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S H E L L S A

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South Africa Magazine talks to Bonang Mohale, Country

Chairman & General Manager of Commercial for Shell South africa.

By Ian Armitage

f u t u r e g e n e r a t i o n s

Fuelling

S hell South Africa has a plan. It’s a plan that would not only

be hugely beneficial for the company itself but the country as a whole. It would positively impact each and every South African.

But there’s a catch. It all hinges on shale gas. The South African

Government has imposed a moratorium on any new exploration until the potential impact of its extraction process, known as fracking, can be better understood.

What’s the problem? Fracking involves pumping a mixture of water, sand and chemicals at high pressure down a borehole into the rock strata containing the shale gas. The process releases the gas, which flows out up the borehole to the surface, where it is captured and contained. Critics say fracking leads to contaminated water supplies and causes earthquakes - we’ve all seen the YouTube footage of an American man lighting a matchstick up to a running kitchen tap, turning it into a blowtorch.

Shell wants to extract shale from the Karoo. The Basin is thought to have large shale gas reserves and there are three main shale areas within the basin: the Prince Albert Shale, the Whitehill Shale and the Collingham Shale.

Shell’s application covers 90,000m2.

Environmentalists say the region is too dry and water reserves are too precious.

The media has jumped all over it.

Bonang Mohale is adamant that the process is safe and says Shell “would never compete with residents for their fresh water”.

He says loathe it or not, a shift to massive production of shale gas would blunt the spectacular rise of carbon dioxide emissions and secure South Africa’s energy future.

According to South Africa’s Department of Energy’s Integrated Resource Plan 2010-2030, the country needs more than 50GW of new electricity generation. Shale gas, should it be found in viable quantities, would help meet that target.

Shale gas would also create thousands of jobs in what would be a brand new industry.

“Some 10 million South Africans have no access to electricity; 10 million out of the 50 million people in the

country. There is a huge gap in energy supply and the country will have to invest in all types of energy sources to fill that, from coal, to gas, to nuclear and to renewables. In our view, the case for natural gas is compelling. A modern natural gas plant emits half the carbon dioxide of a modern coal plant and up to 70 percent less than a decades-old steam turbine coal plant.

“A study conducted on Shell’s behalf by leading South African economic consulting firm Econometrix focuses on two scenarios: the successful extraction of 20 tcf and 50 tcf of the estimated shale gas reserves in the Karoo. This would translate into a GDP contribution of around 3.3 percent to 9.6 percent. Based on those numbers fracking could add between R80 billion and R200 billion to the country’s yearly GDP.“The study further highlights that, based on the 20 and 50 tcf scenarios, as many as 300,000-700,000

Shell South africa COVer fOCuS EnErGy

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The security of key energy resources is fundamental to our welfare and prosperity.

G4S has extensive experience of working with the world’s leading oil & gas companies and is a proud security service provider not only to Shell in South Africa, but our integrated services are extended to Shell right across the globe. Our customers trust us as a key partner with the expertise and resources to secure assets throughout their lifecycle, from exploration right through to final divesture.

By understanding the wider challenges of oil & gas industry protection, G4S is able to draw on our expertise, proven capabilities in risk assessment and intelligence, logistics, end-to-end project management and integrated technology solutions to deliver effective, comprehensive security solutions.

G4Spermanent jobs could be created over a period of 25 years, which is the expected lifetime of an initial first phase shale gas development.

“The government has outlined plans to eliminate poverty, reduce inequality and deliver energy to South Africans. There is a real case for commencing exploration and finding out if the gas does exist under the Karoo. But, as with everything else in business, there are challenges. South Africa has very strict environmental regulations and legislation. And for us as an industry, we must mitigate those challenges by continuing to maintain the very highest operational standards. Also, for each part of the process, specific environmental impact assessments must be undertaken.”

Shell has and is currently consulting with experts, industry specialists and with the people in the Karoo.

It is important to Shell to understand the concerns and questions people have about the project.

Should Shell be granted an exploration license, it will conduct an extensive Environmental Social and health Impact Assessment (ESHIA). Only once the Department of Environmental Affairs has approved the ESHIA will the first wells be drilled, Mohale

says. “During the ESHIA process, the Karoo residents will have many opportunities to provide input into the project and their opinions and concerns will influence and inform the project.

