Cuadrilla’s consultant’s hype over California shale turns out to be hot air


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Write-down of two-thirds of US shale oil explodes fracking myth

Industry’s over-inflated reserve estimates are unravelling, and with it the ‘American dream’ of oil independence
An oil field over the Monterey shale formation in California

An oil field over the Monterey shale formation in California: 96% reserve downgrade undermines claims that fracking is solution to the world’s energy needs. Photograph: David McNew/Getty Images

Next month, the US Energy Information Administration (EIA) will publish a new estimate of US shale deposits set to deal a death-blow to industry hype about a new golden era of US energy independence by fracking unconventional oil and gas.

EIA officials told the Los Angeles Times that previous estimates of recoverable oil in the Monterey shale reserves in California of about 15.4 billion barrels were vastly overstated. The revised estimate, they said, will slash this amount by 96% to a puny 600 million barrels of oil.

The Monterey formation, previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times larger than the Eagle Ford shale in South Texas, was slated to add up to 2.8 million jobs by 2020 and boost government tax revenues by $24.6 billion a year.

Industry lobbyists have for long highlighted the Monterey shale reserves as the big game-changer for US oil and gas production. Nick Grealy, who runs the consultancy No Hot Air which is funded by “gas and associated companies”, and includes the UK’s most high-profile shale gas fracker Cuadrilla among its clientspredicted last year that:

“… the star of the North American show is barely on most people’s radar screens. California shale will… reinvigorate the Golden State’s economy over the next two to three years.”

This sort of hype triggered “a speculation boom among oil companies” according to the LA Times. The EIA’s original survey for the US Department of Energy published in 2011 had been contracted out to Intek Inc. That report found that the Monterey shale constituted “64 percent of the total shale oil resources” in the US.

The EIA’s revised estimate was based partly on analysis of actual output from wells where new fracking techniques had been applied. According to EIA petroleum analyst John Staub:

“From the information we’ve been able to gather, we’ve not seen evidence that oil extraction in this area is very productive using techniques like fracking… Our oil production estimates combined with a dearth of knowledge about geological differences among the oil fields led to erroneous predictions and estimates.”

The Intek Inc study for the EIA had relied largely on oil industry claims, rather than proper data. Hitesh Mohan, who authored the Intek study for the EIA, reportedly conceded that “his figures were derived from technical reports and presentations from oil companies, including Occidental Petroleum, which owns the lion’s share of oil leases in the Monterey Shale, at 1.6 million acres.” Mohan had even lifted his original estimate for the EIA to 17 billion barrels.

Geoscientist David Hughes, who worked for the Geological Survey of Canada for 32 years, said:

“The oil had always been a statistical fantasy. Left out of all the hoopla was the fact that the EIA’s estimate was little more than a back-of-the-envelope calculation.”

Last year, the Post Carbon Institute (PCI) published Hughes’ study,Drilling California: A Reality Check on the Monterey Shale, which conducted an empirical analysis of oil production data using a widely used industry database also relied on by the EIA. The report concluded that the original EIA estimate was “highly overstated,” and unlikely to lead to a “statewide economic boom…. California should consider its economic and energy future in the absence of an oil production boom.”

A spokesman for the Institute, Tod Brilliant, told me:

“Given the incredible difference between initial projections of 15 billion barrels and revisions to 600 million, does this not call into account all such global projections for tight oil?”

As I’d reported earlier in June last year, a wider PCI study by Hughes had come to similar conclusions about bullish estimates of US shale oil and gas potential, concluding that “light tight oil production in the USA will peak between 2015 and 2017, followed by a steep decline”, while shale gas production would likely peak next year. In that post, I’d pointed out previous well-documented, and alarmingly common, cases of industry over-estimates of reserve sizes which later had been questioned.

Analysts like Jeremy Leggett have said, citing exaggerated oil industry estimates, that if reserve and production reality are indeed significantly lower than industry forecasts, we could be at risk of an oil shock as early as within the next five years.

The latest revelations follow a spate of bad news for industry reassurances about the fracking boom. New research published this month has found that measured methane leaks from fracking operations were three times larger than forecasted. The US Environment Protection Agency therefore “significantly underestimates” methane emissions from fracking, by as much as a 100 to a 1,000 times according to a new Proceedings of the National Academy of Sciences study published in April.

