Regulatory Framework Policy Changes and future of Shale Gas Industry: Department of Mineral Resources (DMR) & Petroleum Agency SA (PASA) briefing

Meeting report

Opening remarks

The Chairperson said the mining industry in South Africa had seen a lot of instability over the years, and the challenges which continued to re-emerge needed to be addressed at some point. The Committee had sought to engage various stakeholders on issues around job creation, economic and environmental conditions, which continued to be a problem.

Mr Godfrey Oliphant, Deputy Minister, Department of Mineral Resources (DMR) indicated that he was with the team from both the DMR and the Petroleum Agency of South Africa (PASA). The presentation would be a joint meeting. He said the regulations were at a very advanced stage, and they should be gazetted soon. Shale gas had the potential to have a serious impact within the energy space, the gas to liquid space and the technology space within the country. The country was doing a lot of research work with the United States of America and in Canada, in an attempt to benchmark best practices. He indicated that the DMR had the necessary experience to take the mining industry forward.

The country was celebrating 60 years of the Freedom Charter and the clause which talked about the wealth of the country being shared among its people was very important and relevant. In the past 100 years of mining, the country had learned about the environmental damage which could result from mining, and the DMR was working to minimize this. South African laws had also improved significantly since 1994 to try and ensure that the environment was being protected. The questions around the health and safety of workers were also paramount, and over the past ten years the number of fatalities and injuries in the sector had been reduced. The country was also going through a time where the price of some of the commodities, such as platinum and coal, were very low and this was causing some difficulties. However, the country was confident that there would be a turnaround in the prices.

With regard to job losses, he said there had been engagements within the industry between the relevant departments and the trade unions, and solutions were being devised. The question of transformation had also been one which the DMR was committed to addressing. The country was a cross roads -- it had taken ten years to effect transformation where targets were set. The Minister would be releasing the final report in June 2015 on the Mining Charter compliance issues. Ex-mine workers had also been destitute, and each ex-mine worker had the right to a free medical examination every two years. Special clinics had been set up in the Eastern Cape, Gauteng and in the Northern Cape. One–stop service centres would be established throughout the country where mine workers could go for examination, compensation, rehabilitation and all the other support they might need.

DMR and PASA on the Shale Gas Regulatory Framework

Mr Mosa Mabuza, Acting Director-General: DMR, said that in February 2011 the DMR had imposed a moratorium on the processing of new applications for reconnaissance permits, technical cooperation permits, exploration rights and production rights. An interdepartmental team had been convened to investigate and submit a report on the potential environmental risks associated with hydraulic fracturing, as well as the negative and positive social and economic impacts of shale gas. The inter-departmental committee developed Regulations for Petroleum Exploration and Production to address the following:

• Augmenting gaps identified in the current regulatory framework governing exploration and production of petroleum resources, particularly in relation to hydraulic fracturing.

• Prescribing good international petroleum industry practices and standards that would enhance safe exploration and the production of petroleum.

The Mineral and Petroleum Resources Development Act (MPRDA) was the main legislation governing petroleum resource applications. The regulations were developed in terms of section 107 of the MPRDA. The regulations were not exhaustive on their own and had to be read where applicable and relevant with other applicable legislation. With regard to the future of shale gas, he indicated that estimates of the resource by PASA and the Council for Geoscience (CGS) suggested a deterministic best estimate Technical Recoverable Gas resource of 36 TcF (Whitehill formation only), which was 30 times the basis of bankable feasibility of Mossgas. To date, five applications had been received for exploration of shale gas, using the hydraulic fracturing method. Regulations for Petroleum Exploration and Production were being gazetted to enable processing of these applications.

A R108m budget allocation, as announced during the finance budget vote, had enabled both PASA and the CGS to undertake research, including the baseline modeling and observed changes during deep drilling in the Karoo. The MPRDA Bill had made provision for an unprecedented policy shift through regulatory provisions for State participation in the exploration and production of petroleum resources. If proven feasible, shale gas development had the potential to contribute to the development of black industrialists, decent employment opportunities, poverty elimination and skills development, as well as to ensure the security of a cost-effective energy supply and a reduction in the country’s carbon footprint.

