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European unconventionals sector must forge its own path

Shale gas holds enormous promise for Europe but producers must adequately address social and environmental concerns

Shale gas in the US has altered the energy sector’s dynamics. Four years ago, the US was a significant gas importer: it is now almost self-sufficient. Shale gas met 2% of US gas consumption in 2000 and had risen to 23% by 2010, according to the US Energy Information Administration (EIA).

There are significant shale gas reserves outside of the US as well. In Europe, shale gas could transform the energy landscape, providing energy security and incentives to switch away from coal towards cleaner natural gas.

However, the dash for shale gas in the US is associated with a host of environmental issues and has generated widespread public and political opposition that has been picked up in Europe. With the future of shale gas in Europe hanging in the balance, it is timely to consider some of the key environmental and social issues related to shale-gas exploitation and, in light of the US experience, to highlight real and perceived risks and remedies of material interest to the future of shale-gas investment in Europe.

Although shale gas has caught the attention of the majors, such as ExxonMobil, Shell and Statoil, who have been buying up or investing in shale-gas companies to boost reserves, a significant portion of shale-gas production in the US has been carried out by relatively small independent producers. Many of these companies operate with tight economic margins.

This has not always encouraged best practice from some operators. In 2010, the state of Pennsylvania reported over 2,721 violations of environmental regulation from a total of 6,581 shale gas and conventional wells. These violations tripled between 2008 and 2009 and doubled again from 2009 to 2010. Most of these violations were relatively trivial that involved things like not properly posting permit numbers. Some, though, were more substantial, such as improperly lined storage pits, or pits with insufficient capacity to contain the flow back water.

Moreover, environmental concerns have been fuelled by films such as Gasland, which looked at shale-gas production and associated environmental issues across the US. Gasland has been widely criticised by industry for its lack of scientific rigour, especially regarding groundwater pollution. However, Gasland was correct in identifying a number of other important issues such as air quality, social impacts and a lack of planning and the film was highly effective in communicating these problems to a mass audience.

The subsequent debate on environmental issues has become polarised, with misinformation and myths from the industry and the environmental lobby abound. Deciphering fact from fiction is not easy. Groundwater pollution and seismicity are two examples where the first casualty of this war of words has been the application of good science: a failure to combine relevant, reliable data with intelligent, informed interpretation.

Bridging the credibility chasm: groundwater pollution

Hydraulic fracturing (fracking) is a well-established drilling technology that has been widely deployed for more than 40 years to aid recovery of gas and oil from deep reservoirs. The industry has consistently maintained that throughout its history, fracking has never contaminated drinking water. ExxonMobil chief executive Rex Tillerson, for example, told the House Energy and Commerce Committee in January 2010: "To our knowledge, there have been a million wells fracked, and no documented cases of contamination of groundwater from hydraulic fracturing."

It is therefore unfortunate that a 1987 EPA report to Congress documents a fracking-related groundwater contamination incident in West Virginia in 1962. This may have been an isolated and atypical incident, but it has provided an opportunity for the anti-fracking lobby to question the shale gas industry’s credibility. A more authoritative message might have been that there has only been one documented case several decades ago out of over 1m wells.

The credibility of the shale gas industry has been further eroded by its failure to make clear that poorly performed conventional operations can and have resulted in significant pollution of domestic water supplies. This is normally caused by a poor cementing job and/or sub-optimal casing designs that can leave a leak path between the gas reservoir and aquifers.

The industry’s failure to be forthright about the risks arising from poor oilfield practice has clouded the reality that the best available science supports its view that the risk of fracture-induced water contamination is indeed very low. The fractures are normally thousands of feet below aquifers. However, this is not to say that the likelihood is zero, especially in highly fractured areas. In fact, the US Environmental Protection Agency is currently engaged in extensive studies to assess the chances of this occurring.

Seismicity and earthquakes

The industry has long accepted that fracking can induce micro-seismic events that are undetectable without using specialised equipment. Macro-seismic events, or earthquakes that can be felt by humans, from fracking operations are very rare and much less frequent than earthquakes induced by mining operations.

Shale gas development in the UK suffered a major setback in 2011 when there were two small earthquakes near Blackpool, England: one of magnitude 2.3 on 1 April 2011 and one of magnitude 1.5 on 27 May 2011. A subsequent investigation showed that these earthquakes were almost certainly induced by UK gas-focused Cuadrilla Resources’ fracking activities, combined with unusual geological conditions near the well.

Earthquakes are fundamentally frightening and are classic media fodder. But it has not been widely reported how small the earthquakes were. The 2011 Tohoku earthquake in Japan was approximately 10 million times more intense than Cuadrilla’s earthquakes.