The Associated Press also reported, citing a Government Accountability Office investigation, that the US Interior Department’s Bureau of Land Management had failed to adequately inspect thousands of oil and gas wells that are potentially high risk for water and environmental damage.

Despite the mounting evidence that the shale gas boom is heading for a bust, both economically and environmentally, both governments and industry are together pouring their eggs into a rather flimsy basket.

According to a secret trade memo obtained by the Huffington Post, the Obama administration and the European Union are pushing ahead with efforts to “expand US fracking, offshore oil drilling and natural gas exploration”, as well as exports to the EU, under the prospective Transatlantic Trade and Investment Partnership (TTIP) agreement.

Dr. Nafeez Ahmed is an international security journalist and academic. He is the author of A User’s Guide to the Crisis of Civilization: And How to Save It, and the forthcoming science fiction thriller, Zero Point. Follow him on Facebook and Twitter @nafeezahmed.

Energy independence from shale up in smoke?


The shale mining fraternity, still reeling from the release of a Scientific Report on the effect of shale gas mining – released by the Canadian Council of Academies has been dealt another blow with the news that the golden energy goose of California has been reduced by 96% – by the US Energy Information Administration. The industry and its proponents in government and commerce have long been warned about the overhyping of shale gas assets in the US. Even in South Africa, the original estimates by the USGS, of 485tcf have been downgraded by South Africa’s own scientists to a ‘best case extraction scenario of 40tcf.

U.S. officials cut estimate of recoverable Monterey Shale oil by 96%

Economy, Business and Finance Petroleum Industry Energy Resources Upstream Oil and Gas Activities
The Monterey Shale formation contains about two-thirds of the nation’s shale oil reserves
An earlier estimate assumed Monterey Shale oil deposits were as easily recoverable as those found elsewhere

Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California’s vast Monterey Shale deposits, deflating its potential as a national “black gold mine” of petroleum.

Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.

The new estimate, expected to be released publicly next month, is a blow to the nation’s oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.

The Monterey Shale formation contains about two-thirds of the nation’s shale oil reserves. It had been seen as an enormous bonanza, reducing the nation’s need for foreign oil imports through the use of the latest in extraction techniques, including acid treatments, horizontal drilling and fracking.

The energy agency said the earlier estimate of recoverable oil, issued in 2011 by an independent firm under contract with the government, broadly assumed that deposits in the Monterey Shale formation were as easily recoverable as those found in shale formations elsewhere.

The estimate touched off a speculation boom among oil companies. The new findings seem certain to dampen that enthusiasm.

Kern County in particular has seen a flurry of oil activity since 2011, with most of the test wells drilled by independent exploratory companies. Major oil companies have expressed doubts for years about recovering much of the oil.

The problem lies with the geology of the Monterey Shale, a 1,750-mile formation running down the center of California roughly from Sacramento to the Los Angeles basin and including some coastal regions.

Unlike heavily fracked shale deposits in North Dakota and Texas, which are relatively even and layered like a cake, Monterey Shale has been folded and shattered by seismic activity, with the oil found at deeper strata.

Geologists have long known that the rich deposits existed but they were not thought recoverable until the price of oil rose and the industry developed acidization, which eats away rocks, and fracking, the process of injecting millions of gallons of water laced with sand and chemicals deep underground to crack shale formations.

The new analysis from the Energy Information Administration was based, in part, on a review of the output from wells where the new techniques were used.

“From the information we’ve been able to gather, we’ve not seen evidence that oil extraction in this area is very productive using techniques like fracking,” said John Staub, a petroleum exploration and production analyst who led the energy agency’s research.

“Our oil production estimates combined with a dearth of knowledge about geological differences among the oil fields led to erroneous predictions and estimates,” Staub said.

Compared with oil production from the Bakken Shale in North Dakota and the Eagle Ford Shale in Texas, “the Monterey formation is stagnant,” Staub said. He added that the potential for recovering the oil could rise if new technology is developed.

A spokesman for the oil industry expressed optimism that new techniques will eventually open up the Monterey formation.

“We have a lot of confidence in the intelligence and skill of our engineers and geologists to find ways to adapt,” said Tupper Hull, spokesman for the Western States Petroleum Assn. “As the technologies change, the production rates could also change dramatically.”

