LONDON: With the publication of its “Golden Rules for a Golden Age of Gas,” the International Energy Agency (IEA) has stuck to platitudes, missing an opportunity to develop detailed and credible standards that could speed international acceptance for drilling and fracking unconventional gas wells.
The golden rules, published recently, are the outcome of a process of consensus-building led by the IEA that has brought together governments, natural gas producers and environmental groups to address social and environmental concerns expressed about fracking and shale gas.
The report’s declared aim is to help the industry win a social licence to operate and “(pave) the way for the widespread development of unconventional gas resources on a large scale, boosting overall gas supply and making the golden age of gas a reality.” The prize is a vast increase in global gas resources that could improve energy security and help reduce greenhouse gas emissions by increasing the use of cleaner burning gas in place of coal.
But overall the report is a disappointment. Rather than spelling out best practices and prescribing detailed international standards that could serve as a benchmark for national regulations, lending them much-needed international credibility, the report is mostly couched in vague principles so broad they are virtually meaningless.
The golden rules amount to a list of 22 separate principles grouped under seven sub-headings like “watch where you drill,” “isolate wells and prevent leaks,” “treat water responsibly” and “ensure a consistently high level of environmental performance.”
These are all very sensible and worthy objectives.
No one would argue with rule 5 “choose well sites so as to minimise impacts on the local community, heritage, existing land use, individual livelihoods and ecology,” or rule 10 “take action to prevent and contain surface spills and leaks from wells, and to ensure that any waste fluids and solids are disposed of properly.”
Nor would anyone disagree that regulators should “find an appropriate balance in policy-making between prescriptive regulation and performance-based regulation in order to guarantee high operational standards while also promoting innovation and technological improvement.”
The rest are similarly uncontroversial — and just as meaningless.
As the report notes, no set of regulations can reduce the environmental impact of unconventional gas production to zero. Like any other industrial process, it has costs and benefits. Policymakers must make “trade-offs between reducing the risks of environmental damage ... and achieving the benefits that can accrue to society from the development of economic resources.”
“In designing an appropriate regulatory framework, policymakers need to set the highest reasonable social and environmental standards, assessing the cost of any residual risk against the cost of still higher standards (which could include the abandonment of resource exploitation),” according to the IEA.
Making these trade-offs involves a political decision taken at the highest national level. But the IEA could and should have performed a valuable role helping policymakers understand them, and suggesting some basic standards to guide regulation in individual countries.
Unfortunately, the report ducks this responsibility. Instead, it adopts the principles-based approach beloved of bureaucrats and industry when they can’t reach real agreement.
Rather than prescribe detailed and inflexible rules, the report sticks to a list of “principles intended to guide regulators and operators.” It claims flexibility is needed because “what is reasonable will evolve over time,” as technology and industry best practice evolve.
As a result, the report fails to break new ground. It largely repeats the findings of last year’s compendium on “Prudent Development: Realizing the potential of North America’s abundant natural gas and oil resources” published by the US National Petroleum Council in September 2011.
What national policymakers need, and the IEA failed to produce, was a more detailed set of benchmarks so national regulators can say to those skeptical about shale development: we have adopted national standards and they comply with international best practice so fracking is as safe as we can make it.
The IEA’s golden rules are simply too vague to fulfil this sort of credibility-building role.
The most interesting and useful section concerns the implications for the industry.
The report estimates the cost of complying with the golden rules in four key areas (isolating wells and preventing leaks; eliminating venting and minimizing flaring and other emissions; treating water responsibly; and disclosing more information and engaging with local communities) would add around $580,000 or 7 percent to the cost of a typical shale gas well in the Eagle Ford or Haynesville shale plays of Texas.
The estimate has a strong back-of-the-envelope flavour since the cost of various processes will depend heavily on the type of well, its location and a host of other factors. Nonetheless, the cost of compliance will seem moderate, especially if it allays social and environmental concerns and leads to much wider public acceptance of the procedure.
The real value, however, is in the report’s discussion of various best practices currently employed to reduce harmful impacts, such as flaring and well failures, as well as its speculation on how fracking techniques could be improved further in future.
“Golden rules” highlights the possibility of realising significant economies of scale if field development is planned in advance to ensure centralized infrastructure for water treatment and gas/water separation is in place from the start.
For oil fracking operations, “early installation of gas-gathering infrastructure would bring forward capital expenditure, but would probably not increase the net cost, as any additional charges, including interest charges, would probably be offset by the value of the gas captured.”
Putting in a gas-gathering network from the start would avoid the problem in North Dakota’s Bakken, where rapid development of tight oil production has been accompanied by a massive and wasteful increase in natural gas flaring because there is no gas-gathering infrastructure.
Similarly, the report showcases the potential for central water-treatment facilities to minimise freshwater and allow closed loop recycling of waste water.
Finally, the report highlights the possibility of a smarter approach in future. In comments that echo ideas outlined by Schlumberger’s chief executive at the end of March on the future of fracking , the IEA emphasises the possibility to reduce costs and the environmental impact by reducing “over-fracking.”
“At present the vast majority of shale gas developments are drilled and hydraulically fractured geometrically, that is at regular intervals, without regard to the changing geology between those intervals ... a detailed study of more than 7000 wells in the Barnett shale showed that half of the horizontal wells were unprofitable ... even at $6 per million Btus,” the report claims.
“Reservoir characterization and modelling techniques for shales is applied only in a limited manner at present. It is not unreasonable to expect that, had there been smarter selection of drilling targets, the least profitable 20 percent of wells in our sample would not have been drilled at all” reducing the environmental impact without loss of economic output.
If the report does not provide much concrete guidance to policymakers about how best to strike trade-offs between environmental protection and gas development, it does illustrate the possibility for the industry to develop more cost-effective and environmentally friendly approaches in future.
— John Kemp is a Reuters market analyst. The views expressed are his own.
