EXPLORATION: Legislative Problems Around Fracking In The Karoo
Recent Western Cape Business News
UNTIL public consultations commenced as required by the Mineral and Petroleum Resources Development Act approximately twelve months ago, not many South Africans knew about shale gas and the extraction process known as hydraulic fracturing.
Recently there have been many debates on the implications of utilising this process to extract natural gas from shale and there have been many articles published in the media in this regard, says Lizel Oberholzer a director at the Cape Town branch of Bowman Gilfillan.
Not much has been published about the legislation in the Republic regulating the exploration and production of shale gas. The purpose of this article is to consider whether the South African regulatory framework is able to deal with the challenges unique to shale gas projects.
The first indication that government acknowledged that shale gas projects have unique challenges was on 20 April 2011 when South Africa’s cabinet endorsed the decision by the Department of Minerals to place a moratorium on exploration licenses in the country’s semi-arid Karoo region where the controversial shale extraction technique of ‘fracking’ might be deployed. The next day in a statement released by Government Communications it was announced that “….The Department of Mineral Resources will lead a multi disciplinary team including the Departments of Trade & Industry, Science and Technology, amongst others, to fully research the full implications of the proposed fracking…”.
In order to establish what the challenges unique to shale gas projects are it is important to note the findings of the Energy and Climate Change Committee of the House of Commons of the United Kingdom which was published on 23 May 2011. On the one hand the committee identified and warned the United Kingdom legislature of three challenges unique to shale gas projects. The first challenge is that shale gas projects requires a combination of hydraulic fracturing and horizontal drilling at multiple wells. The second challenge is that the projects require volumes of water which contain. The third challenge involves the management and disposal of large volumes of waste water. On the other hand the report did not propose the enactment of specific laws or regulations governing shale gas projects.
With regard to the first challenge identified above the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) will be applicable in the South African context. This act distinguishes between minerals and petroleum and provides for the grant of rights permitting and regulating activities which are applicable to the extraction of minerals and petroleum.
Shale gas is defined in the MPRDA as petroleum. Any person who wishes to conduct an activity relating to shale gas must apply for a technical co-operation permit, an exploration right or a production right as the case may be. Permit and right holders must also submit a work programme setting out the planned activities for the duration of the right or permit. This work programme must be approved by the Minister of Mineral Resources. The permit or right holder must comply with the Mine Health and safety Act (MHSA). However neither the MPRDA nor the MHSA provides guidelines specific to hydraulic fracturing.
In this regard, the Department of Environmental Conservation (DEC) of the United States released a preliminary revised draft supplemental generic environmental impact statement on 8 July 2011 which allows for high volume hydraulic fracturing in prescribed circumstances. Appendix 10 to this report provides for permit conditions applicable to high volume hydraulic fracturing. These conditions are highly technical and prescribe inter alia that all fracturing products must be approved by the authorities and that a prescribed process be followed during high volume hydraulic fracturing.
The second and third challenge identified by the Energy and Climate Change Committee relates to environmental issues. In this regard the MPRDA provides that the right holders must have an approved environmental management programme and also provide an environmental management guarantee to cater for the management of potential environmental negative impacts. The Republic has one of the best environmental regulatory frameworks in the world and the holder of permits and rights granted in terms of the MPRDA must comply with the MPRDA, National Environmental Management Act, the Water Act and related environmental legislation.
However it appears that the South African legislature still has to address the first challenge which is unique to shale gas and which relates to the method used for the extraction of the gas. If the moratorium is lifted at the end of July 2011 it is imperative that the legislature puts in place regulations similar to those published in Appendix 10 of the DEC. Not only will this provide the permit and right holders with certainty as to the framework that they must work in but it will also enable them to ensure that they comply with the environmental laws of the Republic. It is my understanding that the majority of work programmes associated with the exploration rights applied for over the Karoo Basin provide that hydraulic fracturing may only be undertaken at the end of the second year allowing the legislature adequate time within which for frame regulations governing hydraulic fracturing having regard to the public interest.
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