Rock Zierman, chief executive of the trade group California Independent Petroleum Assn., which represents many independent exploration companies, also sounded hopeful.

“The smart money is still investing in California oil and gas,” Zierman said.

“The oil is there,” Zierman said. “But this is a tough business.”

Environmental organizations welcomed the news as a turning point in what had been a rush to frack for oil in the Monterey formation.

“The narrative of fracking in the Monterey Shale as necessary for energy independence just had a big hole blown in it,” said Seth B. Shonkoff, executive director of the nonprofit Physicians Scientists & Engineers for Healthy Energy.

J. David Hughes, a geoscientist and spokesman for the nonprofit Post Carbon Institute, said the Monterey formation “was always mythical mother lode puffed up by the oil industry — it never existed.”

Hughes wrote in a report last year that “California should consider its economic and energy future in the absence of an oil production boom from the Monterey Shale.”

The 2011 estimate was done by the Virginia engineering firm Intek Inc.

Christopher Dean, senior associate at Intek, said Tuesday that the firm’s work “was very broad, giving the federal government its first shot at an estimate of recoverable oil in the Monterey Shale. They got more data over time and refined the estimate.”

For California, the analysis throws cold water on economic projections built upon Intek’s projections.

In 2013, a USC analysis, funded in part by the Western States Petroleum Assn., predicted that the Monterey Shale formation could, by 2020, boost California’s gross domestic product by 14%, add $24.6 billion per year in tax revenue and generate 2.8 million new jobs.

louis.sahagun@latimes.com

 

WWF and SAFM host a debate on fracking. Will President Zuma tune in?


Decisive Debate

Full Canadian scientific report released amongst industry furore


As the full report on fracking – issued by the Council of Canadian Academies was released, the oil and gas industry – quite predictably are running around trying to do damage control.

Typical industry response as in the quote from David Pryce of the Canadian Association of Petroleum Producers was “We would not agree with that. The fact that we’ve been in this business for decades in the natural gas business and 10 years in the business of hydraulic fracturing, we’ve got a great deal of experience in this place.”

The sheer audacity of such a statement in the face of this report can only be based on one underlying fact – they make their money out of oil and gas production. Of course they would not want to ‘agree’ with the report. Moreover, to make such a statement on the day that the full report is released suggests a careless arrogance, and begs the question:

“How can the Canadian Association of Petroleum Producers make a judgement call on a report that they have not yet even read through, let alone studied”?

Having downloaded the report (available here) I provide an excerpt detailing the scientists and specialists involved in authoring and releasing the report, as well as the reviewers and the final protocol observed in the compilation, review and release of the report. In my view, this is a substantial body of work that cannot be brushed aside by political leaders.

“The report should be viewed by the ANC and the organs of the South African Government charged with responsibility, or involved in any decisions on Minerals and Petroleum as a serious reason to step back from the euphoric rush to pursue shale gas mining in this country under the current circumstances.” – Jonathan Deal

HERE FOLLOWS THE NAMES AND QUALIFICATIONS OF THE EXPERT PANEL: [emphasis of specialisation added for ease of reference]

Expert Panel on Harnessing Science and Technology to Understand the Environmental Impacts of Shale Gas Extraction

John Cherry, FRSC (Chair), Director of the University Consortium for Field-Focused Groundwater Contamination Research, Associate Director of G360 – Centre for Applied Groundwater Research, and Adjunct Professor in the School of Engineering at the University of Guelph (Guelph, ON)

Michael Ben-Eli, Founder & Director of the Sustainability Laboratory (New York, NY)

Lalita Bharadwaj, Associate Professor, Toxicologist, School of Public Health, University of Saskatchewan (Saskatoon, SK)

Richard Chalaturnyk, Professor of Geotechnical Engineering, Department of Civil and Environmental Engineering, University of Alberta (Edmonton, AB)

Maurice B. Dusseault, Part-Time Professor of Engineering Geology, Department of Earth and Environmental Sciences, University of Waterloo (Waterloo, ON)

Bernard Goldstein, Professor of Environmental and Public Health, GraduateSchool of Public Health, University of Pittsburgh (Pittsburgh, PA)

Jean-Paul Lacoursière, Associate Professor, Chemical Engineering Department, University of Sherbrooke (Sherbrooke, QC)

