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Aug 05, 2011

There are still many unknowns about shale gas extraction in the Karoo

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United States|Bank|Gas And Oil Extraction|Shale Gas|Shale Gas Debate|Shale Gas Extraction|Transport|Rick Murray
united-states|bank|gas-and-oil-extraction|shale-gas|shale-gas-debate|shale-gas-extraction|transport-industry-term|rick-murray
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I recently attended what is probably the most insightful conference I have ever attended – not because it was attended mostly by industry players but because the debate was vigorous and illuminating. There were also some very good presentations.

One has to give the conference organisers credit. They allowed decent time for the antifrackers to ask questions, contest views and put their point of view across.

I came home distilling three issues that, I think, will continue to matter in the shale gas debate.

The first is that there is a great deal of uncertainty about how much shale gas there is in the Karoo and whether there is an economically viable reserve. Estimates vary from 31-trillion cubic feet to 485-trillion cubic feet. One can only tell what the exact number is after exploration has been undertaken, but that, too, will be within degrees of probability, not absolute certainty.

There was debate about whether the resource/reserve estimation can be done without having to use invasive techniques like fracking. The experts are divided on this issue. However, those who need to prove the commercial viability of what lies below need to frack for no other reason than to assess how much gas the wells can produce at economically viable rates. Basically, they cannot go to the bank and say: “Give me a loan”, without proof that the wells can produce something valuable in sufficient volumes over a long enough time to cover the capital costs that will have to be incurred upfront.
The second issue I meditated on is that, without a definitive estimate of the resource, nobody can tell how much water will be needed. There was a fantastic presentation by Rick Murray, an expert on groundwater in the Karoo, who drew the audience’s attention to the complexity of the Karoo’s groundwater ecology. Murray was unable tell whether there is enough water or not. But he indicated that there is potential to tap many wells. However, whether the wells will produce sustainable and economic yields is unknown.

While most economic aquifers are between 100 m and 300 m below the surface, there is always the danger that, if fracking wells are not well managed, both in the early phases and in the post- production phases, there could be irreversible damage to the aquifers. What Murray alluded to is that the cost of abstraction and the stringent mitigation measures that need to be taken will be an important determiner of the cost of the shale gas. All this could make groundwater abstraction in the Karoo an expensive exercise. Murray also consistently reminded the audience that the Karoo is a complex ecosystem and that how shale gas extraction would be done would need to be carefully managed.
Finally, it is not clear whether shale gas will be cheap or clean. All unconventional forms of gas and oil extraction must be among the dirtiest businesses in the world. Shale gas is touted as being equivalent to conventional gas. But, surely, this is debatable. Attempts are being made to make shale gas ‘look’ clean. This is one of the reasons the carbon footprint debate on shale gas is vital.

How clean a fuel is shale gas? We should certainly have more science and, perhaps, the US’s Environmental Protection Agency Report, due next year, will tell us more about the cleanness of shale gas. But, currently, scepticism about industry claims abounds.

Whether shale gas is cheap is also debatable. The US is not a great example of how cheap shale gas can be because so much of what goes on in the US is distorted by subsidies and other forms of support given to the oil and gas industry.

Costs associated with extracting shale gas and getting it to markets depend on a whole lot of factors, namely how easy or hard it is to get the gas out, the cost of mitigation, the cost of water, whether there will be a carbon tax or not and the cost associated with transport and support infrastructure. If one adds all these costs up, some- thing that is said to be cheap will look somewhat different in the absence of empirical studies.

The industry likes parlaying figures from one part of the world to another, but is that really useful? It would be useful, though, to have a good costs study on the table so that different cost assumptions can be debated. So far, figures bandied about on how cheap shale gas can be should be treated as nothing but a guess for South African conditions. We need figures that make sense for a South African context.

What was clear at the end of the conference is that there are still many known unknowns and unknown unknowns about shale gas extraction in the Karoo.

Edited by: Martin Zhuwakinyu
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