In May 2011, US energy secretary Steven Chu requested the Secretary of Energy Advisory Board (SEAB) Natural Gas Subcommittee to make recommendations to improve the safety and environmental performance of hydraulic fracturing operations. The resultant SEAB 90-day report and the follow-up, second 90-day report found that the risk to water quality was broadly acceptable, but noted that its environmental risks could be further mitigated through more transparency in reporting chemical use, water movement and monitoring and ensuring that best practices are applied during well development and construction.

Significantly, the SEAB report concluded that air emissions and adverse affects on air quality are of greater significance, from an environmental and public health perspective. The report, therefore, emphasises the importance of reducing pollutant and methane emissions and monitoring and reporting emissions along the entire production chain.

The other main environmental, social and health issues highlighted by the report were the cumulative impacts on communities, land use, wildlife and ecosystems. Recommendations included much greater use of multi-well pads, better identification and management of sensitive habitats and migration corridors together with community and land use impacts.

Earlier this year, the International Energy Agency published a report on unconventional gas entitled Golden Rules for a Golden Age of Gas, which provides constructive, practical advice on the management of environmental and social impacts and offers the industry a standard of good practice. This is an important start but does not address the less tangible issues of communication and community benefit.

Communication and trust: an industry lesson not learned

Greenpeace’s successful campaign to halt the ocean disposal of the Brent Spar oil loading facility in May 1995 was a seminal event for the oil industry. It underlined the fact that in addition to the legal licence to operate there is also a social licence to operate that oil companies ignore at their peril.

The Brent Spar incident led Shell to develop a communications policy that moved from a tightly controlled "Decide, Announce, Defend" (DAD) policy to a more open, consultative process of "Dialogue, Decide, Deliver". The concept and value of openness, with increasing transparency, trust and dialogue with a wide range of stakeholders has since been widely adopted by progressive operators across the industry. This contrasts with the shale gas industry. Many of the shale industry’s small independent operators remain steeped in the conservative DAD approach. This attitude, together with the erosion of trust in the industry’s safety capability following the Deepwater Horizon disaster, has widened the cracks in the shale gas PR facade.

Some good progress has been made following the SEAB recommendations. Initiatives such as the FracFocus chemical registry website to disclose chemical information represents a step forward. However, the industry’s failure to be impeccably honest in spelling out the risks and its defensive position has seriously eroded trust in the shale gas industry.

Fracking has now been banned in France and Bulgaria and moratoria have been established in the US states of New York and New Jersey and parts of Germany. It has also become a fraught political issue in the European Parliament.

Community impacts: what’s in it for me?

Given the track record of the US shale gas industry, and an environmental debate rife with misinformation, most people in Europe are unlikely to welcome a shale gas development in their neighbourhood unless there is something in it for the community at large.

Operators sometimes offer broader community benefits, such as providing support for local football teams, or the promise of employment in more depressed areas. This approach, combined with an extensive and effective public consultation programme worked for Cuadrilla Resources in Lancashire. However, when Cuadrilla started public consultation in West Sussex, they encountered very stiff opposition. This was partly because it came after a flood of negative publicity from Gasland and the Blackpool earthquakes. The promise of new jobs also found less favour in the heart of the more affluent home counties in London’s commuter belt.

The carrot for the community therefore needs to be substantial and sustainable. In Poland, the government is now looking at putting 60% of revenues earned from shale gas companies back into the community.

Sustainability in extractive industries is something of an oxymoron, but there is an opportunity to square the circle by investing revenue from shale gas operations into low carbon emission reducing projects: energy efficiency improvements in local housing, community wind, hydro or biomass projects. This has great potential to generate long-term and more equitable income for local communities.

Going above and beyond

Europe is different to the US; demographically, on account of its greater population density, politically and institutionally, due to the role of the EU, and legally due to the fact that subsurface rights reside with the state, unlike in the US. The onshore European rig count is around 75 compared to over 1,700 in the US.

Shale gas is therefore unlikely to have as great an impact as it did in the US. For Europe, the question is perhaps more about whether shale gas can be exploited responsibly to provide a valuable, lower carbon contribution to energy diversity and security.

Addressing environmental concerns and winning community support will be pivotal. While the science behind shale gas exploitation appears to be supportive for the industry, concerns over groundwater and air pollution in particular need further research. Operators currently engaged in shale gas operations need to be aware that they are operating in the spotlight. They should be prepared to go beyond regulatory requirements to implement the best of industry practice. This includes a commitment to meaningful consultation and effective communication of the risks and benefits of shale gas, backed up with comprehensive monitoring programmes that are shared, explained and independently verified.

Shale gas has the potential to provide a modest but significant contribution to Europe’s energy mix. To win this prize, the lessons from the US need to be learned and applied. Communication needs to be honest and transparent. Operations need a minimal environmental footprint with substantial community benefit that can be pragmatically blended with European desires for lower carbon energy.

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