Ralph Matthews, Professor, Department of Sociology, the University of British Columbia (Vancouver, BC); Professor Emeritus of Sociology, McMaster University

Bernhard Mayer, Professor of Isotope Geochemistry, Department of Geoscience, University of Calgary (Calgary, AB)

John Molson, Canada Research Chair in Quantitative Hydrogeology of Fractured Porous Media, Department of Geology and Geological Engineering, Laval University (Québec, QC)

Kelly Munkittrick, Director, Monitoring, Canada’s Oil Sands Innovation Alliance (Calgary, AB)

Naomi Oreskes, Professor, Department of the History of Science, Harvard University (Cambridge, MA)

Beth Parker, Director, G360 Centre for Applied Groundwater Research, University of Guelph (Guelph, ON)

Paul Young, FRSC, Vice President (Research) & Professor of Geophysics, University of Toronto (Toronto, ON)

This list of specialists, and the openness with which the report has been treated is in direct contrast to the conduct of the South African Department of Minerals which conducted an insular and secret investigation, releasing a document to the South African Cabinet, which lead to that body authorising the Minister of Minerals to lift the moratorium on shale gas mining in South Africa, under the conclusion that ‘Shale gas mining can be done safely.” – Jonathan Deal

HERE FOLLOWS THE NAMES AND QUALIFICATIONS OF THE REVIEWERS AND THE PROTOCOL APPLIED:

“Report Review

This report was reviewed in draft form by the individuals listed below — a

group of reviewers selected by the Council of Canadian Academies for their

diverse perspectives, areas of expertise, and broad representation of academic,

industrial, policy, and non-governmental organizations.[emphasis added]

The reviewers assessed the objectivity and quality of the report. Their

submissions — which will remain confidential — were considered in full by

the Panel, and many of their suggestions were incorporated into the report.

They were not asked to endorse the conclusions, nor did they see the final

draft of the report before its release. Responsibility for the final content of this

report rests entirely with the authoring Panel and the Council.

The Council wishes to thank the following individuals for their review of

this report:

Tom Al, Professor, Department of Earth Sciences, University of New Brunswick (Fredericton, NB)

Stefan Bachu, Distinguished Scientist, Alberta Innovates – Technology Futures (Edmonton, AB)

Paul Jeakins, Commissioner and CEO, BC Oil and Gas Commission (Victoria, BC)

René Lefebvre, Professor, Institut national de la recherche scientifique (INRS) (Québec, QC)

Karlis Muehlenbachs, Professor of Geochemistry, Department of Earth & Atmospheric Sciences, University of Alberta (Edmonton, AB)

M. Anne Naeth, Professor, Department of Renewable Resources, University of Alberta (Edmonton, AB)

Robert Page, Director, Enbridge Centre for Corporate Sustainability, Haskayne School of Business, University of Calgary (Calgary, AB)

Kent Perry, Vice President, Onshore Programs, Research Partnership to Secure Energy for America (Houston, TX)

Edward Sudicky, FRSC, Canada Research Chair in Quantitative Hydrogeology, Earth and Environmental Sciences, University of Waterloo (Waterloo, ON)

Jason Switzer, Co-Director, National Projects and Consulting Group, Pembina Institute (Calgary, AB)

Report Review xi

The report review procedure was monitored on behalf of the Council’s Board

of Governors and Scientific Advisory Committee by Dr. John Hepburn, FRSC,

Vice-President, Research and International, University of British Columbia. [emphasis added]

The role of the report review monitor is to ensure that the panel gives full and

fair consideration to the submissions of the report reviewers. The Board of the

Council authorizes public release of an expert panel report only after the report

review monitor confirms that the Council’s report review requirements have

been satisfied. [Emphasis added] The Council thanks Dr. Hepburn for his diligent contribution

as report review monitor.

Elizabeth Dowdeswell, O.C., President and CEO

Council of Canadian Academies

Canadian report on shale gas mining is a warning for the ANC


Breaking news from a leaked Canadian report on fracking reveal serious concerns underpinned by scientific investigation. The report commissioned in 2012 by former Canadian environment minister Peter Kent, has been developed by the  Council of Canadian Academies, ‘an arm’s-length scientific body to provide an overview of the known scientific research on fracking.

