Industry Market Trends

Proper Fracking Rules May Usher In Energy "Golden Age"

Jul 24, 2012

The International Energy Agency has released a list of "Golden Rules" that offers reasonable and safe guidelines for affordable fracking, and could usher in a new era of cheaper, plentiful energy.

Unconventional gas - shale gas, tight gas and coalbed methane - is rapidly becoming a point of focus as energy companies explore the possibilities of affordably extracting natural gas in North America.  Last September, the U.S. Energy Information Agency (EIA), in its International Energy Outlook 2011, found natural gas to be the world's fastest-growing fossil fuel, with consumption to increase at an average rate of 1.6 percent per year through 2035.

However, natural gas extraction processes, like hydraulic fracturing, raise concerns among environmentalists and those who live near drilling operations who worry that the process can cause dangerous pollutants to leak into nearby water and air.

Hydraulic fracturing, or fracking, is one of the most controversial gas extraction processes.  Liquids are pumped deep into the shale to further fracture subterranean breaks, releasing gas for collection. Concerns regarding the safety of the process, especially the possibility of oil leaks into nearby aquifers, have generated enough criticism that the process is banned in France and under intense scrutiny in the U.S.

The International Energy Agency (IEA) has released a report that attempts to navigate both the enthusiasm and trepidation over unconventional gas processes, noting that natural gas burns less dangerous emissions than coal, and can be extracted both safely and affordably given diligent oversight and clear-headed regulation.

In its "Golden Rules for a Golden Age of Gas," IEA notes that natural gas is not a magic fix for climate change, but demonstrates that a gas-fired power plant emits only half as much carbon dioxide as a coal-fired plant.  However, achieving a significant level of market saturation for natural gas use to make an impact on carbon dioxide emissions requires a concerted effort by industry leaders and government regulators, according to the New York Times.

IEA's Golden Rules stipulate that safe fracking is possible given proper safety standards. For one, the IEA proposes that gas developers "measure, disclose and engage" with locals, clearly articulating the measures to be adopted for proper and safe drilling in the area. This requires that developers establish and observe "baselines for key environmental indicators, such as groundwater quality, prior to commencing activity, with continued monitoring during operations," and keep local communities and stakeholders apprised of these measures.

Strict environmental and social standards must be set and enforced at a government level. "Governments need to devise appropriate regulatory regimes, based on sound science and high-quality data, with sufficient compliance staff and guaranteed public access to information," the report stipulates.

Although the gas industry has historically been skeptical about increased regulations, the IEA foresees a low cost to adhering to these rules. "We estimate that applying the Golden Rules could increase the overall financial cost of development  of a typical shale-gas well by an estimated 7 percent," the report says, noting that this number decreases for larger operations.

In addition to ethical environmental practices, following the Golden Rules will also earn industry a "social license to operate" from the public, who may become more receptive to unconventional gas extraction strategies as projects like fracking expand while operating with a positive safety record.

If industry follows the Golden Rules, the IEA predicts much higher numbers for unconventional gas production. "Production of unconventional gas, primarily shale gas, more than triples in the Golden Rules Case to 1.6 trillion cubic meters in 2035," the report explains. The increase speeds up after 2020, by which time the production infrastructure and supply chain will have matured.

The largest gas producers for the projection period are the U.S., Russia and China, with large increases expected in Australia, India, Canada and Indonesia, as well. The IEA sees natural gas production as a share of total gas output rising from 14 percent today to 32 percent in 2035.

"The technology and the know-how already exist for unconventional gas to be produced in an environmentally acceptable way," IEA Executive Director Maria van der Hoeven said in a statement. "But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks. The industry must win public confidence by demonstrating exemplary performance; governments must ensure that appropriate policies and regulatory regimes are in place."