Grupo de Economia da Energia

Environmental regulation: an obstacle to shale gas extraction?

In natural gas on 03/10/2011 at 00:15

By Edmar de Almeida & Luiz Suárez 

Shale gas is a type of unconventional natural gas in low permeability sedimentary formations. Unlike conventional gas, which migrates from rocks to reservoir rocks, this unconventional gas is trapped, because the low permeability hinders its escape. This characteristic prevented for a long time such gas extraction of, since there were no technologies able to promote its removal from shale formations.

Due to horizontal well drilling and hydraulic fracturing advent this paradigm has been overcome. This process consists of pumping sand and water under high pressure with other chemicals in the well in order to fracture the shale formations through slots opened initially by using “perforating gun”, allowing the release of gas from sedimentary formations into the well.

This technique was responsible for increasing greatly the recoverable natural gas resources of the world. In the USA, for example, 24 trillion out of 71 trillion cubic meters of total recoverable reserves is related to reserves of shale gas, according to International Energy Agency (IEA). This scenario changed significantly, and USA, as former LNG importer, became one of potential natural gas exporters.

By confirming that it was possible to extract gas from shale formations, natural gas already considered as a transition fuel to clean energy sources had this role reaffirmed. Not everything is a bowl of cherries; this new opportunity to obtain natural gas has been accompanied by questions about the negative impacts that hydraulic fracturing may cause on the environment.

The major concerns are the large amount of water used in every process, and possible groundwater contamination by the gas and chemicals present in water used in the activity. Finally, there is still concern about the leakage and emission of methane derived from the well operations.

The documentary “Gasland”, by Josh Fox, illustrates the issues raised by environmental groups that push the authorities for no hydraulic fracturing activities. In the documentary, Fox travels some USA states interviewing owners who rented their land to shale gas companies. These owners report commonly that water for drinking is contaminated, mainly by benzene, combustion of tap water, and also health problems resulting from impacts caused by fracturing.

Even with the several complaints of environmental impacts, the shale gas companies claim that there has never been a proven case of water contamination by hydraulic fracturing activities. Despite the denial, some USA states and European countries are reticent about the development of shale gas extraction due to environmental issues. After granting licenses for shale gas exploitation without public consultation in the beginning of the year, France (which holds together with Poland the largest reserve of unconventional gas in Europe) banned in late June the hydraulic fracturing throughout the country. Analysts said the decision was taken due to the public opinion to be contrary to the fracture, in view of the proximity of elections to the parliament and presidency. Germany, through the Federal Office for the Environment, has also been seeking to prevent the shale gas exploitation, but not by the ban, but through amendments in legislation to make exploitations unprofitable.

Opposed to these countries, Argentina (South America) and Poland and Bulgaria (Europe) proved to be very favorable to the development of shale gas. In Argentina, where is located the third largest reserve of shale gas in the world, the development of extraction has been guided by YPF, a company owned by Spanish Repsol. YPF has already started working on drilling a well in the province of Neuquen, which will make Argentina the first country in South America to extract shale gas. In Poland, several licenses were granted to companies for making test drilling, such licenses already cover almost the entire region where the sedimentary formation is located. As Poles, Bulgarians are also enthusiastic about the development of this new resource, and one of the reasons seems to be the same, independence from Russian gas.

Despite the exploitation concessions in some countries, in general, European public opinion, which is characterized by having a greater concern for the environment than the USA population, has shown itself against the hydraulic fracturing due to the possible contamination of groundwater and large water usage.

Below we can see a chart with estimates of the volume of water used in the USA exploitation fields.

Volume of water used per shale gas well (gallons) *

* 1 gallon = 3.78 liters.

Est 1 and Est 2 refer to two different estimates in the industry literature.

Source: Growing Shale Resources (Black & Veatch Management Consulting)

Water is used not only for fracturing but also for drilling; however, as shown in chart, the most significant volume is due to fracturing.

According to an estimate of EPA, the U.S. environmental protection agency, the annual volume of water used in the USA for shale gas extraction ranges from 265 to 530 billion liters, which would have to supply 40 to 80 cities with 50 000 inhabitants or 1-2 cities of 2.5 million inhabitants.

Even it is very relevant, this issue is not the main concern. Environmentalists are concerned about the contamination of groundwater in the USA due to chemicals used in fracturing. The issue is controversial and supported by the fact that until recently there was no law requiring companies to disclose the chemicals used in hydraulic fracturing.

The absence of laws and regulations for the extraction of shale gas is due to a new phenomenon, but this scenario has been changing. In Texas, for example, where we have one of the main areas of extraction, a law requiring companies to disclose their volume of water and chemicals used was approved. In West Virginia the new requirements on horizontal drilling are demanding. Companies should develop plans to control erosion; the drilling foundations shall be certified by a State registered engineer, and companies which employ more than 795,000 liters of water per month shall submit a management plan, informing, among other, source of water used and treatment of waste water. In New Jersey, a drastic measure was approved in the state senate, the permanent prohibition of hydraulic fracturing, which was vetoed by Governor Chris Christie who opted for banning only one year so the State Environment Agency to review the issue.