Many of the impacts, risks and conclusions drawn in the report have since 2011, been hi-lighted by TKAG and other South African stakeholders in formal communication to the South African public and various departments of the South African government as well as the Cabinet of South Africa.

Despite these caveats, now convincingly echoed from afar, the ANC has made it clear that they will be pursuing shale gas mining in SA – “The development of petroleum, especially shale gas, will be a game changer for the Karoo region and the South African economy. Having evaluated the risks and opportunities, the final regulations will be released soon and will be followed by the processing and granting of licences.” [President Jacob Zuma in his State of The Nation Address in Cape Town http://bit.ly/1o5LGRo]

Among the risks and concerns mentioned in a pre-release of the report, are the following excerpts:

[…publicly-available science on shale gas extraction to be woefully inadequate...]
[… Most experts agree that impacts on water raise the greatest environmental concern by shale gas development …]
[… Shale gas extraction, which is much more advanced in the United States than in Canada, has been proceeding without an adequate scientific understanding of its impacts…]
[… Authoritative data about potential environmental impacts are neither sufficient nor conclusive…]
[… While tens of thousands of shale gas wells have been drilled across North America over the last two decades, mostly in the United States, there has been no comprehensive investment in the research and monitoring of environmental impacts…]
[…The potential impacts of leaking wells are not being systemically monitored, and predictions (on the impacts of leakages) remain unreliable …] 
[… Shale gas can have a dramatic effect on communities, increasing income inequality and pollution …]

This report – soon to be available in an unabridged version is a vindication of the position that those opposed to shale gas mining have held in SA since 2011. Scientific documents of this nature, readily available to the ANC and its heads of Department will greet the organisation in Court when it has to justify its position and action in pushing this technology into South Africa in the manner in which it has stated it will do.

“The ANC and its ministers still have an opportunity to avoid a blunder on a global scale – or they can pugnaciously forge ahead with their stated intention to let fracking loose in South Africa.” – Jonathan Deal

Here is an abridged version of the report and a link:http://bit.ly/1iBPISf

FURTHER COMMENT / ADDITIONAL DATA : Jonathan Deal 023-358-9903  jonathan.deal@treasurethekaroo.co.za or Jeanie Le Roux – 072-959-1818 research@treasurethekaroo.co.za

 

Fracking’s greatest risk is water contamination: leaked report

APTOPIX Fracking A Closer Look

A landmark report commissioned by Environment Canada has found water contamination to be the greatest threat posed by the shale gas extraction method known as fracking.

The “Expert Panel on Harnessing Science & Technology to Understand the Environmental Impacts of Shale Gas Extraction” report finds publicly-available science on shale gas extraction to be woefully inadequate while pointing to a long list of potential negative environmental effects — of which water contamination is the most worrisome.

“Most experts agree that impacts on water raise the greatest environmental concern by shale gas development,” says the report’s executive summary, a copy of which was obtained by iPolitics Wednesday.

Increased greenhouse gas emissions, seismic activity, socioeconomic disruption and poor scientific monitoring also pose a problem for shale gas extraction, an established industry in British Columbia and Alberta but with potential in eastern provinces, the report says.

Shale gas extraction, which is much more advanced in the United States than in Canada, has been proceeding without an adequate scientific understanding of its impacts, says the report’s conclusion.

“Well-targeted science is required to ensure a better understanding of the environmental impacts of shale gas development,” it says. “Authoritative data about potential environmental impacts are neither sufficient nor conclusive.”

The report focuses specifically on shale gas extraction, which has been made possible thanks to advancements in two technologies: horizontal drilling along shale rock formations and multi-stage hydraulic fracturing, also known as fracking.

Shale deposits have been identified around the world, but North America is ground zero for the so-called ‘shale boom’.

Adequate regulation of shale gas fracking has been a pressing question for the industry, which has been the target of documentaries and environmentalist campaigns in the U.S. over the past several years.

The anxiety over shale gas fracking eventually led former environment minister Peter Kent to commission the report in 2012. He asked the Council of Canadian Academies, an arm’s-length scientific body Ottawa occasionally turns to for advice, to provide an overview of the known scientific research on fracking.

The council encountered a scientific field riddled with unknowns.