There was an immediate need to expand the country’s national capacity to generate electricity. PetroSA’s gas to liquid project supplied approximately 5% of the national demand for liquid fuels. Therefore, even a moderate shale gas resource potential would have positive effects on the national energy landscape by contributing towards a diverse energy mix and security of supply. The regulatory framework was being finalised to trigger the development of shale gas in South Africa – the gazetting of regulations precedes the finalisation of applications for exploration. The augmentation of the regulatory framework sufficiently provides for protection of the environment, water resources and the national astronomy programme

Discussion:

Ms A Lovemore (DA) said that in 2014 she had attended a meeting held by the Select Committee on Land, where the Minister had given a briefing. According to the Minister, the regulations on shale gas would not be gazetted until a second round of public consultations on the draft regulations had taken place. When would this happen? She said her constituency area was one of the areas which were being targeted for fracking. Additional public hearings were supposed to take place before the final gazetting. What had happened with this? There had been threats of legal action, and the DMR needed to guard against this. The Strategic Environmental Assessment had recently been announced, and it had been welcomed because there were major environmental threats in hydraulic fracturing. The Eastern Cape was funding a baseline study at the Nelson Mandela Metropolitan University (NMMU), but the strategic environmental assessment would take two years. How was it possible that the DMR could say the regulations made sufficient provision for the mitigation of impacts when it was still impossible to quantify the impact? It did not have a strategic environmental assessment.

She said many countries around the world were banning hydraulic fracturing, including Holland. This was for good reason -- there was a very strong argument that technology to mitigate the risks of hydraulic fracturing was not available. Could the DMR comment on this? The Minister of Water and Sanitation, in response to a Parliamentary question, had indicated that she would declare hydraulic fracturing a controlled activity in terms of the Water Act, over the next two months. This would potentially put a hold on any activity with respect to hydraulic fracturing. Was the DMR working with the Department of Water and Sanitation in this regard? What was the nature of the relationship?

Mr M Matlala (ANC) said the issue of hydraulic fracturing was very technical. The information around “cubic feet” was very difficult to understand. Could the DMR simplify this?

Nkosi Z Mandela (ANC) asked about the inter-departmental committee to which the presentation had referred. Who was leading these discussions and which departments were part of the committee? What were the issues and concerns which had arisen from the collective engagements with these departments? Who were the five applicants referred to in the presentation? Was the DMR anticipating more applications for exploration rights? Out of the five applications which had already been received, had the empowerment of local communities through Broad Based Black Economic Empowerment (BBBEE) been ensured? The concerns around exploration and the impact of this on the environment and on water resources could not be undermined. The entire global community was facing serious water shortages. With regard to the potential to develop black industrialists, creating employment opportunities and eliminating poverty, what studies had been undertaken? How many black industrialists would be created? What employment opportunities would be employed through the shale gas initiative? He said there was a danger of job losses because some mining activities would be taking place on agricultural ground. What was the priority with regard to employment opportunities?

Mr I Pikinini (ANC) asked what the alternative methods to fracking were. He said public participation was one of the government’s priorities -- no work in the affected communities could take place without the local communities being consulted.

Mr H Schmidt (DA) asked whether the regulations presented had been finalized, or whether there would still be more public consultation. Were these the final regulations? The study which would take two years, would first need to be finalised before the applications could be approved. What was the DMR’s point of view in this regard? Was the DMR of the view that the applications should be considered despite the results of the strategic development studies? What was the timeframe for the finalisation of the regulations?

Mr J Esterhuizen (IFP) said the country had a high unemployment rate. It would therefore contribute significantly if sufficient shale gas reserves were found. However, there were negative effects to exploration. For example, there were serious water shortages in the Karoo, and shale gas exploration would have a negative effect in the area. To what extent had these issues been taken into consideration?

Mr Oliphant said there had been a lot of consultation. This was taking place continuously, and the country was learning from countries which had been doing this kind of exploration for years. The DMR would not be reckless about the water and environmental concerns being raised all over the country. The DMR had the same concerns shared by the Committee and the country. The government was irresponsible. He explained that “cubic feet” was a measure of the quantity of the gas. The inter-departmental committee had been established to look into all aspects relating to shale gas. He assured Members that concerns around the environment were taken very seriously by the DMR.

Mr Mabuza said the government took environmental risks very seriously. South Africa was a water scarce country, and the Karoo in particular. In the past four years, the DMR had been engaging communities through public consultation. A whole month would be set aside to deepen public participation, particularly in the areas affected. According to the MPRDA, every applicant had a responsibility to consult extensively with affected communities. It was required that the applicant had to demonstrate that sufficient public consultation had taken place. The provisions contained in the law, for example, would be balanced with the regulatory development process, and elements of consultation which had taken place. The DMR was confident that community consultation had not been left out.

With regard to the strategic environmental assessment, he said the DMR did not know whether there was anything exploitable at the current stage. The DMR currently had very little information. The regulations would enable for the country to begin to undertake exploration -- not that hydraulic fracturing in the Karoo would take place immediately, but the regulations would allow for South Africa to explore to determine whether the country really did have shale gas. It was estimated that exploration would take place between three and seven years. This would give the country the confidence to know what could be explored. Exploration should be allowed to take place, as this would provide the country with the much needed information and clarity to move the country forward. The strategic environmental study, together with other studies which would be undertaken by Pasa, the Council for Geoscience and the Department of Science and Technology over the next two to three years would be in sync with the exploration phase. These studies would assist the DMR to further augment the regulations so that any risks which had been omitted could be taken into consideration.

