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Energy: Get cracking on fracking

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

While the South African government dawdles on gas drilling, global competitors are eating our lunch. The objections are crumbling under the weight of evidence. The sooner South Africa permits shale exploration in the Karoo, the better.

As if the many egregious errors and lies in Josh Fox’s seminal anti-fracking film, Gasland, weren’t enough, the US Environmental Protection Agency has just declared the water of the film’s star location, Dimock, Pennsylvania, safe to drink.

The agency will remain vigilant and continue to investigate a few unclear results, but four rounds of testing and thousands of documents of evidence later, no significant danger to the drinking water posed by the gas-drilling technique known as hydraulic fracturing, or fracking, could be substantiated.

Meanwhile, the UK government has been fretting that its own reserves of shale gas, now estimated at a mere 150 billion cubic feet, are not enough to bother with. But this, and the much-ballyhooed reduction in the estimated reserves in US shale gas formations, are not reasons to give up on the Karoo. On the contrary, it establishes a competitive advantage. After all, the estimated Karoo Basin reserves are three thousand times bigger than those in the UK.

Technically recoverable shale gas reserves:

Rank Country Trillion cubic feet
1 China 1 275
2 United States 862
3 Argentina 774
4 Mexico 681
5 South Africa 485
6 Australia 396
7 Canada 388
8 Libya 290
9 Algeria 231
10 Brazil 226
11 Poland 187
12 France 180

Source: Energy Information Administration, 2011.

The indefinite moratorium imposed by minerals resources minister Susan Shabangu on the application for exploration or production permits to exploit shale gas in the Karoo Basin remains in place, so these estimates cannot yet be confirmed.

However, energy minister Dipuo Peters has declared herself hopeful that an investigation report due to be tabled before Cabinet by July will find gas drilling to be safe enough to proceed. Business Report declared: “It’s a done deal on fracking.”

This is good news for anyone who thinks a relatively inexpensive, plentiful and clean domestic source of energy will be good for the economy. It is very good news for the depressed towns of the Karoo, where real unemployment sometimes runs to 90%, according to an April 2011 article in Farmer’s Weekly, forwarded to me by its reporter, Roelof Bezuidenhout.

“Karoo people have always joked that the only hope for their dorpe [small towns] lies in finding oil, but that the only oil here is the leak under Uncle Tommy’s car,” he wrote, noting that welfare grants might actually outstrip farming as a source of income in many towns.

There is a reason why the Karoo Shale Gas Community Forum, a public interest group that includes a range of community organisations representing churches, youth, human rights activists, workers and small farmers, has come out in support of gas drilling. It labours thanklessly, without the funds, celebrity appeal or media support of its bigger rival, the Treasure the Karoo Action Group, and has distanced itself from the knee-jerk environmentalist opposition to shale gas drilling. Local communities know that wealthy environmentalists and a few big landowners whose mineral rights have been nationalised don’t speak for small farmers, the working poor and the unemployed.

Bezuidenhout’s article “almost caused my lynching by members of the [Treasure the] Karoo Action Group,” he told me in an email. “So I just went back [to] farming, hoping they’d find gas under my kitchen.”

Peters touched on a very real threat if the groundless but vociferous opposition to fracking continues to delay matters: “Those skills (in the oil and gas sector) would be lost if we do not exploit that which we have,” she told Business Report.

In a recent debate in which I participated, the Second Annual Shale Gas Conference hosted by the Institute for International Research, Bonang Mohale, chairman of Shell South Africa, said as much to Jonathan Deal, the chairman of the Treasure the Karoo Action Group.

Deal said his group was gearing up to challenge in court any favourable findings by the ministerial investigation group. The risk of such obstructionism, Mohale pointed out, is that companies such as Shell can easily decamp to more favourable climes. There is only so much fracking equipment in the world, and only so many qualified drilling engineers. The same could happen to South Africa’s shale gas prospects as the problems encountered by the local building industry when Dubai was hogging the world’s limited supply of heavy cranes, he said.

A similar argument was true for the opposition to Walmart’s acquisition of Massmart. The company was looking for an entry into the burgeoning African market, and if South Africa was going to make it difficult for the company to invest here, there were certainly other options. “Nigeria is open for business,” a US diplomatic source told me at the time.

In shale gas, our biggest likely competitors are the US, China, Poland and Argentina, all of which have big estimated reserves and are actively promoting their domestic drilling industries.

This growing supply in the world market points to another reason, besides competing for scarce skills, why shale gas in South Africa should be developed sooner rather than later. The international price of natural gas has been falling for four years. It is at its lowest point in 10 years, at about $2 per million British Thermal Units. It peaked in 2005 and again in 2008, at over $15 and $13 respectively, but the successful exploitation of primarily US reserves has put great pressure on prices.

This is great news for energy consumers, of course, who benefit by having an inexpensive, clean alternative to coal for power stations and even oil for transport. However, the downside of the boom is that low prices have already called into question the financial viability of some of the world’s top gas drilling firms, such as Chesapeake Energy.

A further natural-gas-price decline could make some global reserves uneconomical to exploit, which could stifle investment in the sector. The first regions to suffer will be those that still need much initial investment, exploration and infrastructure development, like South Africa. It risks losing out to its competitors in the shale gas sector, much like it lost out on the global mining commodities boom because of decrepit transport infrastructure, legal uncertainty about mining rights and high labour costs.

One by one, the arguments against shale gas drilling are falling apart under scrutiny. Several previous columns of mine have demonstrated that most of the claimed risks are either grossly exaggerated or outright false. Anecdotal evidence of accidents resulting in pollution do exist, but they are few and far between, and the industry continually gets better at preventing them. The risks are small and manageable.

The economic benefits of shale gas drilling are debatable, but unquestionably positive. A study was conducted for Shell by the late Tony Twine of Econometrix. It was based on the Keynesian multiplier effect of investment on an economy and proved highly optimistic. One may have grave doubts about this means of economic forecasting (and I do), but if even a small fraction of the anticipated benefits are realised, the benefits would outweigh the risks.

Frankly, as much as Karoo residents stand to gain, the most significant benefit to South Africa is not job creation, corporate profit, tax and royalty revenue, infrastructure or skills development. The biggest gain would be domestic access to a large supply of inexpensive, clean fuel for generating electricity in gas-turbine power stations, which have many benefits over both nuclear and coal-fired alternatives. It’s not like South Africa doesn’t need some cheap electricity.
To realise any of these benefits, however, South Africa needs to get cracking on fracking. The window of opportunity won’t remain open forever. DM


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