“While tens of thousands of shale gas wells have been drilled across North America over the last two decades, mostly in the United States, there has been no comprehensive investment in the research and monitoring of environmental impacts,” the report says.

A lot of information isn’t known, and a lot that is isn’t public, says the report. “As a result, many pertinent questions are hard to answer objectively and scientifically.”

Despite the knowledge gaps, the consensus among the panelists is that water contamination is the greatest threat. The report says a gas leak into groundwater poses the highest risk, which could happen if the gas travelled around the well or if it leaked through an improperly installed casing.

“The potential impacts of leaking wells are not being systemically monitored, and predictions (on the impacts of leakages) remain unreliable,” the report says.

There’s a second potential route for contamination, the report says. Fracking takes place inside rock about 1,000 meters below the surface and involves the breaking up of shale to release pockets of natural gas. The region where fracking occurs is much deeper than the groundwater level, but if there are pathways in the shale rock there’s a risk that natural gas — along with the fluids and chemicals used in fracking — could leak into groundwater, says the report.

“The migration of gases and saline fluids through these pathways over the long term could result in potentially substantial cumulative impacts on water quality,” it says. But, “There is no known case of hydraulic fracturing fluid migration from deep shale gas zones to groundwater level directly through the rock.”

The climate change impacts of fracking could be positive if fracking leads to natural gas displacing more carbon-intensive fuels like coal, the report says.

But if the shale boom takes investment away from renewable power, it could make things worse, it says.

Potential seismic effects are minimal, but a greater threat comes from the storage of wastewater in emptied-out gas pockets, it says. The council says seismic monitoring can reduce impacts.

Shale gas can have a dramatic effect on communities, increasing income inequality and pollution, the report says. A general lack of social acceptance and trust is also undermining the public’s understanding of shale gas, it says.

“Psychosocial impacts have also been reported,” it says. “Lack of transparency and conflicting messages can lead to the perception that industry or authorities are not forthcoming, which can augment concern about individual quality of life and contribute to feelings of anxiety about the future.”

The provinces, which have varying degrees of regulation when it comes to fracking, are ultimately responsible for making sure the industry operates responsibly, the report says. There will be governance challenges, however, given the disparate impacts of the industry on those near the operations and those who benefit, it says.

B.C. is nurturing the exploration of its shale gas with the aim of becoming a hub for the export of liquified natural gas. Quebec and Nova Scotia currently have moratoriums on fracking while New Brunswick is updating regulations for the divisive shale gas operations happening there.

The federal government — which has some jurisdiction over the shale gas boom through its regulation of toxic chemicals, emissions and fish habitat — has been sponsoring research programs on fracking’s impact while waiting for the Council of Canadian Academies report.

The report will be released officially in full tomorrow.

/ENDS

 

AGANG takes the lead in the fracking debate


TKAG MEDIA STATEMENT

Economics and Environmental Affairs – April 29 2014

AGANG TAKES THE LEAD ON FRACKING

 

“One of the greatest challenges facing political leaders is the choice between unrestricted development at any cost, and sustainable development that truly looks past short term benefit,” this according to TKAG ceo Jonathan Deal, in a radio interview yesterday.

Deal went on to say that the 3-year debate that had been conducted in South African media had done little to settle the facts from a scientific viewpoint, and he pointed to the inept manner in which the South African government had approached the entire question of shale gas mining as the underlying reason for the present state of affairs.

“Our government has done a shocking job of investigating this technology – which is not something that can be put into a geographical box – as in the Karoo – or attached to the timeline of an election – as the ANC promised to do. As an organisation with a solid grounding in the facts of shale gas mining, underpinned by personal and detailed inspection of fracking in the United States, we are much encouraged by the bold leadership of Agang in taking a firm stance against fracking under the current circumstances.”

“TKAG has walked a fairly lonely road in public opposition to fracking (despite the existence of various stakeholders who are preparing to oppose the issuing of licences) and it is significant to us that Agang has taken note of the research and global opposition – from ordinary communities – to arrive at a position that so unequivocally supports our view.”

“For once, it appears that the ordinary people in the street are being considered over the interests of big business and political contacts.”

“I believe that were it up to Agang, the process of public consultation over fracking, long promised, but never delivered by the ANC would have been properly planned and underway. The fact that President Zuma on TV, literally promised that South Africans will have jobs and economic benefits from fracking shows that the ANC have made up their minds without consulting the public – just like in the Etoll debacle.”