With regard to the jurisdiction in Holland which had banned hydraulic fracturing, he said the United Kingdom had also banned it and in April 2015, there had been an announcement that there had been a discovery of a 100 billion barrel oil deposit. The government was therefore considering un-banning hydraulic fracturing because it was the best technology for extracting the oil. South Africa therefore needed to exercise caution in following other jurisdictions. Decisions were taken based on the conditions of a particular country at a particular time. The technology rather needed to be developed in a way which protected the environment and the country’s water resources, and contributed towards the development of the country. There were also other jurisdictions in which the technology had done exceptionally well, Canada being one. He indicated that the Minister of Water and Sanitation was part of the streamlined process, so the work of all the departments which related to mining and petroleum resource development was collaborative in nature.

The inter-departmental committee was led by the DMR, in collaboration with the Departments of Environmental Affairs, Water and Sanitation, Science and Technology, Trade and Industry, and Energy, and all the institutions within these departments also provided technological support to the committee. The concerns which had arisen from the engagements included issues around coexistence of shale gas and the Square Kilometer Array (SKA), and over time these had been resolved. The regulations explicitly protected SKA. Another was about how the country could ensure that there was synergy between the work of the DMR, the National Environmental Management Act (NEMA) and the Department of Water and Sanitation. The risk of whether indeed there was shale gas in the Karoo was another issue. Others included job creation and the inclusion of black industrialists, among others. The five applications were public knowledge -- three of the applications were from Shell.

Ms Lindiwe Mekwe, Chief Executive Officer: Pasa, said five applications for exploration rights had been received, with an addition of two technical cooperation permits over the Karoo. The reason why there had been interest only in the five applications was because exploration rights brought with them invasive activities. Of the five applications, three were by Shell; the other two were from Buntu Gas and Falcon. On the question around what alternative methods to fracking there were, she said these were desktop studies, which were concerned with gathering data done previously, analyzing and assessing it.

Mr Mabuza said that the DMR would ensure that empowerment took place. As soon as the regulations been gazetted and processed, the transformation aspect of the application would also be considered. None of the rights for exploration had been granted yet. On the impact of the exploration on the environment and on water, the DMR had introduced a particular casing which protected surface water and made sure that the environment was protected from any drilling. Shale gas was accessible only at depths of over 2 kilometers, while fresh water was found in the top only 200 to 300 meters. Anything below that was water which could not be consumed – brackish water, to be exact. Part of the research was to look at alternative water sources, and whether sea water could be another option. The feasibility of these options would be assessed. The DMR would await the two-year study while exploration was taking place, and hopefully the exploration results would indicate that there was shale gas which could be produced. At that stage, the DMR would have considered alternative water sources, and applicants could submit their applications for production rights.

The Chairperson said Members were raising the same concerns around what the actual economic output would be, and currently there seemed to be a lot of uncertainty in this regard. He acknowledged the sentiments of the DMR that consultation was an ongoing process, but how far had the process of public consultation gone, and could the public still make submissions? What did the public consultations entail? To what extent were the issues around the Mining Charter going to be addressed? To what extent would consultations respond to issues of beneficiation? How extensive would the discussions be? He said the process was still in the early stages. The regulations were to deal with the framework for regulations, and no exploration had been done yet. Research had shown that there was potential for the exploration of shale gas, so the regulations would assist in the process of exploration. He said the Committee could not make decisions on behalf of other committees. However, the issue which had not been clarified was what corrective measures would be taken if no shale gas was found during exploration. Did the process allow for further public participation?

Mr Esterhuizen said it was estimated around R200 billion would be spent on fracking, with over 7 000 indirect and direct jobs being created. However, this was very ambitious. Had the environmental and cultural concerns been taken into consideration? What regulations would be imposed and how would they be enforced? With improved drilling methods, risks could be reduced to below 2%, but the process was still a risky one regardless. In a remote area like the Karoo, the people’s livestock would be negatively affected or even wiped out.

Ms Lovemore said applications had already been received -- what were they requesting? Desktop studies would be going ahead, but with Shell the fracking would take place only after the renewal of the rights, which would be three years after the granting of the rights. Did this mean that in the next three years, no hydraulic facturing would be taking place? With regard to the second round of public consultation, she said the original agreement was that this would take place before the regulations were tabled, even though the regulations were not cast in stone. This commitment had been made by the Minister. Could the DMR provide some clarity in this regard?

Mr Schmidt asked whether the regulations had been finalised. What were the timeframes, and how long would it take for PASA to finalise the regulations?

Mr Matlala said questions which Members were raising were related to other departments such as the Department of Water and Sanitation and the Department of Environmental Affairs, and they were not questions to which the DMR could respond. He suggested that these departments and other relevant departments be invited to provide more clarity to the Committee.

