To Frack or Not to Frack

To “frack” or not to “frack”

Table of Contents

Introduction        4

Discussion        5

List of Sources        13

Introduction

“South Africa is a blessed with minerals but without natural oil and gas resources” (PD Vermeulen, 2012). Majority of SA’s energy source for electricity comes from coal (International Energy Agency). With that in mind, the country is facing a dramatic power crisis largely due to the lack of sufficient coal for power generation over the next five years and power generation capacity constraints.

Eskom’s installed power capacity is about 42GW.  An additional 2GW can be sourced from independent power producers and imports. During the 2014 summer, electricity demand was approximately 31GW. Based on these statistics, we would assume that Eskom would easily have the country’s demand. This proved to be not the case as more than 8GW of power station capacity was unavailable due to maintenance issues. In the glory days, power stations generated electricity at least 90% of the time. This has reduced to less than 75%. Eskom has no choice but to embark on load shedding and in the process, slowing down the economy.

The delay in completing Eskom’s two coal-fed mega power stations, Medupi and Kusile is aggravating the situation. On-going labour unrest and contractor issues have resulted in the project being 4 years behind schedule, with a likely completion date of 2021. These plants should have already been online by 2011 providing an additional 9.6GW capacity. The delay of completion has been a financial burden to Eskom, the country and its tax payers i.e.

• an estimated annual loss of R30-billion from electricity sales,
• interest bill for Medupi was estimated at R29.2-billion and for Kusile at R48.7-billion Energy analyst Chris Yelland, R1.6billion for cost of coal contracts that commence in 2013,
• The cost Medupi and Kusile were initially estimated at R69-billion and R80-billion respectively. But the latest estimates have risen to R154-billion for Medupi and R172-billion for Kusile.

Based on the above and the concerns that by 2019 the electricity demand will outweighs the capacity (including full capacity of Medupi and Kusile),the Department of Engery (DoE) is rightfully focused on extending electricity supply initiatives to include alternative gas resources (by means hydraulic fracking) and other renewable energy resources such as solar, hydro and wind (South Africa National Energy Efficiency Strategy)

The aim of this assignment is to provide an economic analysis on the feasibility of hydraulic fracking, commonly called fracking, in South Africa. This chapter described the background of energy crisis in South Africa. The succeeding chapter will look the background of fracking, its controversial process, South Africa’s perspective on fracking from a marco-economic point of view, a world view on the advantages and disadvantages of fracking and learning’s from various countries. It will conclude by summarizing the key observations and provide an unbiased view on the future of fracking in South Africa.

Discussion

Fracking Background

Fracking is a well stimulation technique designed to maximize the extraction of gas and oil from densely packed rock, known as tight or shale gas. In South Africa, in particular the Karoo, natural has is held in shale rock. This extraction process has been used in the USA for more than 60 years.  In the past decade, however, shale gas has become the forefront of USA’s fracking boom and in turn becoming the new fossil fuel resource in the USA. Many say that concerns over energy supply and the ever increasing costs related to foreign oil has sparked the fracking boom in the USA which now contributes 30 percent of domestic oil and natural gas production. This is further illustrated by the fact that the numbers of natural gas well in USA have nearly doubles in the past 10 years from 276,000 to 510,000 (U.S. Department of Energy ).

Fracking Process

A well is drilled vertically to the desired depth i.e. between 1.6 and 3.2km (U.S. EPA). Once the desired depth is reached, the drilling turns 90 degrees and continues horizontally until it reaches the densely pack rock where the natural gas and oil exists. Upon completion of the drilling phase of this process, the well is sealed or encased. Steel and cement is normally used in the sealing phase. This is process is critical to prevent the risk of groundwater leakages. Now that the well is drilled and encased, a mixture of water, sand, and various chemicals (also known as slickwater) is pumped into the well. High pressure is used in order to create fissures in the shale formation which allows the natural gas and oil to escape. The natural resources are then drawn backup towards the surface where it is processed.

The below diagram depicts the extraction process:

[pic 1]

Upon completion of the fracking process, the wastewater (also called "flowback water" or "produced water") also needs to be withdrawn from the well. This water is up to ten times saltier than the ocean and can pick up radioactive elements and toxic metals like arsenic. This wastewater can be disposed safely or can be easily treated to agricultural level at a wastewater treatment facility (EPA)        

South Africa’s perspective on Fracking  

Large shale formations found in the Karroo is considered to be the fifth largest deposit in world (Kuuskraa 2011).  This therefore puts South Africa amongst the top countries in terms of potential shale gas resources. PEST analysis will be used as a framework to gain an understanding of South Africa’s perspective on fracking. External (macro) environmental factors that impact Political, Economic, Social and Technology viewpoints will be discussed in further detail.

Political

With the growing interest in fracking in South Africa, the government has appointed a task team to evaluate the use of fracking in the extraction process of shale gas, identify potential environmental risks and understand both the negative and positive social and economic impacts of this process. “The team consisted of representatives from the departments of environmental affairs, water affairs, science and technology, energy, mineral resources, the  Petroleum Agency of South Africa, the Council for Geoscience, Square Kilometre Array South Africa, the Water Research Commission and Eskom” (South Africa National Energy Efficiency Strategy).