ENDS/

Jonathan Deal                                                                                             Jeanie Le Roux

CEO: Treasure the Karoo Action Group                                                         Director – operations

Landline: 023 358 9903                                                                                072-959-1818

E-mail: jonathan.deal@treasurethekaroo.co.za                                               research@treasurethekaroo.co.za

 

Shale gas – Legal opinion weighs in on potential ANC gas grab


Biznews.com

“Catastrophic” amendment threatens to make SA’s shale gas bonanza stillborn

Posted on March 13, 2014 in Interviews

My awareness of shale gas’s revolutionary potential started a couple years back at the World Economic Forum meetings in Davos. During a private dinner for technology pioneers, each table was asked to share what they believe will be the most transforming process for America over the next decade (the audience was mostly from Silicon Valley). The most popular vote went to 3D printing, but my ears pricked up when the chairman of a major oil multinational suggested it would be shale gas – which, he claimed, would re-industrialise the USA. As South Africa’s reserves are supposedly close to those that America possesses (and our economy one seventy fifth the size) I have been paying close attention ever since. Including reading the detailed research into SA’s shale gas potential by the late Tony Twine. When the way was cleared for Royal Dutch Shell to go ahead with a $200m exploration project in the Karoo, like many others I started to get really excited about the country’s potential game-changer. But in their eagerness to cash in – or perhaps ignorance of investment processes – South Africa’s politicians appear to have badly over-reached with a last minute amendment to proposed legislation governing oil and gas. On top of a free 20%  slice of all new shale gas businesses, the Government is now demanding the legalise an option to buy the balance of any project at “an agreed price”. The only local lawyer with a PhD in the subject, ENSafrica’s Luke Havemann, is appalled. He warned us yesterday ahead of the Parliamentary vote which approved the amended Bill. This afternoon’s interview began with my reference to DA shadow minister James Lorimer’s assertion that the amendment was catastrophic. – AH   

DR LUKE HAVEMANN:  ‘Catastrophic’ is a strong word, but in this situation, strong words are appropriate.  We’re sitting with a situation where the legislation is threatening the very existence of the South African oil and gas industry.  It is something you can use the word catastrophic for.

ALEC HOGG:  Just unpack it for us.

DR LUKE HAVEMANN:  Well, as you more than likely know, we have for some time been debating the Mineral and Petroleum Resources and Development Bill.  There have been many problems with that bill over the course of the last few months.  Many commentators have picked up on them, but the one that’s really sticking out at the moment is this one about the free trade interest and the additional further percentage that the government will be able to acquire down the line.  What you’re really looking at there is the taking over essentially, of the endeavours of the oil and gas industry by the government.  It has been described, as you know, as nationalisation by stealth but perhaps expropriation is a better term.  I don’t know if you’d perhaps like me to get into those percentages.

ALEC HOGG:  Sure, but just before we get there we had Rob Davies on CNBC Africa this morning actually, being rather flippant about the resistance to this, saying that there are companies lining up to get involved in shale gas.  So government doesn’t think it’s going to have any problems in finding new investors in this sector.

DR LUKE HAVEMANN:  Well, were those investors aware of the amendments made a week ago?  This current possible percentage of 80 plus 20 – 100 percent of your operation being taken away from you – that only came into being a week ago.  Yes, people have been lining up.  We were an exceptionally attractive frontier province for some time now.  The last few years have seen an explosion of interest in offshore and onshore acreage, but that was under a very different set of circumstances.  The new set of circumstances, which was brought before the Mineral Resources Committee without input from the industry and even without input from the DA members of that committee, is something that’s very new so Mr Davies’ opinion should perhaps be tempered by knowledge of the fact that the current situation only recently came into being.  We have yet to receive the industry’s comment on it.

ALEC HOGG:  It seems as though the media so far has been missing the point, certainly from the way you described it to us yesterday.  There’s a free carry of 20 percent and I don’t know if too many people can argue with that.  The country owns the shale gas, but the problem has been over and above the 20 percent.  If I understand it correctly: up until last Wednesday, Shell would do their exploration and whatever business it decided to create in shale gas, it knew that it would have to give 20 percent to the government?