At the federal level, EPA will conduct a large study, where it want to spend 12 million dollars to assess the possible impacts of hydraulic fracturing on sources of drinking water. This research was requested by the Federal Congress, with preliminary results in 2012 and conclusion in 2014. The study aims to examine the entire cycle of water during the hydraulic fracturing process, including acquisition, mixing with other chemicals, well injection and finally the treatment and dispersion of it. The data collected will allow determining the relationship between environmental impacts reported and fracturing activities.

The study will take place on two fronts, one through the monitoring of areas where fracturing occurred, trying to relate the impacts reported and the data obtained by research in the area, and the other one will monitor areas to be fractured, allowing the development of sampling and characterization of the areas before, during and after the extraction of water, well drilling and fluid injection.

The areas selected for the study already fractured are:

  • Bakken Shale – Kildeer and Dunn Counties, North Dakota.
  • Barnett Shale – Wise and Denton Countries, Texas.
  • Marcellus Shale, Bradford and Susquehannah Counties, Pennsylvania.
  • Marcellus Shale, Washington County, Pennsylvania
  • Raton Basin, Las Animas County, Colorado

The selected areas to be drilled are:

  • Haynesville Shale – DeSoto Parish, Los Angeles.
  • Marcellus Shale – Washington Country, Pennsylvania.

The study will determine if the hydraulic fracturing impacts sources of drinking water and the extent of the damage. It will also help determining which practices should be used to prevent or mitigate these impacts. It is important to mention that despite many adjustments to be made at state level, EPA has the authority to impose rules to fracture at national level, based on protection of water resources. A fact that further increases the importance of this study is that the rest of the world observes the American experience to decide their directions for the development of shale gas extraction.

According to a study performed for the state of Alaska by an American consulting firm, Black and Veatch Consulting, acquisition and water treatment can significantly raise the cost of extraction. This same study indicates that cost of water today for the shale gas extraction from a well expecting return of 3.5 billion cubic feet is around $ 0.25/Mcf and, in a possible scenario, in adverse conditions, it can rise to $1.38/Mcf. This unfavorable scenario would be characterized by more stringent regulations, such as limiting the volume of water and chemicals to be used in hydraulic fracturing, and greater demands on the treatment of water left from the whole process.

Certainly, the shale gas is nowadays a global phenomenon. Besides USA, pioneers in the field, the process for extraction of this type of gas has started in Australia, Europe, Africa (South Africa), South America (Argentina) and Asia. The last China’s five-year plan (2011-2015) envisages major investments for this activity. Even this phenomenon has been disseminated worldwide, its future will depend on the results of the study being conducted by EPA, because it will bring many answers about the environmental impacts of hydraulic fracturing. Thus, future regulations on this activity not only in America but also around the world will be influenced by the findings of the U.S. agency, which will likely be the end point of the debate on the impacts of shale gas extraction on the environment.

References:

Aol Energy EPA’s Draft Hydraulic Fracturing Study Plan, June, 2011.

Bill Text: TX House Bill 3328 – 82nd Legislature Regular Session.

Black and Veatch Consulting Growing Shale Resources: Understanding Implications for North American Natural Price of gas, November, 2010.

Bloomberg New Jersey Lawmakers Send Christie Ban on Hydraulic Fracturing, June, 2011.

Centre For Eastern Studies Will Germany restrict the possibilities for the development of shale gas fields? August, 2011.

EPA Draft Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources, February, 2011.

European Energy Review France’s “green votes” kills shale gas – and targets nuclear power as well, July, 2011.

European Energy Review Shale gas: controversy and resources, September, 2011.

European Energy Review Shale gas doesn’t make Poland the Norway yet, June, 2011.

European Energy Review Shale gas battle in Bulgaria – high stakes for Europe, September, 2011

E&P Examining Texas’ Hydraulic Fracturing, August, 2011.

Institute for Energy Research China Plans to Exploit its Shale Gas Resources, April, 2011.

Latin American Herald Tribune YPF Invests in Unconventional Gas in Argentina, September, 2011.

Natural Gas For Europe Will Germany Be Next to Shut the Door to Shale Gas.

Oil and Gas Journal NJ governor rejects permanent frac prohibition, August, 2011.

Oil and Gas Journal West Virginia issues emergency horizontal drilling rule, August, 2011.

Oil and Gas Law Brief West Virginia DEP Announces Regulations for Hydraulic Fracturing, August, 2011.

Reuters Analysis: Australia shale gas heats up, but output still far off, July, 2011.

Seeking Alpha Shale Gas Exploration Goes Global With Drilling in Argentina, February, 2001.

Well Servicing Magazine Hydraulic Fracturing Debate Rages On, July, 2011.

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