uses of the technique have thrown up only a few issues, there is still much that is unknown about the long-term effects on the land that is ‘fracked’.

answer could be located just inland from Cape Town in the vast area known as the Karoo, a semi-desert, natural region where scientists believe a huge shale gas reservoir could be hiding. Generating South African electricity using gas would emit

still protestors in the US and Europe, and in South Africa Shell has had to put its strongest foot forward when it comes to allaying

FRACKING Fracking is an extremely complex process but is currently the only known method to extract shale gas. The process is an advanced drilling technique that extracts gas that’s trapped between different layers of rock. A mix of water, sand and chemicals is pumped through the well, fracturing the rock and releasing the gas. The technique has been used successfully in the USA for the past decade with experts reporting that it could remain at the forefront of the US energy industry for the next two decades at least.

But the opposition to fracking is large; there are

the fears of local communities who see fracking as too much of a risk.

Some of the issues raised by those opposed to fracking include water quality, environmental protection and overall safety of the process.

Some say that the chemicals used in the fracking process can end up in the clean water supply, creating risks to human and animal health; some say that valuable fossils are disturbed during drilling into rock formations; and others have concerns over the damage that could be done to underground aquifers, making farming in the Karoo extremely difficult. But Shell has a fantastic record when it comes to safe fracking and the company says that every effort will be made to ensure the process is as safe as it can possibly be, maintaining its strong track record.

Gheneez Munian from Shell South Africa says: “We are going to have serious problems in the future if we do not find alternative ways of creating energy and if shale gas is there and it’s accessible and

© Shell

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© Shell commercially viable to extract, it’s definitely something that could be a game changer in South Africa.

“We need to be cautious and apply our vigorous safety principles to ensure that we can maintain our track record and there isn’t a reason why we shouldn’t maintain our track record going forward.”

Mohale says that the extraction of this valuable gas could be of major benefit to the South African economy, as well as contributing to the country’s fragile energy mix, and he added that the views of the local communities would

estimated shale gas reserves in the Karoo. This would translate into a GDP contribution of around 3.3% to 9.6%, with an estimated 300,000-700,000 permanent jobs for a period of 25 years, which is the expected lifetime of an initial first phase shale gas development. As with everything else in business, there are risks.

To mitigate these risks, we will continue to maintain the very highest operational standards, as underpinned by our global onshore shale gas operating principles.

“Furthermore, South Africa’s

the people of the Karoo an opportunity to provide input. The entire process is transparent and open, and is not being rushed to ensure that decisions are informed by a well thought through process involving all stakeholders,” he said in an interview with Oxford Business Group (OBG).

The Chairman is aware of the issues that have been raised by communities and industry commentators and he is confident that Shell’s activity in the Karoo would have no negative implications and the majority of

always be considered.

“A study conducted on Shell’s behalf by economic consulting firm Econometrix focuses on two conservative scenarios: the successful extraction of 20 trillion cubic feet (tcf) and 50 tcf, or 4% and 10% respectively of the

legislation is fairly stringent, and for each part of the process, specific environmental impact assessments must be undertaken. The process also includes multiple rounds of consultation with the local community, which gives

the sticking points have been addressed in the company’s plans.

“Fracking has been taking place in parts of the world for over 60 years,” he told OBG “and the technology is constantly improving so as to mitigate

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the associated risks. There are perhaps three main risk areas associated with fracking in the Karoo: the limited availability of water, the risk of contaminating freshwater aquifers and the potential environmental impact.

“We recognise that in an arid area like the Karoo, even limited water use may be a concern.

We have made legally binding commitments not to compete with residents of the Karoo for their fresh water. For the initial exploration wells we intend to import the water by truck or rail, until the team of groundwater specialists can confirm alternative sources of deeper, brackish, non-potable waters that could be used. Regarding the risk of contamination, a recent study by the US Energy Department has looked into the issue of the potential health and environmental impacts of hydraulic fracturing, confirming

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“It is expected that more than 30 LNG carriers will be ordered annually, as LNG exports are expanding to the US, Australia, and East Africa. As we have the number one market share in the LNG carrier market, we will benefit from these orders”

that when a well is designed and constructed correctly, applying the best drilling standards and practices, groundwater will not be contaminated.

