When you’re sat on the fifth largest reserve of shale gas in world, it helps to have experts like Shell South Africa on your doorstep
Since their arrival in 1902 to supply paraffin and kerosene to help light and heat communities, Shell South Africa has a long-held understanding of the country’s energy requirements. During that time, their mission has both changed beyond recognition and hardly changed at all. While you could argue that the company’s aim remains broadly the same – to supply communities with the energy they require – the challenge is how they achieve that.
“Some 10 million South African’s have no access to electricity,” said Shell South Africa Chairman, Bonang Mohale, last year. “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.”
The South African government’s Department of Energy (DoE) is placing an emphasis on broadening electricity supply technologies (to include gas, nuclear, biomass and renewable energy resources) in order to meet the country’s future electricity needs while at the same time reducing CO₂ emissions. In 2013, Cabinet approved the Household Electrification Strategy, which will ensure that electricity is supplied to all households.
South Africa produces about 5% of its fuel needs from gas and it faces a number of challenges in the liquid fuels sector, namely that gas stocks from offshore fields are declining. The DoE believes that the best option to secure ongoing stocks and keep marginal costs low would be to invest in gas fields close to those that already exist in the southern Cape. In the longer term, the Mossel Bay Refinery could use either liquefied natural gas or imports and then there’s the Karoo Basin and its potential shale gas reserves. Which is where Shell South Africa join the story.
The DoE views natural gas as an evolving energy source, despite the country’s limited reserves. There are projects underway to explore the potential of importing natural gas, both as liquid natural gas and compressed natural gas, but according to the USA Energy Information Administration, technically recoverable shale gas resources in South Africa form the fifth largest reserve globally. Even if the actual recoverable amounts of the gas are much lower than currently estimates, shale gas has the potential to contribute a very large proportion of South Africa’s electricity needs.
In upstream exploration, Shell South Africa holds the rights in the Orange Basin Deep Water area, off the country’s west coast, and has submitted applications for shale gas exploration rights in the Karoo in central South Africa. The belief is the Karoo has such a plentiful supply of natural gas in the shale rock formations deep beneath the surface that these reserves would help to secure South Africa’s energy future for centuries.
Until very recently, it looked like the energy giant was readying itself for a full-scale move into the area, with plans for test drilling in the search for gas reserves at an advanced stage. Shell’s Jan-Willem Eggink, who heads up the exploration project as South Africa Upstream GM, spoke candidly about the Karoo project last November during a Fracking Masterclass for biznews.com. Shell, said Eggink, knew there was shale gas in the area thanks to the Soekor wells that were drilled there in the Sixties. But the 50-year-old drillings wouldn’t provide the detailed data required to make an informed decision about any kind of quantity. Shell needed to run their own tests, at an estimated cost of $200m for exploration alone.
“Some people talk about Karoo shale gas as if it’s there,” said Eggink. “That’s not the case. I think everybody needs to manage expectations here. For us, it’s key to drill a few wells to get more information and on the basis of that we can see what the rocks look like at two to three kilometre depths, as well as whether we can extract gas from it in commercial quantities.”
Estimates by the US Energy Information Administration (EIA) put the shale gas reserves under the Karoo Basin at some 480 trillion cubic feet, although it has subsequently been revised down to a mere 390 trillion cubic feet.
“That’s a humongous amount of gas,” said Eggink. “In Holland, where I come from, I live on top of the Groningen Gas Fields. It was discovered in the Sixties and put on stream, and Holland is rich already for 50 years because of that gas field and that’s 100 trillion cubic feet.”
In investigating the potential for accessing shale gas in the Karoo Basin, the government decided little could happen until a proper regulatory framework had been put in place. A task force was charged with evaluating the use of a hydraulic fracturing technique in the extraction of shale gas and the potential environmental risks and the negative and positive social and economic impacts of shale gas exploitation.
