It is reported from Pennsylvania in the US that the Marcellus shale gas site has materials that can be recycled and put to good use. A new business partnership to collect and recycle the plastic well pad liners of the fracking site has been launched. This venture is the first of its kind and will permit the reclamation of millions of kilogrammes of plastic, formerly dumped in landfills. It will also reduce traffic, and as such emissions, around the drill sites.
The two companies involved, WellSpring Environmental Services and the Ultra-Poly Corporation have combined forces to renew and re-use the plastic.

Pennyslvania has seen a boom in shale gas exploration and drilling and projects like these feed off the industry and make it more sustainable. Since 2011, some 45 million kilogrammes of pad liners have been used and up until this announcement, these were disposed of in landfills. Each drill site uses 9 000 kg of liner material and around 4 700 well permits have been issued thus far. Around 95% of the liner material is recoverable. The remainder is contaminated by hydraulic fracturing fluids.

WellSpring designed a new method of extraction after which the plastic is shredded on site and transported to the recycling plant. This is good news for the environment as well as the bottom line of those invested into fracking.

This is the first real good news for the ‘greening’ of natural gas drilling and could alter the debate in South Africa. Environmentalists are vehemently opposed to the extraction of natural gas in the Karoo for fears of contaminating groundwater reserves as well as destruction of the Karoo landscape. The anti-fracking movement has been very vocal in this debate and it does not look as though their efforts will subside. But this may not be the only challenge fracking in South Africa faces.

PwC South Africa has released a report which concludes that further investigation into the potential of natural gas to complement South Africa’s energy needs is vital. According to Chris Bredenhann, natural gas is cleaner with less greenhouse emissions and it costs less than nuclear energy. However, Bredenhann says that due to the dominance of coal with its relatively low cost, gas will struggle to find a market share. There is significant interest in exploring for and the development of a natural gas industry in South Africa but challenges remain. Bredenhann lists five competitive forces in the natural gas industry in this country.

Barriers to entry:

Bredenhann states that “Some of these barriers may be overcome, while others may prevent the industry from developing. The analysis suggests this may be overcome by importing natural gas, either by way of a pipeline (as is the case with Mozambique) or shipping in liquid natural gas. However, the difficulties associated with liquid natural gas, and using imported gas for establishing the industry, is that the country would be exposed to both commodity and exchange rate risks.” If the barriers are overcome then infrastructure needs must be addressed.

Another barrier is the lack of a credible and constructive industry and development plan for natural gas. While government supports such a development, it has not supported it with any incentives. “The government needs to take the lead and encourage investment in the sector,” says Bredenhann.

“South Africa also operates mineral ownership regimes that see the mineral resource of the country belonging to the state, and not the landowner. This is different to the position of other jurisdictions, such as the US, where landowners also own the mineral rights. This leads to an incentive for land owners to allow for exploration and production activities on their land. The same incentive for landowners does not exist in South Africa, resulting in a further barrier to development.”

Power of suppliers: a certainty of supply is necessary for a natural gas market to develop. The country’s energy needs are largely met by coal but not only is there potential in the Karoo, there are also significant discoveries in Mozambique, Botswana and Tanzania as well as liquid natural gas in the Gulf of Guinea.

Power of buyers: Bredenhann says that the bargaining power of buyers in the current market in South Africa is reduced by the strong position of suppliers, where Sasol dominates the market. He adds that the industrial development nodes offer the biggest opportunities for buyers in terms of demands for energy. The natural gas demand opportunities are located in the Western Cape, KwaZulu-Natal, Gauteng and the Eastern Cape, among others. The demand for natural gas will be influenced by carbon constraints, with it becoming increasingly difficult for organisations to obtain funding for coal-fired power stations due to the high levels of associated greenhouse gas emissions. “This will more than likely lead to an increased demand for natural gas and renewable energy,” says Bredenhann.

Threat of other substitutes: there are a number of substitutes for natural gas already underway with committed capital projects. Combined with barriers to entry in the marketplace, the conclusion can be inferred that pressure from these substitutes will impact negatively on the entry of natural gas.

Competition in the market: Bredenhann says that “Given that the natural gas industry is immature and not significant in South Africa, there is not a large amount of rivalry within the industry. This can mainly be attributed to the lack of indigenous supply and the dominant position that Sasol has in the local market. This position is also protected by way of the Gas Act, which gives Sasol exclusivity for the importation of natural gas from Mozambique until 2014.” Nersa also sets the minimum and maximum prices in the market which indicates the low level of competition.