Global Traditional Energy Resources

According to a June 2013 report released by the U.S. Energy Information Administration (“USEIA”), South Africa has 390 trillion cubic feet (Tcf) of technically recoverable shale gas resources.¹ South Africa’s shale gas resources are located in the Karoo Basin, which covers nearly two-thirds of South Africa.² Estimates of recoverable resources in the Karoo have varied widely over the years.³ For example, one recent estimate found 40 times less shale gas in the Karoo than previously thought.⁴ The South African Agency for Promotion of Petroleum Exploration and Exploitation (“PASA”) has estimated that the Karoo Basin holds about 40 Tcf of shale gas reserves.⁵ The Karoo Basin contains three main shale prospective areas, namely:

• the Prince Albert Shale (77 Tcf);⁶
• the Collingham Shale (82 Tcf);⁷ and
• the Whitehill Shale (183 Tcf).⁸

Outline of the Karoo Basin and Prospective Shale Gas Areas of South Africa

USEIA Report at XIX-1.

Major portions of the Karoo Basin have igneous (sill) intrusions and complex geology, which may affect the quality of the shale resources and create significant exploration risk in pursuing shale plays in the prospective area.⁹ For example, recently scientific drilling in the Karoo Basin found only “residual gas content . . . at the low limit of what might be exploitable” at two test locations.¹⁰

Although South Africa could hold the world’s fifth largest shale gas reserves, there was limited interest in developing these resources until recently.¹¹ However, recurrent power shortages combined with environmental concerns stemming from an overdependence on a single energy source—coal (which provides over 70 percent of all South Africa’s energy needs and 93 percent of its electricity)—have given new impetus to gas exploration in the country.¹²

However, as early as 2009, the government had begun to grant several companies Technical Cooperation Permits (TCPs), which authorize “desktop” research into shale gas potential, but not exploration or prospecting activities.¹³ In April 2011, however, the South African government enacted an indefinite moratorium on oil and gas exploration in the Karoo Basin that would remain in place until a government task force assessed evidence of any “unintended consequences to the environment.”¹⁴ The Department of Mineral Resources established a task force composed of experts from government agencies and South African universities to produce the report, which examined the techniques used in shale gas extraction, as well as developed a new assessment process and regulatory framework for shale gas projects to control environmental and other risks.¹⁵ The government lifted the moratorium in September 2012 after the inter-agency task force published its report, which recommended that it was safe to continue shale gas exploration.¹⁶

Following the publication of the finalized hydraulic fracturing regulations (described in more detail below), the South African government announced that it would conduct a 24-month Strategic Environmental Assessment (“SEA”) to better understand the potential environmental impacts of exploiting gas resources.¹⁷

The assessment was finalized in October 2016,¹⁸ and, in March 2017, Mineral Resources Minister Mosebenzi Zwane announced that hydraulic fracturing will move forward in the Karoo, despite recent findings that finding sufficient water supply will be difficult.¹⁹ Although Minister Zwane’s announcement generated initial excitement about the potential for exploiting shale resources in the Karoo, reports following the announcement made clear that additional legislative action would be necessary before any hydraulic fracturing could commence.²⁰ Nonetheless, by May 2017, five exploration licenses for the Karoo were under review by the South African government.²¹

However, the prospect for short-term shale gas development was dealt a significant blow in late 2017, when a South African court overturned the country’s shale gas regulations, holding that the Minister of Mineral Resources lacked the authority to promulgate regulations regarding environmental issues.²² Nonetheless, Minister Zwane noted that the government could appeal the decision, and that it remains “committed” to shale gas exploration.²³ Following the ruling, Minister Zwane estimated that the first fracking licenses could be granted in 2019 “if everything goes well.”²⁴ Absent a successful appeal, the South African government would have to redraft its shale gas regulations.²⁵ In addition to South Africa’s need to diversify its energy portfolio, several other characteristics make the country well-suited for shale gas development. For example, while South Africa lacks a well-established gas pipeline infrastructure, it does have a developed—albeit severely strained—power grid.²⁶ Combined-cycle gas turbine electricity units could generate electricity close to the shale projects, which could be transmitted and distributed by the grid.²⁷ Additionally, in South Africa, landowners own only the surface rights; the rights to any minerals or resources found in the subsurface belong to the South African government to exploit under rules passed in 2002.²⁸

