By: Samantha Moolman

30th November 2012

With a multibillion-dollar gas export terminal under construction in the US, veteran consulting engineer and industry stalwart John Bewsey predicts a worldwide drop in gas prices in the next three to five years, as an increasing number of companies file for export permits.

Once some of these permits are awarded, and the gas export terminals are planned, approved and constructed, low-cost gas will eventually filter through from the US to the rest of the world.

He says this will have a significant effect on the African gas market, which is growing rapidly, as a result of new findings across the continent.

Advanced hydraulic fracturing (fracking) in North America has, in recent years, overturned the US energy market, causing the gas price to drop from over $10/GJ to about $2/GJ or less. This has yet to affect the global gas market, owing to logistics, which has made it difficult for the US to export the gas directly.

This is compounded by the fact that the US Department of Energy (DoE) is not permitting additional liquid natural gas (LNG) export projects before late 2013 or 2014, pending a decision from the Obama administration on expanding exports.

Houston-based energy company Cheniere Energy’s Sabine Pass LNG terminal, in Louisiana, is the only project, so far, with permits from both the US DoE and the Federal Energy Regula- tory Commission (FERC) to export natural gas. The project will add liquefaction and export capabilities adjacent to the terminal’s existing infrastructure.

Meanwhile, Texas-based LNG solutions provider Excelerate Energy was granted long-term multicontract authorisation by the US DoE in August to export LNG to free trade-agreement nations from its Lavaca Bay LNG project, currently under development on the Texas Gulf Coast.

The company, one of the first US companies to be granted an export licence, will be authorised to export up to ten-million tons a year of LNG, produced from domestic resources, for 20 years. The contract will start on the first day of its export, which is expected to be under way in 2017.

By that time, the US will have overtaken Saudi Arabia and Russia as the world’s largest oil producer, according to the International Energy Agency’s ‘World Energy Outlook (WEO) 2012’, published early this month. The WEO further predicts that the US will become a net exporter of natural gas by 2020, and self-sufficient in energy by 2035.

It also foresees links between regional gas markets strengthening as LNG trade becomes more flexible and contract terms evolve.

Local Impact

Bewsey tells Mining Weekly that, if his predictions are proved correct, the impact on Africa’s future in the gas market will be positive.

He suspects that, in the long term, State-owned power utility Eskom will switch to gas because of the significant drop in the gas price once there is a worldwide oversupply, which is likely according to his predictions.

Bewsey is hopeful that the Inga water project – a joint venture between South Africa and the Democratic Republic of Congo (DRC), which could produce hydroelectric power for the DRC and surrounding countries – will also be under way by that time.

“This means that the bulk of Africa’s power will be reasonably inexpensive and ecologically acceptable,” he says.

With more gas resources expected to become available in South Africa, Bewsey suspects that Africa’s top-grossing economy will continue to export coal, which will lead to increased global competitiveness in this area.

Bewsey hopes that South Africa’s alu- minium smelters will operate again, as most of them have faced shutdown as a result of exponential increases in electricity costs.

“If South Africa embraces its fracking opportunities in the Karoo, this can become a reality, but it seems that may still take a few years,” he says.

The Fracking Quandary

In an initial assessment commissioned in 2011, the US Energy Information Admini- stration (EIA) estimated that South Africa holds 485-trillion cubic feet of technically recoverable shale gas resources, mostly located in the semi-arid Karoo basin.

“With 1.1-million drilled holes in the US already, it is highly unlikely that the estimate won’t be close to reality,” Bewsey says, emphasising the reliability and precision of modern measurement techniques.

Using the EIA’s projected estimate, he has used the heat value of natural gas to quantify the value of South Africa’s estimated fracked gas supply, which he calculates to be R67-trillion.

Compared with the R88-billion that South Africa spent on crude oil imports in 2010, he further calculates that South Africa may, in theory, have 767 years of shale gas reserves, assuming the import rate does not fluctuate.

“Theoretically, the country will be able to stop oil imports, shut down its oil refineries and use gas-to-liquids (GTL) technology to convert fracked gas into liquid fuel for the next 767 years,” Bewsey says.

Considering the potential of South Africa’s shale gas reserves, he adds that it will be a waste to rebuild aging oil refineries and notes that the country could benefit from building new GTL refineries, which will eventually replace oil refineries altogether.

“We have an asset in natural gas reserves and, right now, that asset is worth nothing. However, once South Africa starts fracking its shale gas reserves, the country may imme- diately increase its wealth,” says Bewsey.

Stakeholders are not yet permitted to extract shale gas from the Karoo.

In April last year, soon after the EIA had published its findings, South Africa’s Department of Mineral Resources imposed a moratorium on fracking in response to outcries from environmental groups and the local community who were concerned about the negative effects fracking might have on the environment.

Mineral Resources Minister Susan Shabangu has since lifted the moratorium on shale gas exploration, but not on fracking. Exploration companies are, therefore, permitted to drill in their respective areas in the Karoo and conduct geophysical and geochemical mapping.

Exploratory fracking, however, will not be allowed until South Africa’s mining regulations have been augmented to take into account the unique issues posed by the fracking process.