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11 July 2011
Fracking companies must accept their environmental responsibilities if the world is to reap the benefits of shale-gas development, says David Zetland*
RECENT advances in hydraulic
fracturing (fracking) technologies and techniques promise to
unlock vast reserves of natural gas. Additional shale-gas
supply will reduce energy costs, carbon emissions and, for many
countries, dependence on foreign energy producers.
Not surprisingly, fracking is now
subject to massive media and political attention.
Unfortunately, that interest is mostly negative: there's a risk
and perception that fracking threatens to deplete and pollute
Fracking can affect freshwater in
four ways. First, fracking injects a large volume of water
underground; this water has to come from somewhere. Second,
chemicals mixed with water before it's injected pollute the
water, which can mix with other waters. Third, fracking fluids
that escape the injection well and shale formations can mix
into aquifers or reach the surface through unexpected routes.
Fourth, fracking can release methane that pollutes local
aquifers and the water being pumped to the surface.
The public don't like water
pollution, and politicians and regulators are listening to
them. Consequently, the fracking industry risks being shut down
before it gets started. Not because it's inefficient,
technologically complex, or unprofitable, but because of its
real or imagined threat to freshwater supplies.
The French government has banned fracking. The Polish government
wants to encourage fracking, but worries about
adverse side effects. The situation in the US varies from state
to state, but federal officials at the Environmental Protection Agency are
preparing a report that will have significant impacts.
The industry must take responsibility
in promoting sound fracking practices that protect the
environment if it wants to avoid a premature death by
legislation or regulation. Inaction or opposition may result in
the death of a goose that's only just begun laying golden
Technology is not so
Anyone in the oil business knows the
produced water resulting from oil drilling and production
carries heavy salt loads and petroleum residues. Produced water
is often reinjected into wells (simultaneously disposing of an
unwanted substance and increasing oil yield).
Producers in Canada's oil sands use
vast quantities of water to remove and upgrade heavy oil. They
recycle a large portion of that water, but they also draw on
freshwater supplies and discharge dirty water into holding
ponds that are so large that migrating birds mistake them for natural
In most cases, however, water
consumption is not the problem. Producers in Canada's oil sands
divert less than 1% of local river flows. A single frack can
use as much as 5 million gallons of water (around 18 million
litres), but a farmer would be pleased to sell that water to a
fracking crew; he might charge $2,000 for water that cost him
$200 to pump from the ground.
The problem is water pollution.
Produced water must be disposed of without polluting other
water supplies; water from oil-sands operations must be held,
reused or cleaned. Fracking water that returns to the surface
needs to be handled; the water that stays underground cannot
mix with freshwater in aquifers (even if this is a remote
Pollution can be prevented or removed
with technology. According to Global Water Intelligence's (GWI)
Produced Water Market Report, Canada's
oil sands use about 14 million barrels a day (b/d) of water to
produce 1.8 million b/d of oil. US energy companies are
producing about 57 million b/d of water from all types of
output (mostly oil). But the North American market for handling
produced water has an annual turnover of only $5 billion;
thats only a few days of oil-sands production.
The low price of cleaning water
wont keep industry from looking for cheaper ways of
meeting clean-water regulations or prevent environmentalists
from claiming industry cuts corners while discharging too much
dirty water, but it can help both sides find a common ground
For frackers, theres good news:
because gass regulatory environment is still developing
and based on regional markets, the sector has a better chance
of solving the problem ‑ maintaining water quality while
protecting profits ‑ than the globally interlinked oil
Paying the cost of
GWI provides a useful survey of the
techniques the industry uses to handle and clean its water.
First, minimise diversions; then maximize reuse; and, finally,
treat and discharge whats left. Treatment costs that
depend on the volume of pollutants to be removed can result in
capital expenditures ranging from $300 to $3,000 a barrel and
operating expenditure of $1 to $5/b.