DR LUKE HAVEMANN:  Yes, that is the free carried interest.  That was in the pipeline and that was understood.  There was some resistance to it, but it wasn’t unacceptable and it could be lived with, so yes, that was the situation.

ALEC HOGG:  In addition to that, there was a further amount that government would be allowed – or the state of South Africa would be allowed – to buy in the growing concern, and that amount was 30 percent – correct?

DR LUKE HAVEMANN:  That’s correct.  There was an option to acquire a further…in the amount of 30 percent and that has since changed.

ALEC HOGG:  All right.  So at least the investors were falling over themselves apparently – according to Rob Davies – when they knew they had to give 20 percent of their business to the government and government would have the ability, if it so chose at some stage in future, to go up to 50 percent to a joint partnership.  The problem is that 30 percent has changed.

DR LUKE HAVEMANN:  That’s correct.  You hit the nail on the head.

ALEC HOGG:  And the 30 percent is now…

DR LUKE HAVEMANN:  Eighty percent.  20 plus 80 and it gets you to 100 percent.

ALEC HOGG:  So it’s nationalisation, in other words.

DR LUKE HAVEMANN:  Well, that’s the word that’s been bandied about.  When it first came to light in that Mineral Resources Committee meeting, the relevant members from the DA said ‘but this is nationalisation’.  I think they were the ones who first used the word.  It certainly smacks of it.  It’s something that needs to be looked at very closely.

ALEC HOGG:  Let’s just understand this in terms that anyone can understand.  Shell is going to spend two-and-a-half billion Rand/250 million US Dollars exploring.  If it all comes out rosy, as we all hope as a nation, and then they might possibly spend another $10bn for argument’s sake, in creating a business here.  If that business becomes profitable, the way the law is now written the government of South Africa can buy back that business.  At what price?

DR LUKE HAVEMANN:  Well, the original position was that they’d have to pay Fair Market Value.  That has apparently since changed, under the latest Amendments to the Bill and is now going to be ‘acquisition at an agreed price’.  What is an agreed price?  What is it going to be?  That’s the next question, now.  That’s the latest Amendment.

ALEC HOGG:  So an agreed price between two parties in fact, could be quite a long way from market value.

DR LUKE HAVEMANN:  It could very well be a long way from market value.  The interesting thing is the new legislation says the state is entitled…has a right to exercise that option, so there’s a strength on the side of the law – on the state’s side.

ALEC HOGG:  So government has approved these Amendments.  What happens next?

DR LUKE HAVEMANN:  The Bill will now go to the National Council of Provinces to be voted on there.  After that, it needs to go to the President for his signature to become law, so there are still two steps left.

ALEC HOGG:  And if it does become law, what is your sense from the industry about how they will react?

DR LUKE HAVEMANN:  Well, the industry may well challenge it.  I know if many of them will be willing to do so, because you don’t ever want to bite the hand that feeds you.  At the end of the day, the state is the one that grants you the rights you need in order to exploit our resources, so to challenge them would not necessarily be in your best interest.  There may be a backlash.  What they may well do is simply relinquish their acreage, start looking elsewhere, and look for a favourable legal environment – further north perhaps.

ALEC HOGG:  So elsewhere on the continent – elsewhere in the world…

DR LUKE HAVEMANN:  Yes, elsewhere on the continent…I suspect East Africa.

ALEC HOGG:  But surely, there’s a Plan B in all of this from the government’s perspective.  If you are putting these draconian measures into law, that will get rid of most Western Investors.  Would it be someone in the east perhaps, who is ready to come in?

DR LUKE HAVEMANN:  Okay, this is all speculation.  I’d like to know what government’s Plan A is at the moment; let alone what Plan B is.  This sudden change of tack at the moment is leaving everyone with their jaws open, saying ‘what are we doing?  What’s the motivation?’  I’d love to understand it and many of us would.

ALEC HOGG:  Not quite everyone…Rob Davies says that they’re lining up to come in, but as you say, perhaps he’s working on outdated material.

DR LUKE HAVEMANN:  Look, I think what he needs to do is consult with the industry.  The industry – when the news broke – said ‘we weren’t consulted on this’, so let’s consult with the industry, unless he did so in the course of the last week.  Let’s hear what they have to say about it.