“With respect to general environmental concerns, development activity would be limited to a surface area that is less than 1% of the area for which Shell has applied. Once the gas wells are drilled and fractured, relatively little on-site activity is necessary to keep them producing for 15 years or more.”

ECONOMIC BENEFITS There is one set of facts and figures that can’t be disputed when talking about fracking in the Karoo is the economic benefits that the region will receive. The aforementioned jobs that could be created, the infrastructure that would be brought to the region, the investment from global energy companies and the financial

SHELL SOUTH AFRICA

Karoo SA

benefits that will be accrued from the sale of the gas will bring about major changes for the region and the country.

According to Vuyisa Jantjies, a community worker interviewed

by Shell South Africa in a promotional video, the economic investment that Shell would bring to the Karoo region and the urban townships would be invaluable.

“We need the injection that Shell would bring,” he says “because Shell is not only coming with the money, they are also bringing a lot of other expertise and all of that can work to our advantage. From listening to the communities, those that don’t have anything want this project

half the carbon dioxide of a modern coal plant, and up to 70% less than a decades-old steam turbine coal plant. The Energy Information Administration (EIA) has previously estimated the potential shale gas resources in South Africa to be around 485 tcf, which is an incredible amount considering that in many parts of the world, gas pipelines have been laid for reserves of just two tcf.

“So in addition to contributing to closing the power generation gap, natural gas is affordable and environmentally acceptable.

The country could also realise substantial job creation and other benefits should economically

this controversial method should be used.

In November, South African Chamber of Commerce and Industry (SACCI) CEO, Neren Rau said: “The South African Chamber of Commerce and Industry supports the call by Shell that the government should prioritise fracking exploration and extraction in order to support energy diversification, economic growth and job creation. The reported R2 billion investment

by Shell alone together with the estimated 700,000 jobs that the fracking industry will create is compelling and should urge government to fast-track opening the sector. South Africa can ease

so much,” he said.

Mohale is also quick to point out the positive environmental impacts that have been the focus of so many discussions.

“In our view, the case for natural gas is compelling. A modern natural gas plant emits

viable gas resources exist in the Karoo,” he told OBG. Right now, the future of shale gas in South Africa is still somewhat unclear. Although there are clear benefits and pitfalls for the energy source, the debate continues as to whether or not

the burden on Eskom, open the way for cleaner energy on a mass scale, support energy intensive job creation and could ultimately become a major energy exporter.”

He went on to say that the business community “urgently requires clarity on government PAGE 7

© Shell

policy direction and regulatory certainty on fracking. The question is no longer whether South Africa should engage in fracking, but how best to regulate an industry and attract the type of investors who would import their technical skills and experience to ensure optimal extraction and environmental protection.”

This followed the release of a statement by The Petroleum Agency South Africa (Pasa), in October, which confirmed that, after extensive discussion with the Department of Mineral Resources (DMR), it would proceed with the processing of pending shale-gas

when the final regulations governing the exploration and development of shale-gas resources had been confirmed and when exploration licenses were granted. “Following this, we would plan to drill one or two core holes to gather fresh core before drilling and fracture stimulating one vertical well. The precise timing of these activities is yet to be set, and may be dependent on the permits required but this would represent the first phase of activity.”

Shell South Africa has also called for clarity from the government and after applying for licenses for three blocks in a 90 000 km2 area, the company

all stakeholders in the Karoo.

Everyone from farmers, residents, animal welfare groups, local governmental organisations, investors, schools and partner companies will be kept in the loop so that the process is as transparent and inclusive as possible.

Mohale said at the IISA International Insurance Conference in July: “It is good to leave a better world for our children but we need to leave better children for our world,” highlighting the importance of educating in the right way.

During its application process, Shell has already hosted two public consultation processes, leading

applications received in February 2011 from Shell South Africa Upstream, Falcon Oil and Gas and Challenger Energy’s Bundu Oil and Gas Exploration.

Challenger Energy MD, Robert Willes told Engineering News Online exactly how the process would begin

is keen to further understand the meaning of the announcement from Pasa.

to the generation of around 6300 questions from the public. The challenge now will be to convince the naysayers that fracking is safe, environmentally sound and cost effective; a challenge that faces the industry worldwide, and a challenge that gets bigger every single day

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EDUCATING One thing that is certain is that Shell South Africa will continue to stay in close contact with

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