A comparative assessment of the economic benefits from shale gas extraction in the Karoo, South Africa

Abstract

It has been said that the development of a shale gas industry could be a ‘game changer’ for South Africa. Proponents of shale gas tend to emphasise the benefits, whilst opponents emphasise the environmental costs. This paper is an attempt to inform the policy debate by highlighting both the potential economic benefits and environmental costs. To date, the Econometrix report (published in 2012) provides the only estimate of the economic impacts that may emanate from developing the Karoo’s shale gas. The report uses a Keynesian multiplier model to estimate the impacts. The analysis performed in this paper estimates the economic impacts using a Computable General Equilibrium (CGE) modelling approach, and the results are compared to the findings of the Econometrix report. In doing so, this paper provides an expanded view of the potential economic impact. Accordingly, this paper provides a number of findings on the estimated economic impact of shale gas extraction – based on the application of an economy-wide impact modelling methodology – which should be of interest to both opponents and proponents of the shale gas industry. By including all possible results, such as a boost in public sector jobs and an analysis of the impact on consumer prices and jobs in other sectors, this paper expands the current understanding of the likely impact of shale gas extraction in the Karoo of South Africa.

Key words: shale gas extraction, economy-wide modelling, CGE, exhaustible resources,