Report Makes Compelling Case for Shale Gas Development in South Africa

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)-- Econometrix, South Africa's largest independent macro-economic consulting firm, recently released its "Karoo Shale Gas Report," which covers the potential benefits of the exploration and fracking (hydraulic fracturing) of what is classified as a "suspected resource."

According to the U.S. Energy Information Administration (IEA), the shale gas reserve of the southern Karoo region is estimated at about 485 trillion cubic feet (tcf), which would make it the fifth-largest shale gas field in the world. The report was funded by Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands), which recently backed an opinion poll on public reactions to fracking prospects. For related information, see February 21, 2012, article - Shell Backs Opinion Poll on Gas Fracking Exploration in South Africa.

To measure the potential impact of shale development on the South African economy, the consultants created an economic impact model to estimate the likely impact of shale gas production. The study took a conservative approach and ran the model on just 4% (20 tcf) and 10% (50 tcf) of the total estimated 485 tcf.

Based on the samples, the report said that there would be an annual economic impact of more than $10.5 billion and/or $26.5 billion to GDP, which is about 3.3% and 9.6% of total 2010 GDP. In 2010, coal mining value added 1.8% to total GDP.

The average annual government revenue from 20 tcf and 50 tcf production would be about $4.6 billion to $12 billion and would generate 300,000 to 700,000 permanent jobs for a period of 25 years, which is the anticipated lifetime of an initial, first-phase development.

"Recent experiences with the electricity supply and pricing developments have brought home to most South Africans the inseparable relationship between usable energy and economic performance," said Tony Twine, an Econometrix director and research team leader. "The economy simply cannot grow at any reasonable, sustained rate without using additional energy resources."

The future demand for energy makes a compelling case for shale gas development. Only 88% of the urban population and 55% of rural dwellers have access to electricity. More than 10 million South Africans, out of a total population of 50 million, have no access to power at all, Twine said. About 67% of the country's oil consumption is imported, and 65% of natural gas is imported from Mozambique. The future demand for energy makes a compelling case for shale gas development, says the report.

Unexported natural gas has five major downstream uses. Apart from being a safe industrial, commercial and domestic fuel, it also can be used to generate electricity with low water consumption and can be converted into liquid fuels, as is done by Sasol Limited (NYSE:SSL) (Johannesburg) at Secunda. It can be used as a transport fuel with minimal adjustments to existing engines, and it may be used to provide the fuel feed necessary in manufacturing fertilizer products.

"But the first step in harnessing such a potentially transformational economic resource has to be either proving or disproving its size and location," Twine said. "Only after that do prospects become bankable projects."

The government is not rushing the decision to allow exploration licenses. With various political and scientific issues in the air, the project may not be made until 2013.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.