With the case study provided, please answer the following questions :

1. With the fifth largest tight gas reserves in the world, what type of technological environment will you recommend the South African government to develop? Justify your answer(s).

2. Taking into consideration the ongoing Russian invasion of Ukraine and the corresponding increase in energy prices, how is the fracking revolution supporting U.S. sanctions on Russia?

Justify your answer(s)

3. How can the war in Ukraine and the current energy crisis affect the future of fracking in Europe? Justify your answer(s).

Joseph Schumpeter, an Austrian-born economist who emi- nations and in the location of the production of energygrated to the United States in 1932, championed entre- intensive goods. Finally, fracking has the potential to have preneurship and free markets. Schumpeter is perhaps best major impacts on the environment and on the global quest to known for popularizing the phrase "ereative destruction," the control the emission of greenhouse gases. concept that innovation-new technologies, new products, U.S.-based oil companies have been the most aggresnew ways of doing business-inevitably disrupts, supplants, sive users of fracking technology. creating dritling booms in and devalues the economic structure that preceded it. One numerous areas, including North Dakota's Bakken formasuch new technology - the hydraulic fracturing of shale and tion. Pennsylvania's Marcellus shale, and Texas' Barnett and other rocks containing oil and natural gas deposits, popularly Eagle Ford fields. The impact on the U.S. natural gas market, known as fracking-provides a perfect example of Schum- which accounts for 30 percent of U.S, electricity generation peter's concept. Fracking holds the potential to turn world and heats half of U.S. homes. has been enormous. In 2008. energy and industrial markets upside down, and to scramble natural gas was selling for $12 per million British Thermal geopolitical relations and alliances that have dominated the Units (mBTU) at the Henry Hub, a Louisiana crossroad for past half-century. gas pipelines that serves as the basis for pricing natural gas Fracking involves the injection of fluids at high pres- in the United States. The boom in exploration and producsure into rock formations containing hydrocarbon depos- tion of shale-based gas drove the price below $2 per million its such as oil and natural gas. The fracturing fluid cracks BTU in 2012: by early 2018, the price has risen to $2.60. open new channels in the rock, creating pathways for oil U.S. production of shale-based oil has also increased, thereby and gas to flow and be captured by the driller. Although reducing U.S. imports of crude oul by a third since 2008. the technology was developed in 1947, it was little used The low price of natural gas in the U.S. market has until combined with modern hotizontal drilling. Pracking impacted the location decisions of firms producing energy. became commercially significant in 1998, when it was intensive products or who use natural gas as a feedstock applied to exploit the so-called "tight" gas formations in for their petrochemical products, allowing them to underTexas' huge Barnett Shale field. The potential reserves in price their foreign petrochemical rivals. Companies like such tight formations are enormous: China is estimated to Dow and Chevton Phillips Chemical Company are planning have 1.275 trillion cubic feet of reserves; the United States, new multibillion-dollar chemical plant projects in Texas 862 trillion; Argentina, 774 trillion; and Mexico, 68I trillion. and Louisiana. Not surprisingly, some European and Asian Even South Africa's Karoo region, a semi-desert lying chemical and petrochemical companies, such as BASF and between Cape Town and Johannesburg, may contain shale- Royal Dutch Shell, are considering building new facilities in gas reserves as large as 485 trillion cubic feet, the fifth the United States to take advantage of the cheap U.S. natural largest in the world. gas, Other energy-intensive factories also benefit. Nucor Fracking is important-and disruptive, in the Schumpet- Corp., for instance, is constructing a $750 million facility erian framework-for at least four reasons. First, it promises in Louisiana to fabricate high-purity iron ore pellets, which new supplies of energy, lowering its cost. Second, it substan- are used as inputs in manufacturing steel, because of low tially shifts geopolitical power among the world's nations, natural gas prices. When completed, the plant will produce Third, it implies major changes in the competitiveness of 2.5 million tons of pellets a year, making it the world's second largest. U.S. Steel and Austria's Voestalpine afe considering chemicals can damage water supplies, and the unwillingness similar ventures, while Madrex Technologies lnc., the manu- of companies to disclose the chemaicals used in their proprifacturer of the furnaces used to make pellets, is expanding its etary fracking formulas heightens their suspicions. capacity to take advantage of its customers' growth. European voters remain divided over fracking. France, Fracking also has geopolitical imptications. Natural gas Germany, and the Netherlands have a moratorium on fracking. prices are much higher outside the United States. In Europe. In emvironmentally conscious Germany, citizens face an