With the lifting of a ban on hydraulic fracturing, oil and gas companies hope the South African government will authorize natural gas development in the Karoo basin, which awaits actual exploration for unconventional resources.

Chevron Corp. agreed to work with Falcon Oil & Gas Ltd. of Dublin. The joint venture agreement came 3 months after South Africa government officials lifted a temporary ban on shale gas exploration.

South Africa imposed the fracing ban in 2011 to address concerns about hydraulic fracturing. Based on recommendations from the Department of Mineral Resources, the government lifted the ban on Sept. 7, 2012.

Royal Dutch Shell PLC has forecast it could be 10 years before any Karoo production comes on stream. The major has said it plans to spend $200 million to drill 6 wells in the first stage of exploration pending government approvals.

Geologists believe the massive Karoo Supergroup, a mixture of shales and sandstones, stretches under more than two thirds of South Africa. The average depth of South African shale gas is 8,000 ft, and the basin contains significant volcanic intrusions that could limit the use of seismic imaging.

The Karoo basin covers 236,000 sq miles. Industry believes the Permian-age Ecca formation has three potential gas shales with the most promising being a highly organic-rich, thermally mature shale of the Whitehall formation.

Advanced Resources International estimated resources attributable to these shales on behalf of the US Energy Information Administration.

EIA's April 2011 report, "World Shale Gas Resources: An Initial Assessment," estimates the Lower Ecca Group shales in this basin contain 1,834 tcf of risked gas in-place, with risked recoverable shale gas resources of 485 tcf.

Research permits issued

South Africa has issued only technical cooperation permits (TCPs), which authorize research into shale potential. Industry wants permission to convert TCPs to exploration licenses.

Shell had sought permission for exploration but the process was held up by the ban on fracing the government imposed during April 2011 going into September 2012. Shell holds a Karoo TCP covering 185,000 sq km.

In 2009, PASA awarded Shell a TCP for a 1-year study that established baseline information about the region's geology and shale gas potential. In December 2010, Shell submitted three separate exploration license applications for areas of around 30,000 sq km each. These areas are in Western Cape, Eastern Cape, and Northern Cape provinces.

A joint venture of Sasol, Chesapeake Energy Corp., and Statoil holds 88,000 sq km.

In December 2011, Sasol put its Karoo shale gas plan on hold, and the company as of yearend 2012 had provided no updated plans following South Africa's lifting of the frac ban. Other TCP holders are Anglo Coal and Sunset Energy of Australia.

Falcon's TCP gives it exclusive rights to obtain an exploration permit covering 30,000 sq km in the southern Karoo basin. Chevron Business Development South Africa Ltd. signed a 5-year agreement with Falcon in December 2012 but has said little about its plans yet.

Chevron paid Falcon $1 million as a contribution for past costs and agreed to work with Falcon to secure exploration permits. Falcon already holds permission to conduct Karoo seismic studies.

Philip O'Quigley, Falcon chief executive officer, called the Falcon-Chevron agreement "a major step forward towards realizing the full potential of our already significant acreage position in the Karoo basin."

Chevron has more than 100 years experience working in South Africa, O'Quigley said, noting that Chevron holds "extensive experience…developing unconventional oil and gas resources."

Petroleum Agency South Africa (PASA), which issues TCPs and other permits, expects significant gas-related developments.

Mthozami Xiphu, former PASA chief executive officer, said unconventional onshore gas potential could help diversify South Africa's energy production.

Meanwhile, water use management and water regulations are issues the South Africa government will consider as it contemplates authorizing shale gas exploration and development.

"Shale gas might be the clinching factor in freeing the country of 49 million inhabitants from its dependence on coal to fuel 85% of its energy needs," Accenture said in a recent report, "Water and Shale Gas Development: Leveraging the US experience in new shale developments for higher performance."

Accenture's report also analyzed shale developments in Argentina, China, and Poland. In South Africa, shale gas developers will need to obtain permits from the Department of Water Affairs for sourcing and discharging water. None of the companies holding TCPs has applied for water permits yet.

"It is very early stages in South Africa," Accenture said. "Water availability is a challenge as is the lack of infrastructure; however, the depth of shale is an advantage."

Accenture said operators are considering sourcing saline water from deep formations in wells near drilling sites because Karoo residents are concerned about water pollution and shortages given scarce drinking water supplies.

Economic benefits studied

Shell commissioned a study by Johannesburg independent economic consultant Econometrix Pty. Ltd., which concluded that gas could provide a stable, clean-burning energy supply for South African power generation and transportation.

Most of the electric generation is coal-based, and South Africa imports 60% of its energy.

"Work by the International Energy Agency on the subject of energy poverty during 2011 leaves little room for belief that substantial energy resources can morally be ignored without proper investigation and consideration," Econometrix said in its report. Shell released the report in March 2012.

"Proper assessment of the reserve is necessary with physical exploration superseding desktop studies before economic assessment and cost-benefit analysis, both inside and outside of the pure economic sphere and across other disciplines, can be properly undertaken," Econometrix said.

Bonang Mohale, Shell South Africa chairman, said the report "clearly shows the substantial economic and job creation benefits to South Africa" if economically viable Karoo gas resources exist. "The shale under the Karoo may well provide the game-changing opportunity that South Africa needs."

Mohale said the exploration is the only way of conclusively establishing the shale's potential.

Econometrix noted that gas usage in South Africa currently is in a very early stage of development.

"The principal use is of onshore natural gas originating in northern Mozambique, with the gas transported to Secunda via an 800-km pipeline. An extension to that pipeline link stretches from Secunda to the Johannesburg metropolitan area," Econometrix said.

One potential complication to gas exploration and development is an emerging project to place a radio telescope array where Shell is considering fracing operations. The telescope project would restrict any nearby industrial operations.

South Africa and Australia plan to host the giant International Square Kilometre Array (SKA) radio telescope. The SKA organization in 2012 announced a dual-site approach that would involve both South Africa and Australia.

South Africa already started early development with what it calls MeerKAT or KAT-7, a 7-dish array now expected to become part of SKA.