En­vi­ron­men­tal law a fac­tor in frack­ing

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - LIZEL OBER­HOLZER

SHALE gas and its ex­trac­tion through hy­draulic frac­tur­ing is a re­cent and highly con­tro­ver­sial en­trant to the South African min­ing can­vas. Un­til pub­lic con­sul­ta­tions as re­quired by the Min­eral and Pe­tro­leum Re­sources De­vel­op­ment Act be­gan about 12 months ago, few South Africans knew the im­pli­ca­tions of ap­ply­ing this process to ex­tract nat­u­ral gas from shale.

Since then, how­ever, SA’s news­pa­pers have car­ried sto­ries reg­u­larly of the of­ten heated de­bates over the mer­its and de­mer­its of what has come to be known as “frack­ing”, much of which has fo­cused on whether or not the South African reg­u­la­tory frame­work is able to deal with the chal­lenges unique to shale gas projects.

The first in­di­ca­tion that the govern­ment ac­knowl­edged the unique chal­lenges of shale gas projects was on April 20 2011, when SA’s Cabi­net en­dorsed the de­ci­sion by the Depart­ment of Min­er­als to place a mora­to­rium on ex­plo­ration li­cences in the coun­try’s semi-arid Ka­roo re­gion, where frack­ing was con­tem­plated.

The next day a govern­ment com­mu­ni­ca­tions state­ment an­nounced:

“…. The Depart­ment of Min­eral Re­sources will lead a mul­ti­dis­ci­plinary team in­clud­ing the De­part­ments of Trade and In­dus­try, Sci­ence and Tech­nol­ogy, among oth­ers, to re­search the full im­pli­ca­tions of the pro­posed frack­ing fully …”

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 UK’s House of Com­mons, pub­lished on May 23 2011. The com­mit­tee warned the UK leg­is­la­ture of three such chal­lenges. It stated that shale gas projects:

Re­quire a com­bi­na­tion of hy­draulic frac­tur­ing and hor­i­zon­tal drilling at mul­ti­ple wells;

They need large vol­umes of water that con­tain chem­i­cals; and

They re­quire man­ag­ing and dis­pos­ing of large vol­umes of waste water.

In­trigu­ingly, the re­port did not pro­pose en­act­ing spe­cific laws or reg­u­la­tions gov­ern­ing shale gas projects.

In the con­text of the first of the iden­ti­fied chal­lenges, the Min­eral and Pe­tro­leum Re­sources De­vel­op­ment Act will be ap­pli­ca­ble to SA. The act dis­tin­guishes be­tween min­er­als and pe­tro­leum and de­fines shale gas as pe­tro­leum. It pro­vides for grant­ing rights per­mit­ting and reg­u­lat­ing ac­tiv­i­ties that are ap­pli­ca­ble to the ex­trac­tion of min­er­als and pe­tro­leum.

Those wish­ing to carry out 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 righthold­ers must also sub­mit a work pro­gramme, to be ap­proved by the Min­is­ter of Min­eral Re­sources, set­ting out the planned ac­tiv­i­ties for the du­ra­tion of the right or per­mit.

Although the per­mit or right-holder must com­ply with the Mine Health and Safety Act, nei­ther this leg­is­la­tion nor the Min­eral and Pe­tro­leum Re­sources De­vel­op­ment Act pro­vide guide­lines spe­cific to hy­draulic frac­tur­ing.

In­struc­tively, on July 8 2011 the New York State Depart­ment of En­vi­ron­men­tal Con­ser­va­tion re­leased a pre­lim­i­nary re­vised draft sup­ple­men­tal generic en­vi­ron­men­tal im­pact state­ment that al­lows for high-vol­ume hy­draulic frac­tur­ing in pre­scribed cir­cum­stances, Ap­pen­dix 10 of which pro­vides for ap­pli­ca­ble per­mit con­di­tions. These con­di­tions pre­scribe, among other things, 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 chal­lenges iden­ti­fied by the UK’s En­ergy and Cli­mate Change Com­mit­tee deal with en­vi­ron­men­tal is­sues in which con­text the Min­eral and Pe­tro­leum Re­sources De­vel­op­ment Act pro­vides that the rights hold­ers must have in place an ap­proved en­vi­ron­men­tal man­age­ment pro­gramme. They must pro­vide an en­vi­ron­men­tal man­age­ment guar­an­tee to cater for man­ag­ing po­ten­tial neg­a­tive en­vi­ron­men­tal im­pacts.

SA boasts one of the world’s best en­vi­ron­men­tal reg­u­la­tory frame­works. There­fore hold­ers of per­mits and rights granted un­der the Min­eral and Pe­tro­leum Re­sources De­vel­op­ment Act have to com­ply with the leg­is­la­tion, the National En­vi­ron­men­tal Man­age­ment Act, the Water Act and any re­lated en­vi­ron­men­tal leg­is­la­tion.

Be that as it may, the South African leg­is­la­ture has yet to ad­dress the first chal­lenge, which is unique to shale gas projects and which re­lates to the method used for the ex­trac­tion of the gas.

If the mora­to­rium is lifted — and this is im­mi­nent — it is im­per­a­tive that the leg­is­la­ture puts in place reg­u­la­tions sim­i­lar to those pub­lished in Ap­pen­dix 10 of the US’ DEC. Not only will this pro­vide the per­mit and right-hold­ers with cer­tainty as to the frame­work in which they must work, it will also help to en­sure that they com­ply with SA’s en­vi­ron­men­tal laws.

It is my un­der­stand­ing that most work pro­grammes as­so­ci­ated with Ka­roo Basin ex­plo­ration rights ap­pli­ca­tions pro­vide that hy­draulic frac­tur­ing may only be un­der­taken at the end of the sec­ond year, al­low­ing the leg­is­la­ture ad­e­quate time within which to frame rel­e­vant reg­u­la­tions that serve the pub­lic in­ter­est.

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