Fracking, like gold, could be a major “game changer” for South Africa. Exploiting shale gas reserves beneath the Karoo Basin could easily create 850 000 jobs and play a significant role in boosting the country’s economic growth. And that is just for starters. The expected gains from hydraulic fracturing are so “mindboggling” that we misjudge the whole business at our peril.
In his column for Business Day, Biznewz.com‘s editor-in-chief Alec Hogg reminds us of an important report produced by one of South Africa’s smartest economic thinkers, Tony Twine. Sadly, Twine passed away amid the stress of dealing with threats and hate mail linked to this report last year.
The environment is, of course, one of our greatest assets. The hostility directed at Twine in his last weeks is a reminder that debates around fracking can bring out the worst in people and distract us from effectively analysing the facts. Alec urges rational thinking as the nation explores the government’s requirements, published last week, for shale gas exploration. The best outcomes always flow from measured, rational research and dialogue – not confrontation, he notes in this piece. – JC
UNDICTATED
By Alec Hogg*
Amidst political tantrums in Congress and crony-influenced BEE codes at home, it was easy to miss last week’s bright spot. Government has finally published its requirements for shale gas exploration.
This opens the way for the long overdue definition of what exactly lies beneath the Karoo Basin. It is a huge step forward. Unfortunately, it also takes some of us back to a sad place.
A fond memory from years in radio was dealing with economist Tony Twine. Accompanied by devoted wife
Marilyn, Tony always wore a smile as broad as his mind, bringing his own sunshine into the studio. Peerless on the motor industry and equally adept on energy matters, he never failed to inspire.
Twine, you see, was blind. In his mid-30s, diabetes robbed this gentle intellectual giant of his sight. But it never prevented him contributing. Whether in public by unpacking economic issues or, privately, through his deep commitment to the philanthropic Rotary organisation.
Fittingly, Tony Twine spent the last nine months of his life trying to bring rationality to a debate threatening to spin out of control.
With colleague Rachelle Potgieter who acted as his “eyes”, Twine studied all he could about the exploitation of shale gas. Hydraulic fracturing. “Fracking” to use the better known term.
His employer, Econometrix, had been commissioned by Royal Dutch Shell to compile a report to better inform the debate. Deadlines were tight and Twine pushed himself hard. The report, dated January 2012, was released at the end of February. It remains the reference point for anyone wanting to understand SA’s shale gas potential – and accompanying risks.
Twine, always understated with words, concluded that exploiting shale gas reserves in the Karoo was a “game changer” for the country. He maintained it would provide an economic boost not seen since the discovery of the Free State Goldfields in the 1950s.
The potential was so mind-boggling Twine tried to tone down expectations. He ran his econometric model on just 10% of what the US’s Energy Information Administration (EIA) had published as the Karoo Basin’s “recoverable reserves”.
Even at this conservative level, the model concluded shale gas would create 850 000 jobs and, for a minimum of 25 years, generate annual economic growth equivalent to 9.6% of 2010’s GDP.
Not surprisingly, he was excited by the model’s findings. But within a fortnight of delivering the final copy, Twine was dead.
Colleague Azar Jammine tells me his kind, introspective friend was simply incapable of absorbing the hate mail, death threats and personal abuse that followed the report’s publication. Three days after its release he suffered a massive heart attack. A week later, on Sunday 11 March 2012, he passed away.
In the year and a half since, global developments support Twine’s conclusions. The EIA’s 2013 annual report says in the last four years America’s fracking boom has attracted investment totaling $133bn, mostly in the Marcellus Field which runs through the states of Pennsylvania, West Virginia and Ohio. Marcellus houses two thirds of the US’s 665 trillion cubic feet (tcf) of “technically recoverable” shale gas reserves.
In its 2011 report, the EIA estimated the Karoo Basin’s technically recoverable reserves at 485 tcf. That was updated in the 2013 version to 390tcf, into line with Marcellus. Primarily because the US agency reduced the size of the prospective area. Twine’s model was working on 50 tcf.
Only now that physical exploration is being permitted are those assumptions to be tested. They may under-estimate reality as everyone is working off very old numbers.
During the 1960s, under instructions from an Apartheid Government desperate to find oil, drill rigs operated by the State’s exploration arm Soekor pockmarked the Karoo Basin. They found no crude oil. But the results did record masses of then useless shale gas.
It was only in 1998 that an economically viable way to exploit shale gas was discovered. This involves the high-pressure injection of a liquid cocktail of water with some sand and 1% chemicals into the shale which, in SA’s case, is around 3km below the surface. The process causes microscopic fractures in the shale, liberating natural gas that’s forced to surface.
As gas is a ready substitute for oil and coal, fracking has transformed the US energy equation. It has slashed gas prices by half, eliminated the country’s vulnerability on Middle East suppliers and turned the US into a net energy exporter.
In relative terms, the impact on exploiting a similar sized reserve by coal-dependent, crude oil denuded South Africa is greater.
The EIA says SA consumes 610 000 barrels of oil a day, or 220m barrels a year. One tcf of natural gas is the equivalent of 175m barrels of oil. At the latest estimate of 390tcf, the Karoo deposit is akin to discovering an oil field sufficient to meet the country’s needs for the next 310 years.
Shell, which is ready to invest $250m on six exploration wells leads the local shale gas charge. It has prospecting rights over an area the size of KZN Province stretching from Sutherland in the Western Cape to Bedford in the East.
Ten months ago another of the global oil majors, Chevron, signed a five-year joint venture with Dublin-headquartered Falcon Oil & Gas, the Karoo Basin’s first mover.
The third player is Bundu Gas & Oil, of which a local consortium owns 10%. Its block includes the Cranemere Project north of Port Elizabeth where a gas gusher was hit and then capped when drilled in 1968.
Whatever the reasons for those whose bile flooded Twine’s cell phone and email inboxes, the unintended consequence was tragic.
Tony Twine did not die in vain. His legacy serves as a permanent reminder to all involved in the debate that the best outcomes always flow from measured, rational research and dialogue. Not confrontation.
* Alec Hogg is a writer and broadcaster who founded Moneyweb. He now runs biznewz.com