“The Energy Information Administration has estimated the shale gas resources in South Africa to be around 485 tcf. Seismic testing will give Shell more information on the geology of the Karoo Basin and will assist in selecting the areas to explore. Only once the seismic testing and ESHIA has been completed, will the final drill sites be selected.

“We recognise that there are concerns and we are doing all we can in that respect.

“We believe that any shale gas exploration and production must only occur in a socially and environmentally responsible manner. Anything less is unacceptable. Our aspiration is to have local communities,


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environmentalists, representatives of the tourism industry and the national government work together to develop the Karoo as a vital gas resource in a sustainable manner. We believe South Africa has a chance to show the world how it’s best done.”

Shell has made commitments not to compete with residents of the Karoo for their fresh water.

For the initial exploration wells it intends to import the water by truck or rail.

“Once exploration drilling has commenced Shell will know whether deeper brackish water aquifers (water that is unsuitable for human or animal consumption) are available for use in our operations,” Mohale says.

The ’Karoo Groundwater Atlas’ was commissioned by Shell in 2011 and draws on some of the country’s top hydro geologists who bring more than 250 years of Karoo-specific groundwater experience. “Essentially, the Atlas identifies the attributes of the Karoo groundwater

resources, combining data from many different sources into a single database. It concludes that groundwater systems up to 300 metres below the surface are well understood, and highlights that groundwater is a renewable resource that should be considered for all water requirements.

“It is clear that further work is required to understand the water systems in deeper geological horizons. The experts also note that, historically, methane gas has already been recorded to occur naturally in groundwater derived from existing shallow boreholes (those less than 150m deep) in the Karoo.

“Water is a scarce commodity in the Karoo but is also key to our operations. The wells we plan to drill require the equivalent of two to three municipal swimming pools of water per well. The entire 24-well exploration project requires in the order of 60 pools of water in total.”

Mohale says that Shell will be able to further reduce its environmental footprint by capturing and reusing the water that comes back out of the ground after the hydraulic fracturing process.

“Regarding the risk of contamination, a recent study by the US Energy Department has looked into the issue and confirmed that when a well is designed and constructed correctly, applying the best drilling standards and practices, groundwater will not be contaminated. We anticipate drilling no more than 24 wells in total at the cost of around $200 million.”

Mohale, who joined Shell on 1 January 2009, has been at the helm

Shell South Africa engaged with Aon South Africa to develop a comprehensive employee group scheme (EGS) covering short term insurance for their employees’ household and vehicle insurance needs.

“Competitive organisations like Shell realise the value in adding to the fundamental benefits packages that include healthcare, retirement and often disability insurance, with added benefits such as short-term insurance for employees’ personal needs,” explains Mandy Barrett, Employee Group Scheme Specialist at Aon South Africa.

“It basically comes down to the issue of employer/employee relations on a broader front than the traditional benefits scenario, which have long been a given. A company that provides staff with access, via group schemes, to enhanced short term insurance benefits beyond those available to the individual employee in the open market, is seen as a company that commands loyalty and is indeed an employer of choice,” explains Mandy Barrett.

“In today’s financial and business climate consumers are under enormous financial stress. They remain heavily indebted and their disposable income is under pressure, despite figures showing the situation is easing. The reality is that the cost of living continues to rise alarmingly, petrol prices are increasing dramatically and this is expected to have an upward impact in inflation.

“Moreover, skills shortages remain the biggest challenge for most businesses and the cost of recruitment and training is significant. This does not begin to touch on the less definable costs of lost productivity and possible impacts on corporate image resulting from inexperienced staff as a result of high staff turnover. In this scenario, employee stability is paramount and part of

this stability has to do with the overall financial wellbeing of the employee, which has direct and indirect impacts on corporate viability.

“The advantages to employees via group short term schemes are substantial. Key among these is the purchasing ‘muscle’ they bring to the equation, resulting in attractive premiums, wider covers and negotiating ‘clout’ with the underwriters when it comes to claims.

