Shell itching to begin gas exploration

CAPE TOWN - The executives of Royal Dutch Shell trod a fine line on Wednesday between constructive comment and outright criticism of the draft Mineral and Petroleum Resources Development Amendment Bill. As a foreign company applying for licences to explore for shale gas in the Karoo, the Group is mindful of its P’s and Q’s.

The draft bill was published for public comment in December, and the window closes on February 8. “We will be submitting comments,” says Jan Willem Eggink, the general manager of Shell’s upstream business. “But these are the subject of internal discussion.”

Speaking broadly, he said that Shell is attracted to countries where there is regulatory certainty and stability. “If we are going to spend $200m to drill six exploratory wells in the Karoo, there needs to be some certainty. We need clarity on the rules of the game.”

The aim of the draft bill is to remove ambiguities and improve the regulatory regime as set out in the Mineral and Petroleum Resources Development Act of 2008. However some commentators including mining attorney Peter Leon are concerned that the draft bill will have the opposite effect and will hinder mining- and mineral-related investment. “It exacerbates and compounds the very regulatory problems the bill set out to address,” he opined in Business Day.

Meanwhile, Shell is anxiously waiting for the go-ahead from government. “Energy and energy security is an important element in SA’s National Development Plan,” says Eggink. A security of supply would encourage industrial development and help create jobs in downstream industries. Desktop analysis suggests that there are large deposits of gas in the Karoo Basin, “but we need to explore in order to prove this.”

Shell applied for its exploration licence after government lifted the moratorium on the use of hydraulic fracturing to explore for shale gas in the Karoo last September.

In a wide ranging discussion with media on Wednesday, Eggink and Graeme Smith, Shell’s vice president for exploration and new ventures, were at pains to manage expectations and allay fears around gas exploration and its possible development.

For a start it won’t happen quickly. Once the exploration licence is approved, a two-year environmental impact assessment (EIA) has to be carried out by an independent company. A tender process is underway.

Assuming all goes well, exploration will follow and should be completed within nine years, Smith says. Shell plans to drill six wells (two in each of the three blocks it has applied for), but “with a bit of encouragement”, will drill more.

Skills gap

Contrary to expectation, this phase is not likely to generate much employment for local communities. “We need skilled people on our rigs,” Eggink says. There will be some jobs going in areas like security, groundworks and catering. “The expectation in the Karoo with respect to jobs is a risk. We cannot solve the unemployment problem in the area.”

Shell’s focus, he says, is on partnering with local organisations to develop the skills that will be needed once the production phase kicks in. These range from university educated geo-physicists to skilled welders.

The company would ideally prefer to source locally – and government may insist. Products like steel casings and high quality cement, which are not locally manufactured, will be required. “There are opportunities for SA firms. Even if we don’t go ahead, those firms can supply into the booming gas industry in Mozambique.”

Renewable, environmental conflicts

He also dealt with concerns that a large discovery of gas would cast a death knell over SA’s nascent renewable energy industry. “I believe SA’s growing energy needs can be served by gas and renewables together. It is not about gas over everything else.”

Some questions are not easily answered. Water is one of them. Initially Shell plans to truck water into the Karoo. Beyond that it hopes to find brackish water via the wells it drills. This would be found below the water table or fresh water aquifers and deliver water that is not suitable for irrigation or consumption. Beyond that, grey water and pipelines of sea water are discussed.

Waste water is another concern of environmentalists. “Technology is moving immensely fast. There is so much research into shale gas. We are getting better at treating and recycling water, to the point that all that remains is a solid waste.”

These are subjects that will be covered in the EIA, he says.

Eggink is well aware that various action groups are determined to mount a legal challenge to any efforts to drill for gas in the Karoo. “I think this challenge is with government and not with us. I would like to go forward as fast as we can. There is always a possibility it will set us back – we will have to see.”

With that Eggink and his team set of for a visit to the Karoo towns of Beaufort West, Cradock and Graaff Reinet to engage with farmers and local communities.