Local regulators determine two
critical factors: the fee and quality standard for discharged
Regulators try to balance the
economic, environmental and social interests of citizens who
want jobs, tax revenues, clean water and cheaper energy. Many
people describe this balancing act in terms of polar opposites
‑ 100% clean water and zero jobs or many jobs and water
armageddon that are driven by an underlying logic: stiff
regulation will force industry to go elsewhere.
That logic is strong in the oil
industry but weaker in the gas business. The relatively high
cost of transporting gas over large distances means it is
usually distributed locally.
It is, therefore, possible to
establish and apply local regulations to match distribution
networks, so that all fracking operations are compelled to use
the technology that does most to protect local water supplies.
This requirement can be guaranteed by performance bonds that
pay for the clean-up of any pollution that occurs during
operations and for a period after.
Such a regulatory burden will result
in higher costs, but these can be passed to customers if all
producers incur them. Consumers will pay higher prices if gas
is still cheaper than alternative energy sources. They may
accept higher prices if they see cleaner operations in their
region. Unfortunately, some operators are gaming outdated
regulations and pursuing lowest-common-denominator
Consolidating operations and
The number of players in the fracking
industry makes it difficult to co-ordinate actions to address
pollution, but wildcats have been herded in the past. In the
1930s, the Texas Railroad Commission (TRC) used its local
regulatory authority to impose order on numerous oil-drilling
operations. The TRC set pumping quotas that slowed supply
expansion and put a floor under falling prices. Some thought
the TRC's actions favoured bigger operators, but there's no
reason why regulation and consolidation of fracking operations
wouldn't help small businesses. They need only reasonable
competition among bidders for their permits and/or
Regulation will turn forced pooling
on its head: instead of forcing landowners to participate in
shale-gas drilling, drillers in a watershed will have to meet
the same standards for spill prevention and discharge quality.
(Recall the bonding requirement; insurers responsible for
damages will police operations.)
Operators will be free to innovate
and improve their technologies and techniques for fracking and
producing gas. They will need to do so only within the
constraint of protecting freshwater. It's easy to predict that
maximising profits while maintaining quality would drive
innovation in clean production. It will also lead to
consolidation, as less-sophisticated firms are forced to merge
with larger players capable of meeting standards.
Most economists tend to oppose
regulations that concentrate industries, slow innovation and
reduce competition, but regulation as a second-best option
makes sense if the alternative free-for-all produces spills and
pollution, a political backlash and premature death of a
promising, nascent technology. Consider how lax regulation has
set back deep-water drilling (Deepwater Horizon) and nuclear
The bottom line
Fracking will deliver more natural
gas, at cheaper prices, from more-reliable parts of the world.
It can do so without adverse effects on water supplies, but
only with strong regulation. The industry should embrace and
promote useful regulation as an acceptable cost of doing
business. The alternative weak regulation, or industry
opposition to clean fracking procedures is more likely
to destroy the industry than increase profits.
A new government took office in September. The energy ministry is focusing on securing new production of oil and cleaning up the power-generation sector / David Renwick, Trinidad
With oil prices low and forecast to remain that way, governments are looking to strengthen their hand through acquisitions / Damon Evans, Jakarta
Producers have to change their ways and the outcome could be beneficial for all
Despite rising demand and falling non-Opec supply the market is still some way off balance / Staff
Well, technological breakthrough always come with a cost. Through regulations and innovation there is the hope that this industry will grow and bring down the price of gas globally. I strongly agree with your view Mr.David.
oliver ubah |
Jul 15, 2011
This article promotes the use of common engineering standards, which is normal is all industrial processes involving waste water. They are rarely the subject of hot media flashes, however. The amount of treatable water is modest. Fracking is not new; Texas has hundreds of wells where it has been used for decades.. The only novel aspect is that gas has been recently discovered in areas of the US where environmentalists have held power. This presents a political challenge: how to get all that dirty money, while being pure as snow? I have every convenience a politician can do it.
Mr. R. L. Hails Sr. P.E. |
Jul 11, 2011
As Brent hits a six-year low, assets should be correspondingly attractive. However, apart from defensive mergers and portfolio rationalisations, M&A activity is quiet