“The important consideration in the EGS scenario is that the insurance that’s offered has to be of quality and not mass-market, commoditised products. At Aon, we don’t take a one-size-fits-all approach. As a broker, we have access to an extensive and diverse range of insurance products to meet the needs of all individuals within the employer base. We approach each person on the basis of an individual client needs analysis, identifying the employee’s specific risk profile and insurance needs and then respond with an appropriate insurance product to meet those needs.

“Then there is the issue of support for the employer, encompassing marketing material which can be co-branded with the sponsoring company, informative workshops for employees, on site help desks, group presentations and so on, all under the control of a dedicated account manager.

“It all forms part of the bigger picture of staff stability and that in turn means less staff churn, lower recruitment and retraining costs and a more productive business in general where efficiencies and productivity derive from longer serving employees familiar with the workings of the company and who are inspired to perform by the reinforcement that management is concerned for their wellbeing beyond the factory or office doors,” concludes Mandy.

Adding Insurance to Employee Benefits Entrenches Staff Loyalty


of the South African company during one of its most challenging periods to date – with the global economic recession having a profound impact on the oil industry.

So he is not afraid of hard work.Oil prices peaked at about $147,

then halved from over $120 a barrel the previous year to just below $60 per barrel in the middle of 2009.

Against this backdrop, Shell revised its short-term strategy.

“The recession led to the market for our products declining, while our margins remained under severe pressure. The matter needed to be addressed with great urgency hence the emphasis on cost management.”

Mohale set new targets for his leadership team to ensure the company survived the recession and was able to take full advantage of an anticipated economic upswing.“Each Shell business and support function had to implement specific cost saving

measures,” he says. “We implemented a freeze on all non-contractual spend – unless it was Health, Safety, Security and Environment (HSSE) or business critical. We also placed a moratorium on most business travel and regrettably had to reduce our headcount.”

The Retail business made deep cuts to its marketing budget by reducing sponsorship activities and exploring synergies across the different businesses to integrate marketing campaigns. The business also re-negotiated agency retainer fees to reduce costs.

The Commercial business launched an asset-neutral project to improve competiveness and also expanded its Deliver for Own Account (DFOA) model whereby a Shell distributor delivers product to customers on a commission basis.

The Supply and Distribution business set about renegotiating all its primary road transport contracts, while simultaneously reducing its vehicle fleet.

In our view, the case for natural gas is

compelling. A modern natural gas plant emits half the carbon dioxide of a modern coal plant and up to 70 percent

less than a decades-old steam turbine coal plant


11www.southafricamag.com

“It was a gruelling period,” says Mohale.

For almost four years Shell South Africa has been implementing Downstream-One, a global project that introduces simplified processes and systems.

The new system, which includes a SAP platform, went live on 1 October 2009.

“We’ve very happy with our achievements,” Mohale says. “Our downstream business as it stands is probably in the top ten of Royal Dutch Shell’s global downstream operations. That’s out of something like 104 countries.

“We are very excited because we really believe we have an opportunity to use the attention that we are getting as a result of the Karoo project to create an entirely new business in terms of exploration and production.”

Mohale cautions that as significant as the achievements are, complacency must never be allowed to creep in. “Our competitors will do their best to match our successes. But let me assure you, Shell people – as always – are up to the challenge.”

Shell began operating in South Africa well over a century ago, initially trading in paraffin and kerosene to bring both heat and light to communities of Southern Africa. Its presence has been inextricably tied to the country’s industrialisation, infrastructure development and the increased use of transportation.

Shell operates a number of oil-related businesses in South Africa including fuel retailing, chemicals, aviation, lubricants, commercial fuels and bitumen.

The company has a market share of around 20 percent and also refines crude oil through the 180,000-barrels per day SAPREF refinery, South Africa’s largest oil refinery, jointly owned by Shell and BP. Located in Durban, SAPREF contributes about nine percent to South Africa’s GDP.

Mohale is confident it’ll be a bright future for Shell, South Africa and the region. “The operating environment is tough and highly competitive but our people have the requisite expertise, acumen and can-do attitude to rise to the challenge and ensure Shell remains South Africa’s leading energy company.

“We want to be the world’s most innovative and competitive company.”

To learn more visit www.shell.com. eND

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shell sa individual feature 1

Documents

estimated shale gas

large shale gas reserves

whitehill shale

collingham shale

south africans

prince albert shale

main shale areas

modern natural gas plant