prices average \$12; spot prices in Asia often reach \$20. Liq- unhappy choice. Many Germans are concerned about the uefying natural gas, transporting it in specially designed poteatial contamination of underground water, as are its ocean-going vessels, and then regasifying it can cost 53 world-famons breweries. Yet after the Fukushima nuclear to 55 per million BTU. Therefore, the potential profits for reactor fiasco following the 2011 tsunami that battered exporting U.S. natural gas are huge. The aggressive explod- nothera Japan, Chancellor Angela Merkel decreed that tation of tight shale fields in the United States suggests that Germany would gradually shutter all of its nuclear power the United States may becotse a net enerey exporter within plants and increase its reliance on solar and wind energy. a decade or two, thereby reducing U.S. reliance on Middle_By 2020, Germany will close six nuclear-powered facilities. Eastem oil. If so, the political clout of Middle Eastern petro- To fill in the gaps. Germany is increasingly relying on states may weaken. Moreover, should oil prices decline, the coal-generated electricity, which is dirtict than thatural gas. threat of domestic unrest may increase there. Some military Accordingly. German carbon dioxide emissions have begun experts believe that the United States will redace its milh- to rise, undercutting Germany's conmitment to reduce its tary presence in the area; comversely. European countries greenhouse gas emiscions. As a result of subsidies for solar may have to become mote concerned about protecting their and wind power, electricity prices have risen 40 percent in energy security currently they benefit from being under the Germany sance 2008 and are nearly 15 percent higher than U.S. military umbrella. China too may increase its regional in the rest of the EU, annoying residents and threatening military presence as Middle Eastern energy becomes more the competitiveness of Germany firms. Poland, which has important to its economy. Yet China also has huge shale gas Western Europe's largest reserves of shale gas, confronts reserves-an estimated 1,275 trillion cubic fect. If these similar tradeoffs. If developed. Poland would be freed from fields are developed, China becomes less vulnerable to its dependence on using coal for power generation, which curtankers transposting oil from the Middle East being harabsed rently accounts for 95 percent of its electricity. It would also by the U.S. Pacific fleet. reduce the country's dependence on Russian natural gas. Yet Russa's ability to influence Eastem and Central Euso-_ Poles too are concemed about protecting the quality of their pean politics may also lessen. Currently, Russia's Gaxptom. Water supplies. 50 percent owned by the Russian government, is the domi- Fracking has created some unexpected beneficiaries. nant supplier of natural gas to countries sach as Poland and One groep are Indian farmers, who grow 85 percent of the the Ukraine. At times, Russia has suspended its delivery of world's supply of guar. Because of its previously low price. natural gas to these countries to demonstrate its displeasure guar beans were often fed to cattle or used as a thickenwith their diplomatic policies. Moreover, Gaxprom has tied ing agent in ice cream and catsup. (It's what makes catsup its foreign customers into long-term contracts that peg the "gloopy. 7 Guat, it turns out, is also a perfect thickening price of natural gas to the price of oil, But the spot price agent for fracking. When mixed with water, sand, and speof natural gas has fallen well below the equivalent price of cialty chemicals, the resulting fluid can be injected under oil, so Gazprom's foreign customers are trying to tenegoti- high-pressure to break up shale formations and allow the ate their contract terms. The threat to Gayprom's gas floss trapped bydrocarbons to escape. The U.S. oil industry and the geopolitical clout of Russia would grow should the consumed an estimated 300,000 tons of guar (about oneUnited States choose to export significant volumes of lique-_ third of total guar production) in 2012, leading to a 15-fold fied natural gas. increase in the price of guar beans. These price increases Fracking impacts the quest to mitigate global climate have benefited poot Indian farmers in Rajasthan, who now change and the emission of greenhouse gases. On the one can afford to construct new brick houses, after living in hand, by lowering its price, fracking encourages the use of mud huts for decades, although it has disadvantaged Indian natural gas to generate electricity in place of coal. Natural cows at these high prices, few farmers are walling to feed gas releases fewer greenhouse gases per unit of electricity guar beans to their herds. And catsup and toothpaste proproduced than does coal. On the odher hand, fracking requies docers are busily seeking alternative thickeners. Similarly. a lot of water, 4 million to 5 miltion gallons per well. In addi- modern fracking technology uses enotmous amounts of tion, oilfield service conpanies blend mixtures of special sand-millions of pounds per well. This has created a boom chemicals and thickening agents with water to create their in the sand market and benefitted the railroads who haul it fracking fluids. Environmentalists are concerned that these from Midwestern sand mines to drill sites in West Texas