With South Africa’s dirty record in electrical power generation it’s hard to imagine a worse place to try and tackle the environmental problems associated with it.

Eskom, which is responsible for the generation of almost all our electricity, has a terrible environmental record. Even if one ignores the environmental impact of coal mining or air pollution, at 0.96kg of CO₂ per kWh fed into the grid, Eskom is one of the world’s worst emitters of CO₂. South Africa’s economy is unusually carbon intense. Even if one discounts the problem of greenhouse gas emissions, Eskom’s power stations consume about 1 433 litres of water per MWh fed into the grid. Several studies show that 98% of South Africa’s available water resources are already allocated for other uses and there is no prospect of increasing our water supply for power generation. The water to be used by Medupi power station in the Waterberg has to be piped there from elsewhere.

We have all got used to cheap and abundant electricity and our industrial base exists because of it. But, as we have seen, things are changing quickly. We have seen exponential increases in the costs of electricity and our supply is no longer reliable as Eskom stumbles from one problem to the next with rolling blackouts now commonplace.

One of the important changes that has taken place elsewhere is the emergence of natural gas as an alternative source to coal. Coal is effectively 100% carbon. Burning one tonne of coal produces 3.7 tonnes of CO2. Natural gas (methane) or CH4 generates more heat from combustion so you only need 0.69 tonnes of methane for each tonne of coal. The CO2 from that 0.69 tonnes will only be 1.89 tonnes or half the amount of CO2 emissions. The increased use of gas is acknowledged both in the most recent edition electricity Integrated Resource Plan (IRP) and the National Development Plan.

For this reason, while natural gas is still a fossil fuel some environmentalists give it a qualified welcome. The USA has been able to increase its electricity generating output and reduce its CO2 emissions via substituting coal for gas. If China or India did the same, big inroads could be made into global carbon emissions. Gas can serve as a type of intermediary to a lower carbon world. Smart grids and better local storage/batteries are just around the corner. Once this happens, electricity could conceivably displace oil in the transport sector as well. Transport is responsible for 20% of global CO2 emissions. Better storage (in the batteries of electric vehicles) then paves the way for renewables no longer constrained by their intermittent nature.

The gas revolution is well underway and a big part of this is because of the discovery of shale gas in the USA, as well as new techniques to extract this gas via what is called hydraulic fracturing or fracking. The USA is not only becoming energy independent but has also been able to provide its citizens and businesses with cheap electricity. The debate about the environmental damage caused by fracking rages on in the USA and the impact of cheap and abundant energy reverberates around the world. Hardly a month goes by without some new claim of shale gas discovery in some part of the world.

The water scarce Karoo basin was one of those discoveries. Four years ago the US Energy Information Agency estimated that the Karoo basin holds as much as 450 trillion cubic foot (tcf) of shale gas. Many environmentalists were aghast and quickly pointed to various dangers, notably the potential contamination of ancient reservoirs of underground water. Several activist groups formed to oppose fracking in the Karoo and to target exploration companies, like Shell, who sought exploration rights. In 2012 the Minister of Mineral and Energy decided to lift the moratorium on shale gas exploration in the Karoo and followed up late last year with draft regulations governing further exploration and fracking.

The debates around fracking, its merits and dangers have filled hundreds of column inches but it has obscured the real issues. The Karoo gas will remain locked in its tight shale formations untouched for our lifetimes and those of our children. Here is why:

Most of the USA’s shale gas has been found in a shale formation known as the Marcellus Shale which at its maximum depth is 2km underground. The Karoo shale is much, much deeper at around 4km. This is not an impossible hurdle but it makes extraction much more difficult and expensive. The USA has also used natural gas for a long time and has a well developed downstream infrastructure including a vast network of pipelines which can convey the gas to the parts of the country where it can be used. We have none of these things so we will need to literally build everything from the ground up.

This then means that the floor price we will need to pay for Karoo gas will be higher than it is in the USA – to factor in the higher costs. Last month the estimates for Karoo Shale gas were revised down from 450 to 40 tcf – an order of magnitude far smaller than the initial estimate and less than Shell said was commercially exploitable.

And so the prospect of Karoo shale gas becoming an economically viable resource is poor. In part, because our neighbour Mozambique has proven conventional natural gas reserves of 100 trillion cubic feet (tcf) and its northern neighbour, Tanzania, another 30 trillion cubic feet. This is just the start: a recent study by the US Geological Survey predicts that the region has 440 Tcf of natural gas.

From: Natural Gas Master Plan for Mozambique 26 August 2012 http://www.mirem.gov.mz/relatorios/draft_executive_summary_short%208-26-12.pdf

All this will upend South Africa’s plans in the Karoo. Because Mozambique’s economy is so under-developed, it cannot consume any significant part of the resource domestically. South Africa is an obvious market for Mozambique’s gas. Already Sasol imports 450 mcf (thousand cubic feet) annually to its Secunda plant via a gas pipeline and this is due to be upgraded and expanded. Sasol has committed R33 billion to its current and future investments in Mozambique.

Developments elsewhere in the world have seen massive investments in Liquefied Natural Gas (LPG) which will see gas being transported in much the same way that oil is now – delivered to the major industrial ports and harbours of the world. This will mean that differences in gas prices (Japan pays three times the price for gas than is paid in USA) will reduce and they will reduce to below the price that we can extract Karoo gas and get it to where it can be used. For better or worse the world looks to be moving into an era of cheap gas and this does not bode well for those wanting to exploit hard to extract resources in out of the way places.

Any remaining doubts about just how dim the prospects for Karoo gas are were further dispelled last week with the passing by parliament of the Mineral and Petroleum Resources Development Act Amendment Bill which included a raft of regulations that empowered the Minister of Mineral Resources to take key decisions but also alows the State to have a free 20% stake in all exploration and production rights and the rights to buy the remainder of shares at “an agreed price”. It is an ill-advised piece of legislation that will stymie any investment in mining or gas. It takes the prospect of Karoo shale gas off the table.

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Approximate Conversion Factors

The metrics used in the Gas Market differ from oil prices. The metric measurement used for gas is gigajoules (GJ). In the US, the measurement used is Million British Thermal Units (MMBtu). These measurements are roughly equivalent ( 1 GJ = 0.95 MMBtu)

There are roughly 35,31 trillion cubic feet (Tcf) in 1 cubic meter (TCM) of gas

A barrel of oil (bbl) equals 42 gallons or nearly 160litres of oil.

1 tonne of LNG equals 52MMBTU

There is approximately 6 MmBtu or 6 GJ of natural gas in a barrel of oil equivalent

A barrel of oil (bbl) is 42 gallons or 160 litres of oil.

A barrel of oil renders approximately 1.7MWh.

1 tonne of LNG renders approximately 15.2MWh

1 tonne of LNG equals 9 bbl of crude oil

1 mtpa of LNG equals 130MMBTU/day or 1.37 Billion cubic metres (Bcm)

Current Combined cycle gas power plant use roughly 7 000 MmBtu to produce 1GWh of electricity.

1mpta of LNG is sufficient to supply a 1 GW Combined Cycle Gas Plan running at a load factor of 90%

Mozambique generated 16 963 GWh of electricity in 2009 (World Bank)

Eskom has a total generating capacity of roughly 38 000 MW of which more than 90% is from coal fired power stations and consumes over 90 million tons of coal per annum to generate about 196 308GWh of electricity per annum.

Theoretically, If SA replaced all its coal fired power stations with combined cycle gas stations, it would consume nearly 1.4tcf of natural gas per year.

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