South Africa prepares to give shale gas go ahead

CAPE TOWN, May 7 (Reuters) - South Africa will gazette final regulations for shale gas exploration by June, two years after releasing draft rules and as companies reconsider investments due to volatile oil prices and delays in awarding licenses.

In March, Royal Dutch Shell (Xetra: R6C1.DE - news) said it was pulling back from its shale projects in South Africa's semi-arid Karoo region which is believed to hold up to 390 trillion cubic feet of technically recoverable reserves.

"We have finalised the regulations... It would be gazetted in a month's time," Ngoako Ramatlhodi, minister of mineral resources, told reporters before his budget speech to parliament.

Shell (LSE: RDSB.L - news) had applied for an exploration license covering more than 95,000 square km, almost a quarter of the Karoo.

A study commissioned by the company said extracting 50 trillion cubic feet or 12.8 percent of potential reserves, would add $20 billion or 0.5 percent of GDP to the South African economy every year for 25 years and create 700,000 jobs.

Besides Shell, Falcon Oil and Gas in partnership with Chevron, and Bundu Gas have applied for exploration licenses.

But environmentalists and land owners in the Karoo, situated in the heart of South Africa, have argued that exploring for shale by fracking, or hydraulic fracturing, would cause huge environmental damage in the water-scarce region.

"We have taken into consideration the issues of water and regulations are going to address this sufficiently, providing proper guidance on how to undertake hydraulic fracturing," said Thibedi Ramontja, director general in the department of mineral resources.

It would take companies about three years of exploration to determine if the Karoo reserves were commercially viable, before moving into possible production, he added. (Reporting by Wendell Roelf; Editing by Ruth Pitchford)