Shale players must take regulatory initiative
Industry must act now to answer questions over its environmental impact and establish a framework for shale-operations
THREE issues are key to the successful exploitation of shale gas in Europe. How the industry deals with the environmental effects of exploration and production (E&P); how it assesses and provides for compliance with EU environmental regulations; and how it secures favourable public opinion to ensure its wider licence to operate.
The importance of each issue has been underlined by significant recent developments. The environmental effects of shale-gas E&P continue to be hotly debated, but are said by a recent report for the European parliament to include: land-use impacts from developments such as drilling pads; air emissions of pollutants; groundwater contamination by methane; hydraulic fracturing (fracking) fluids containing hazardous substances; flow-back containing heavy metals and naturally occurring radioactive materials; accidents harming the environment and human health; and cumulative effects from high well density.
Address the issues effectively
It may well be that the industry, either now or as it develops, will have proper answers to each of these issues. But, for its own long-term good, the industry needs to be seen as addressing these issues effectively, otherwise the initiative will pass to legislators and regulators.
Shale gas is welcomed by many, including governments in the US, Australia and Poland, as providing an exceptionally timely alternative to imported energy, with the prospect of lower carbon dioxide emissions and opportunities for significant investment.
The US Department of Energy has said "this resource’s availability to the American people could not have come at a better time," and the Energy Information Administration projects that the shale-gas’s share of US natural gas production will reach 45% of the total volume by 2035.
In the last few months, the majors have ploughed billions of dollars into shale gas investment. BHP Billiton, ExxonMobil, Chevron, BP, Total and Statoil are investing heavily in the US, BG Group, Lloyds Bank and others in Australia, Shell in Ukraine, PetroChina in Canada, and so on.
At the same time, however, acute public concern has been generated, particularly, but not exclusively, around the potential impacts of shale-gas E&P on water contamination. There seems to be a serious disconnect between the business of shale-gas investing and the way in which environmental impacts are addressed, environmental laws complied with and public concerns answered.
There have been investigations and reports into shale-gas impacts from sources as diverse as Cornell, Duke and Maryland universities, and the House of Representatives’ democrats in the US; the UK House of Commons Energy and Climate Change Committee, the UK Tyndall Centre and the British Geological Survey. Many of these raise environmental effects as possibilities, or note occurrences from accidents and poor initial regulation, but they do not necessarily resolve the issues or deliver a final regulatory verdict. Much is expected of a study in the US by the Environmental Protection Agency (EPA), but the final report may not be available until 2014.
This public concern about shale-gas E&P in many areas has resulted directly in temporary bans or moratoria in a number of places, including France, New York state, Nova Scotia, Quebec and New Brunswick in Canada, and most recently New Jersey and South Africa.
The significance of EU environmental regulations was underlined by an important report by the Directorate-General for Internal Policies of the European parliament in June 2011, which will inform and set the tone for many of the debates in the parliament. It is worth remembering that since the Amsterdam Treaty, the European parliament has co-decision powers along with the Council of Ministers for EU environmental legislation.
The European parliament report notes that there is no overall framework of EU mining legislation that squarely addresses shale gas and its impacts, but it lists existing EU legislation on areas including mining waste; naturally occurring radioactive materials; waste framework; water framework; groundwater; substances included under the EU’s Registration, Evaluation, Authorisation and Restriction of Chemical substances legislation; dangerous substances; hazardous waste; and environmental liability as all potentially relevant.
More recently still, on 9 September, Günther Oettinger, the European Commissioner for Energy, announced that the Commission would probably bring forward proposed EU legislation on shale gas early next year.
What is clear is that this massive investment in this relatively new resource has far outpaced both the development of regulation that squarely addresses its impacts, but also public opinion.
Early corner cutting and lightly regulated E&P by some shale-gas pioneers has resulted in a number of accidents and contamination incidents that stoked adverse public opinion, evidenced, for example, in the movie Gasland, which had an enormous impact not only in the US, but worldwide. The legislative response may be slow, but as noted above, it is now under way.
There is, therefore, the real prospect that at least in Europe, public pressure may result in legislation being proposed and perhaps enacted before the authoritative assessment of the most experienced regulators, such as the EPA, has been obtained. This has obvious implications for shale-gas investment in Europe, and it is suggested that it is an issue for projects worldwide, as regulatory standards (and failures to meet them) in one jurisdiction are instantly communicated to others around the world.
The lesson for the emerging global shale-gas industry should be not to wait for legislators and regulators to impose higher standards, but to take action itself in anticipation, re-examine some of the more controversial aspects of its operations, such as secrecy over fracking-fluid chemicals, and take more effective action to win public support for its operations.
William Wilson is a barrister in Burges Salmon LLP’s environment and energy unit.
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