However, South Africa’s nascent shale gas industry also faces several unique challenges. For example, South Africa’s onshore services sector is underdeveloped and currently lacks the technical expertise necessary to develop shale gas on a large scale;²⁹ according to some analysts, there are no rigs in South Africa capable of drilling the types of boreholes necessary for fracking.³⁰ Moreover, water resources are scarce in the arid Karoo Basin, which means “thirsty land.”³¹ Water resource issues are compounded by a lack of pipelines and the currently poor road infrastructure in the basin.³²

Finally, South Africa has also seen public opposition to shale gas development.³³ These groups generally focus on hydraulic fracturing’s water usage in an already arid region and other environmental impacts.³⁴ Other South African groups have focused on the chemicals used in the technique, as well as radioactive materials contained in the rock itself and washed off during the process, as potential causes of water contamination.³⁵ Some have hypothesized that the degree of opposition to hydraulic fracturing in South Africa may be driven in part by the government’s sole ownership of mineral rights; thus, local communities see little direct incentive, economic or otherwise, to support shale development.³⁶ Active anti-fracking groups in South Africa include the Treasure the Karoo Action Group, Greenpeace, and Earthlife Africa.³⁷ Some outlets have reported that many of South Africa’s anti-fracking groups have recently come together as Frack Free South Africa, a recently established national alliance,³⁸ while others have previously characterized the alliance between such groups in South Africa as “fragile.”³⁹

Statutory and Regulatory Framework

The Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA)⁴⁰ is South Africa’s oil and gas law. MPRDA designates PASA to regulate and promote onshore and offshore oil and gas exploration in South Africa.⁴¹ PASA also recommends to the Minister of Mineral Resources whether applications for gas exploration should be granted.⁴² In 2014, the South African parliament approved amendments⁴³ to South Africa’s oil and gas law that would give the state a free 20-percent stake in all new oil and gas ventures and enable it to buy up to another 80-percent share at an agreed price.⁴⁴ In January 2015, President Zuma referred the law back to South Africa’s Parliament due to concerns that the bill “would not pass constitutional muster.”⁴⁵ In January 2016, reports surfaced that a revised bill would likely come before South Africa’s parliament, though negotiations around the needed revisions were continuing.⁴⁶ Moreover, Minister Zwane made comments indicating that the South African government is aware that any amendments to South Africa’s oil and gas law must encourage multinational corporations to invest in South African operations and provide “policy certainty.”⁴⁷

In October 2013, South Africa’s Cabinet proposed new technical regulations pursuant to the MPRDA to govern petroleum exploration, particularly standards for shale gas exploration and hydraulic fracturing.⁴⁸ The finalized regulations were published in the Government Gazette in June 2015.⁴⁹ They require, among other things, the preparation of an Environmental Impact Statement in advance of exploration and production activities, water resource monitoring, an assessment of seismicity, preparation of a well-related risk assessment, disclosure of chemicals used, well-closure planning, and compliance with various American Petroleum Institute standards, including those relating to equipment and well construction.⁵⁰

The new regulations also set out the application processes associated with acquiring the various approvals that are necessary to begin hydraulic fracturing operations in South Africa.⁵¹ Acquiring a TCP is the first step for companies interested in South African shale gas exploration. These permits enable companies to carry out desktop studies and acquire seismic data relating to a particular area for one year, after which the holder has an exclusive right to apply for an Exploration Right for that area.⁵² PASA issues Exploration Rights for an initial period of up to three years, which can be renewed for a maximum of three additional two-year periods.⁵³

Once a company applies for an Exploration Right under the MPRDA, it has 120 days to submit an Environmental Management Program (EMP) in support of its application.⁵⁴ To compile the research required for the EMP, a number of technical and desktop studies are required, and some fieldwork is necessary in selected areas to support the findings of the desktop studies.⁵⁵ Some criticize the EMP as being too narrow in scope and rushed.⁵⁶

The National Environmental Management Act 107 of 1998 is South Africa’s overarching environmental law.⁵⁷ Other statutes applicable to shale gas projects include the National Environmental Management: Biodiversity Act 10 of 2004 (NEMBA), the National Environmental Management: Waste Act 59 of 2008, National Water Act 36 of 1998, National Nuclear Regulator Act 47 of 1999 (due to residues that might be washed off rocks during fracking), and the Astronomy Geographic Advantage Act 21 of 2007.⁵⁸

^{Last updated September 2018.}