The Chairperson said all Members were at liberty to raise any questions during a meeting. He agreed that many of the issues under discussion overlapped with the mandates of other departments. The Committee could then make a determination about matters outside of its mandate, if there was agreement. In responding to the outlined challenges, the committees therefore needed to synergize their work. 

Ms H Nyambi (ANC) agreed with Mr Matlala that other departments, such as the Department of Agriculture, should be invited to a meeting.

Mr S Jafta (AIC) supported the suggestion by Members that other departments be invited to brief the Committee about their concerns on the framework. What role had been played by the DMR during the consultations? He said the communities affected should be well informed about the process of shale gas exploration during the public consultations.

Nkosi Mandela said the inter-departmental committee established by the DMR was relevant, because the issues and concerns being raised by Members were cross-cutting. As stated by the Members, the issues included water and environmental concerns. He supported the proposal of a joint committee meeting.

Mr Oliphant said the DMR would take guidance from the Committee with regard to the proposal of a joint committee meeting, and would make itself available for a presentation. Mining was very broad, because it affected many facets of life. For example, the co-existence of mining and agriculture was very important for South Africa’s economy. The mandate of the Committee was actually very broad, and Members should not limit themselves. With regard to public consultation, he said the MPRDA required every applicant to consult the public, but government had taken a broader view of these consultations. The government had held meetings with various stakeholders over the last four years, and consultation was a continuing process. Public consultation was the cornerstone of the country’s democracy, and the government was committed to ensuring that there was proper understanding over the next two years.

Ms Mekwe said two applications had been received from Bundu and Falcon in relation to the exploration work programme which they had submitted, together with their applications for exploration rights. One of the things they had indicated was that a desktop study and safety survey would be conducted. Should the Minister approve them, these the two companies would be entitled to carry out these activities only in the first term of the licence. Shell had indicated that they would also do a desktop study and conduct the survey, but they would take part in hydraulic fracturing only in their first year of renewal. If the Minister decided to grant Shell the exploration rights, they would do the hydraulic fracturing only after the first term of their rights being renewed.

Mr Mabuza added to the responses around consultation and said the first draft had been published in October 2013, with over 150 submissions being received, and the DMR had held workshops thoroughly around the technical aspects of the process. The Minister had also been part of discussions within the Oudtshoorn community. One of the most encouraging aspects which had emerged from these discussions was that the community had shown great anticipation towards fracking in their community. The regulations developed by the government mandated full disclosure of all the chemicals used during the process. Consultation would take place after the publication of the regulations. The regulations enabled exploration to take place. The country’s air quality controls would regulate the emissions. He said the regulations were final, as they related to the process which the DMR had outlined. 

Mr Oliphant asked that the Committee invite the DMR to its joint meeting. He reiterated that hydraulic fracturing used a lot of water to fracture the rocks, but there were other methods available -- other than using water -- and these were being explored.

Mr Mabuza said the DMR had developed a shale gas communication strategy to educate South Africans more about shale gas. The strategy would also ensure continued public participation engagements, and would ensure that information was adequately disseminated to the public. This strategy was an extension of the public engagement programme.

Mr Oliphant said the DMR was committed to doing evidence-based research. He said Members could also undertake study tours to jurisdictions where fracking was currently taking place, so that the country could learn from the experiences of other countries. There were many economic benefits to fracking, but the two-year process needed to be allowed to take place. The public needed to be patient.

The Chairperson asked if there was a possibility that there would be another round of public consultations before the regulations were gazetted. The main concerns seemed to be around environmental and water issues, so further engagements with the DMR and other departments were therefore necessary. The Committee did not have the authority to make a final determination on the matters being discussed. The suggestion of a joint meeting had been supported, and it would be arranged. He asked that the DMR compile a report for the Committee which would include information on a detailed report for the Committee. The report would include a detailed background on shale gas, the challenges and advantages of the process, possible threats and opportunities, and an outline of the extent to which consultative work had been done. The report needed to be straightforward and frank, and also needed to indicate what economic growth and job opportunities were anticipated. Was there potential for the process of shale gas exploration to be aborted, because it would not be a viable option? To what extent would shale gas benefit indigenous South Africans?

Mr Esterhuizen said committees had a responsibility for oversight. He thanked the DMR for the presentation.

Mr Schmidt supported the proposal of a joint meeting, and that of a report from the DMR.

Chairperson asked that a copy of the regulations should be included in the report.

Nkosi Mandela seconded the proposals.

Adoption of minutes

Nkosi Mandela moved the adoption of the Committee minutes of 13 May 2015, without any amendments.

Mr Matlala seconded the adoption.

The minutes were adopted without any amendments.

The meeting was adjourned.