CSIR fracking report shows the downside

Johannesburg - If exploration for shale gas goes ahead in the Karoo, only 60 to 900 jobs will be created, and it is not going to add much value to the economy if government, as has become the “pattern” of late, simply keeps on spending the additional tax income on paying the salaries of additional government employees.

This is according to the final estimates from the CSIR research on shale gas exploration, which it carried out on the instruction of government and published last week.

The purpose of the research is to establish a framework within which the decision can be made on whether shale gas should be extracted through hydraulic fracturing – also known as fracking – should shale gas be found in the exploration process.

The Petroleum Agency of SA (Pasa) estimates that there is 40 000 billion cubic feet of shale gas in the Karoo, but only through exploration can it be ascertained how much gas there really is and whether it can be extracted easily enough to make it economically viable.

The estimations in the report are based on two scenarios: “small gas” – if about 5 000 billion cubic feet of gas is extracted; and “big gas” – if about 20 000 billion (20 trillion cubic feet) is extracted.

In the small gas scenario, between 60 and 145 direct job opportunities could be created. In the big gas scenario, between 390 and 900 direct job opportunities could be created.

These are small numbers compared with the jobs that are currently created through agriculture and tourism in the area.

Agriculture currently provides 38 000 jobs and contributes R5 billion a year to the economy.

Tourism creates between 10 100 and 16 400 jobs annually and contributes R2.7 billion to the economy a year.

The contribution to the local economy of shale gas exploration could be between R3.5 billion and R28 billion a year.

One of the biggest risks pointed out in the report is that government will use the additional income from tax to further increase consumption expenditure. Government employees’ salaries are included in consumption expenditure.

Consumption expenditure increased from 19% in 2007 to 22% in 2013. The most recent figure shows it was 20% in 2014.

However, should the additional income be used for capital expenditure such as roads, ports and communications networks, as well as expenses that include capital and consumption expenditure such as education and healthcare, shale gas could help grow the economy in the longer term.

People will have to be appointed to process all the additional applications that will accompany the building and construction of the plants. Roads will be used more often and will therefore have to be repaired more regularly, and infrastructure such as water and sewage will have to be extended.

All of this will mean additional expenses for municipalities.

One possible solution is to charge the companies that will be doing the extraction of the gas a special levy for using the roads.

The report also warns that lessons need to be learnt from previous mining activities where rehabilitation of the environment is problematic after the mines have stopped operating.

These days, regulations stipulate that mining companies have to pay for the negative effects on the environment.

According to the report, these regulations will have to be strictly enforced by the departments of mineral resources and energy to ensure that communities don’t end up paying the piper after the mining companies have made their money.

The report also confirms that there is not enough water in the area to extract shale gas using fracking. There is also a risk of water pollution, and it is recommended that hydraulic fracturing not be used in sensitive areas.

Added to this, the possibility of earthquakes “cannot be discounted”.

The area taken into account in the research is the part of the Karoo where there are currently five exploration applications pending – three by Shell, one by Falcon and one by Bundu.

The CSIR coordinated the estimation together with the SA National Biodiversity Institute and the Council for Geoscience, and harnessed the work of 135 independent scientists.

It was launched in February last year.

Read Fin24's top stories trending on Twitter:

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
15.96
-0.3%
Rand - Pound
19.91
-0.2%
Rand - Euro
16.81
-0.1%
Rand - Aus dollar
11.17
+0.0%
Rand - Yen
0.12
-0.5%
Gold
1,807.99
-0.4%
Silver
21.51
-0.6%
Palladium
2,035.50
-1.0%
Platinum
950.50
-0.6%
Brent Crude
111.93
-2.1%
Top 40
63,027
0.0%
All Share
69,696
0.0%
Resource 10
72,798
0.0%
Industrial 25
77,796
0.0%
Financial 15
15,897
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot