Cape Town – A KPMG report commissioned by global exploration firm Rhino Resources has punted fracking as an economic boom for South Africa, explaining that it could add R11bn to its gross domestic product (GDP).
The report, released on Wednesday, explicitly warns that it does not take into account any risks involved in the process of fracking, the process of drilling for on-shore shale gas.
“Whilst there will always be risks involved with oil and gas exploration and production activities, an analysis of these potential risks fall outside the focus of this report,” it explains.
The release of the report comes as Rhino Resources continues to face steep resistance by opponents of fracking in South Africa, many of them who own land Rhino is attempting to explore.
In early 2015, Rhino Resources' local subsidiary - Rhino Oil and Gas - lodged an application for an exploration right to explore for petroleum products (including oil, gas, coal bed methane and helium among others) with the Petroleum Agency of South Africa (Pasa).
According to the environmental impact report by SLR Consulting, the purpose of exploration is to identify if any commercially viable reserves of oil and/or gas exist.
The initial exploration application covered around 1 500 000 ha of land, over approximately 10 000 properties. Rhino recently reduced the exploration area by excluding all “known” protected areas.
The study found that for every R1m of future sales generated through fracking, another R1.3m could be added to the economy. And for every R1m of sales generated by the local gas industry, four jobs could be created.
“As illustrated by the study, South African natural gas development and overall energy industry growth could lead to various economic and social benefits,” said Rhino Resources CEO Patrick Mulligan, whose company has licences to explore about 32 600 square kilometres within South Africa.
Currently, South Africa produces 32% of natural gas and imports 68%, the study said. The study forecast that if fracking occurred in the Karoo, then it could stop importing gas. The economic benefit of this over time would be R10.238bn, adding 29 443 jobs and R2.658bn in taxes. Another forecast explained that if South Africa started exporting gas, then this benefit would increase to R11.262bn, 32 387 jobs and R2.924bn in taxes.
“We strongly believe South Africa’s energy resources can one day enhance prosperity for the country’s communities,” said Mulligan.
“South Africa is ranked eighth in terms of countries with the top global shale gas resources, according to the US Energy Information Administration’s World Shale Resource Assessments.”
However, the report warned that “given the nature of exploration activity, drilling does not guarantee economically viable gas recovery, which is evaluated as part of the drilling process”.
It pointed to a study that says “many studies make unrealistic assumptions regarding gains to households and locations of property owners and suppliers, whilst some methodologies overstate the economic benefits. A clear and realistic picture of the possible costs is thus necessary to estimate effects of energy resource activities, specifically shale gas activities.”
With renewables and gas dominating the future of energy policy around the world and in South Africa, the Dallas firm is dead-set on finding shale gas reserves to sell on to other companies.
While Mulligan seems impressed by the economic viability of fracking in South Africa, he was more cautious in a January 2016 report in oil and gas publication Upstream.
Upstream described Rhino Resources as a British Virgin Islands registered company, which “was formed three years ago to focus on African opportunities and has already built a portfolio spanning the continent”.
Upstream explained that South Africa’s draft Mining and Petroleum Resources Development Act had “not been passed amid industry concern over issues including passages in a draft bill that gave state-owned PetroSA the right to a free carried 20% stake in any upstream asset and to acquire the remaining 80% ‘at an agreed price’.”
In response to this concern, Mulligan told Upstream: “It’s difficult if companies cannot predict what the splits will be. We cannot accomplish effective economic modelling if we don’t know how costs will be apportioned in the event of a declaring a commercial find, so we’re a little wary at the moment.”
Critics query how interested the company is in South Africa’s economic growth due to the above comment, as well as another in that story: “We especially like the plays to the east and appreciate that many of these regimes are less regulated,” Mulligan told Upstream.
IPP programme boost for gas
South Africa is wooing investors to the country over its independent power producer (IPP) programme to electrify the country and region.
The Department of Energy last year opened an IPP bid window to procure 3 126 MW of gas-fired power generation. Just last week, the department announced that the two gas-to-power projects currently being procured could a total R50bn.
While the money seems to be on gas, South Africa has a strong anti-fracking movement, which believes the environmental threats of fracking far outweigh the economic potential.
Last week, as has become the norm, a presentation in Howick in KwaZulu-Natal by Rhino on its fracking proposal was met with enormous public opposition, Media24 publication The Witness reported.
A KZN Agriculture Department employee, who would not be named, said there was concern over the land use in the application.
“At the end, when it comes to the point of drilling holes, 100 years from now the effects will still be felt,” said the employee.
There was also issue over a new aerial exploration strategy.
SLR Consulting’s Matthew Hemming – acting on behalf of Rhino - said although the application for the aerial survey had been made, there was no guarantee that it, or possible future applications, would be approved.
He said that aerial surveys would be pre-planned and would comply with civil aviation laws, The Witness reported.
According to Frack Free SA’s Judy Bell, Rhino plans to fly at 80 metres, which she says contravenes the laws when flying over protected areas.
She told Fin24 this week that a Rhino representative backtracked when they informed them of this and said they would then fly at 150 metres.