North and South Africa hold shale gas potential
The continent has lots of shale gas, but development will happen more quickly in the south than the north
In Africa, it is the northern and southern ends of the continent that hold most of the shale gas potential – regions not only distinct geographically, but also in terms of the prospects and operating conditions on offer.
In North Africa, shale gas deposits lie mainly in countries where unconventional supply is regarded as an adjunct to more lucrative and easily accessible conventional oil and gas supply, such as Algeria and Libya. In the south, it is South Africa, a country yet to find major oil and gas reserves and keen to do so, where the largest shale gas deposits lie.
South Africa’s relatively stable political background, less opaque investment framework and the estimated size of its shale reserves – its technically recoverable resources of 390 trillion cubic feet (cf) are the world’s eighth largest – are likely to benefit its push towards early commercial production. However, it will have to develop exploration and production infrastructure virtually from scratch.
In 2010, Shell, Falcon Oil & Gas, Australia’s Challenger Energy (then called Sunset Energy) and a group involving Statoil, Chesapeake Energy and Sasol were among those lining up to take licences in South Africa’s Karoo basin, which covers much of the centre and southeast of the country.
They were allocated technical cooperation permits (TCPs) that allowed desktop studies, with the option of then applying for reconnaissance permits, which would allow surveying, but no drilling. Shell, which was given TCPs for a 90,000 sq km slice of the Karoo, said in 2012 it could invest at least $200 million in initial shale gas exploration if it was given the go-ahead to drill.
Hoping to lessen its over-reliance on coal for power, the South African government appeared keen to exploit the Karoo’s shale gas, if environmental and practical obstacles could be overcome. However, stiff opposition to water-intensive fracturing in a fragile agricultural region with little of its own water to spare – and with a nascent tourism industry – led to a moratorium on drilling in 2011. That moratorium was lifted in September 2012 and the government now says drilling will be allowed once new laws governing the sector are in place. Proposed regulations, published in October 2013, require drillers to meet US best practice on the type of equipment used and the disclosure of chemicals.
The need to ensure careful water management by piping in supply from outside the Karoo and satisfy concerns over water-table contamination and the impact of infrastructure on the environment could still delay drilling. But Ngoako Ramatlhodi, South Africa’s mineral resources minister, said in July the government was keen to push ahead with upstream oil and gas development as quickly as possible.
Proposed legislation, which would give the state the right to take at least 20% of new gas and oil exploration and production ventures, has attracted criticism from some quarters of the industry – one factor behind a review of the legislation by lawmakers. Ramatlhodi told the South African Press Association this review would be guided by three factors: “That the state secures its interest, that we enable investors to be able to invest and with the expectation to make reasonable profits out of their investment.”
Despite the uncertainties, corporate interest is perking up. In July 2014, Philip O’Quigley, Falcon’s chief executive, said the company expects to be awarded an exploration licence for its shale acreage in the Karoo before the end of this year, once technical regulations are published. He said the Dublin-based, Toronto-listed firm may seek a farm-in partner at that stage. Chevron, which signed a five-year exclusive cooperation pact with Falcon for Karoo development in December 2012, would seem a likely candidate, analysts say. Falcon’s TCP in the Karoo covered one 30,000 sq km permit area.
Australian junior Challenger is also keen to push on with developing its Karoo permit, which it holds via its local subsidiary Bundu Resources and which forms the core part of its business. Robert Willes, Challenger’s chief executive, said earlier this year the company was weighing up its farm-in options. He also said shale-gas reserve estimates for the Karoo may be on the low side, as the 390 trillion cf estimate provided by the US Energy Information Administration only related to one interval of the shales, the Basal Ecca Shales, whereas gas that flowed from early exploration of Challenger’s 4,000 sq km permit in the heart of the most promising looking part of the Karoo came from shales lying at a higher level. That referred to results from an unstimulated, vertical well drilled in the 1960s. However, given the restrictions on exploration, which also preclude seismic surveys, no one in the industry is making too many presumptions about precisely what lies under the Karoo or how easy it will be to get it out.
Algeria has the world’s third largest estimated shale gas reserves (its technically recoverable reserves are estimated at around 707 trillion cf), almost twice as large as those of South Africa, and almost a quarter larger than those of the US. However, they have been left largely unexplored so far, as the country has focused on eking out its declining conventional gas reserves. That may be about to change, as the country struggles to meet surging domestic demand while still fulfilling its long-term export contracts.
In May 2014, the government announced it would be seeking foreign partners to develop shale gas reserves, building on its existing partnerships. It signed accords related to initial studies of shale gas potential in various licence areas with Eni, Shell and Talisman Energy in 2011-12 and has held talks with ExxonMobil over a similar pact. Last year, Algeria also held talks with Gazprom over possible involvement in conventional and shale gas exploration, though the outcome is unclear.
The presence of existing gas infrastructure in Algeria will be a big advantage for drillers, if shale gas reserves close to pipelines and processing plants can be developed. However, shale gas development looks likely to be a long game. No major exploration has taken place so far, and the government said in May that its plans envisaged the drilling of just 11 wells over the next seven to 13 years. However, according to media reports in July, Algeria now plans to drill four shale-gas wells by the end of 2014, though there was no indication of who would drill them. Analysts note that the Algerian government’s plans related to the energy industry often do not come to fruition as envisaged.
Meanwhile, potential foreign partners will be waiting to see if terms on offer from state energy firm Sonatrach are lucrative enough to warrant the expense of drilling in largely uncharted terrain – and weighing up the threat of terrorism in remote areas, highlighted by the attack on the In Amenas gas facility in January 2013.
The threat of violence is certainly scuppering the chances of shale gas development in neighbouring Libya, which is struggling to maintain conventional oil and gas production and exports amid increasing unrest. An exodus of foreign companies from the country triggered by the war that toppled former leader Muammar Qadhafi is unlikely to be reversed in the near future. So while the National Oil Corporation has outlined plans to increase the share of joint ventures available to foreign firms to help exploit Libya’s technically recoverable reserves of around 122 trillion cf of shale gas, there are likely to be few takers in the short term.
Other shale deposits
Other North African countries have also expressed interest in exploiting their shale gas deposits, though estimated reserves are for the most part much lower than in Algeria and Libya. Egypt, which has the region’s third largest technically recoverable reserves (100 trillion cf), is seeking to promote exploration. In November, state-owned Egyptian Natural Gas Holding Company said the company was carrying out a feasibility study for shale gas exploration in the Western Desert with Shell and Apache.
In Tunisia, which has a technically recoverable reserves base of 23 trillion cf, the Canadian junior Winstar played up the results of a 2012 resource evaluation by Nutech Energy Aliiance in acreage in the Silurian Tannezuft hot shale in the Ghadames basin of southern Tunisia. Winstar – now part of Polish-based Serinus Energy – said some its acreage showed shale gas play parameters that appeared equal to or better than some established US gas shales. However, little apparent progress has been made on development since then.
Morocco, which has shale gas reserves pegged at 12 trillion cf, has one of the region’s most favourable investment regimes for energy explorers, but for now is more focused on developing shale oil and offshore conventional oil and gas than shale gas.