Cabinet approved the team’s report and lifted the stop on processing applications for exploration in the Karoo Basin on condition that the appropriate regulations, controls and coordination systems were established.
Despite the apparent solution to securing the country’s energy needs sitting, literally, under their feet, Shell’s proposal to drill six exploratory wells stalled when the required licenses from the government were delayed by the prolonged legislative process that involved updating the Mineral, Petroleum & Resources Development Act (MPRDA) and the publication of the long-awaited hydraulic fracturing regulations.
But the biggest sticking point in negotiations was believed to be the 20% free stake the government required. While it’s believed Shell would agree to the figure if the quantities of gas proved accurate, it would only do so after they’d recovered their extensive exploration costs.
“We still need a significant amount of money invested before we can produce,” explained Eggink. “In my books, the fiscal terms have to reflect not only the risk, but also the financial exposure that the companies take to actually embark on these activities.”
And then in March 2015, amid claims of further legislative foot dragging, stories began to emerge that Jan-Willem Eggink had been pulled out of South Africa by Shell along with his team.
“As part of a review due to falling oil prices, the company had adjusted its activities in shale oil and gas opportunities outside of the Americas,” read a statement from Shell HQ, which went on to say it had also adjusted staffing in local exploration in South Africa. The company said it needed clarity on legislation and technical regulations in the country before making any further decisions.
On 3 June 2015, the government finally gazetted the long-awaited fracking regulations in the MPRDA. The new act provided the very legislative and technical clarification that Shell sought and without which they were unable to acquire a licence to begin exploratory work. The Act’s 52 pages should now open the door for that exploration at the very least. Neither party has made any further comment following the publication of the MPRDA, but with so much at stake it will be interesting to see who blinks first.
While shale gas has been taking up much of headlines where Shell South Africa are concerned this year, there has been another innovation afoot that if successful would be equally game changing.
Recognising a skills shortage in geophysics and petrolum engineering specifically in Africa, Shell are attempting to bridge the gap by working with the University Of The Witwatersrand (Wits), part funding their Seismology Reflection Centre to the tune of R5m over the next five years.
The centre, at the Wits School of Geoscience, will conduct research, train and teach students from all spheres from across the continent, which in turn will lead to an increase in the number of highly skilled geosciences professionals across the oil, gas and minerals industry.
“Shell South Africa has invested in the centre because we want to be a good neighbour to the communities in which we operate, where we focus on addressing various challenges in the country including poverty, inequality and unemployment,” Shell South Africa upstream GM Jan-Willem Eggink during a tour of the facility in April 2015. “At Shell, we support skills and capacity development, innovation and technology to help develop a more prosperous future and responsibly unlock energy to power lives and improve living standards.”
Dr Musa Manzi, Wits Seismology Reflection Centre director, said that the centre hoped to collaborate with private sector, governmental organisations and the minerals and oil and gas industries to try and help fill the skills gap. He said that the research undertaken at the centre could lead to better mapping and characterisation of the oil and gas reservoirs from some of the major South African basins, with particular interest in the offshore Orange basin and onshore Karoo basin.
The centre aims to attract students from a wide range of fields, from geophysics to engineering. With the increasing number of new petroleum and natural gas discoveries being made in Central and Southern Africa, the centre hopes to provide a first-class training facility to provide the necessary expertise for this growing field.
“With the opening of the centre, we anticipate increased interest from those interested in the petroleum and natural gas sectors,” said Wits School of Geosciences head Professor Roger Gibson.
“This partnership between Shell and Wits is a wonderful example of how we can bridge our institutional boundaries to address our collective challenges,” said Wits vice-principal and chancellor Professor Adam Habib. “The net effect is that we all benefit. Students have world-class facilities to train in and industry gets both enhanced human resource capacity and innovative solutions to their operational challenges.”
Shell South Africa and geophysical service company CGG were jointly responsible for funding the computer hardware for the centre, which cost R1-million.