An American Success Story in Paris

The production of natural gas from deep shale formations, thanks to the combination of horizontal drilling and hydraulic fracturing, was pioneered in the U.S. and it’s a technological breakthrough that continues to transform the nation’s energy economy. But this American success story probably won’t end at the water’s edge. In fact, shale-gas may provide the world with an abundant, affordable and secure energy source for decades to come.

That’s the conclusion of the International Energy Agency in a special report released this week, “Golden Rules for a Golden Age of Gas.” The report concludes that with the right mix of technology, industry best practices and government regulation, America’s shale-gas success can be repeated across the globe:

Advances in upstream technology have led to a surge in the production of unconventional gas in North America in recent years, holding out the prospect of further increases in production there and the emergence of a large-scale unconventional gas industry in other parts of the world, where sizeable resources are known to exist. The boost that this would give to gas supply would bring a number of benefits in the form of greater energy diversity and more secure supply in those countries that rely on imports to meet their gas needs, as well as global benefits in the form of reduced energy costs. (IEA report, p. 11)

In fact, the amount of gas produced globally from horizontal drilling and hydraulic fracturing could triple by 2035, according to IEA projections. Here at home, the U.S. would maintain its status as the world’s leading natural gas producer, with a 62 percent increase in shale gas, tight gas and coalbed methane production projected by 2035. If shale-gas supports 600,000 jobs today, imagine how many hundreds of thousands more workers might be getting paychecks if the industry expands by almost two thirds in just over two decades.

But perhaps the most striking thing about this report is who wrote it. The IEA is based in Paris, the capital of France, where hydraulic fracturing is currently banned. Plus, most of the IEA’s 28 member countries give their government agencies sweeping powers, and they tend to heap more regulations on all industries — including energy production – than the American public would ever allow. But even so, in a nation where hydraulic fracturing is outlawed and at an agency with a bias towards heavy-handed regulation, a team of researchers said the technology is safe and “many countries are lining up to emulate” America’s experience:

Technology is opening up possibilities for unconventional gas to play a major role in the future global energy mix, a development that would ease concerns about the reliability, affordability and security of energy supply. In North America, production of unconventional gas – notably shale gas – has risen rapidly in recent years and is expected to dominate growth in overall US natural gas production in the coming years and decades. Naturally, there is keen interest in replicating this success in other parts of the world, where sizeable resources of unconventional gas are known to exist. (IEA report, p. 17)

Naturally, the report also discusses the “social and environmental concerns” associated with shale-gas production that energy companies and regulators must carefully manage. Of course, every commercial activity, whether it’s running a shopping mall, operating an airline or producing shale gas, needs to manage social and environmental concerns. In the case of shale gas, the IEA says those concerns include land use, water use, well site emissions, and the potential impact on groundwater. Nothing new there, and the report states the obvious – if the oil and gas industry and its regulators don’t appropriately deal with those social and environmental concerns, new hurdles could be erected to future energy development.

Of course, some media outlets couldn’t help themselves, and tried to cast the IEA’s report as a bad omen for the shale-gas industry. Here’s what Bloomberg reported under the headline “Natural Gas Golden Age Is Threatened By Pollution”:

“A tripling of natural-gas production from unconventional sources, such as shale formations, will only happen if environmental concerns are addressed, according to the International Energy Agency.”

Really? In other completely obvious news, your favorite Major League baseball team will only clinch a World Series championship if it wins more games than it loses, and a musician who wants to perform at Carnegie Hall will only get there with practice. Of course there are environmental concerns to be addressed in relation to shale-gas development – the same goes for every other energy source, even wind farms and solar arrays. But what this and other news accounts fail to mention is that the IEA report also says shale-gas operators and regulators in the U.S. are already dealing with those concerns:

The technologies and know-how exist for unconventional gas to be produced in a way that satisfactorily meets these challenges, but a continuous drive from governments and industry to improve performance is required if public confidence is to be maintained or earned. (IEA report, p. 11)

As pioneers of large-scale unconventional gas development, policy-makers, regulators, producers and the general public in the United States have been the first to face the question of how to evaluate and minimise the associated environmental risks. The emergence of unconventional gas production on a large scale has prompted a broad debate, particularly as production has moved out of traditional oil and gas producing areas. It has also led to changes in the regulatory framework and industry practices. (IEA report, p. 103)

The legal and regulatory framework for the development of unconventional resources in the United States is a mixture of laws, statutes and regulations at the federal, state, regional and local levels. Most of these rules apply to oil and gas generally and were in place before unconventional resource development took off. They cover virtually all phases of an unconventional resource development, from exploration through to site restoration, and include provisions for environmental protection and management of air, land, waste and water. States carry the primary responsibility for regulation and enforcement on lands outside federal ownership. This approach allows for some regionally specific conditions, such as geology or differing economic or environmental priorities, to be taken into account, with consequential variations in regulatory practices among states. (IEA report, p. 104)

The industry itself has taken steps to promote best practice, both through industry bodies, such as the American Petroleum Institute and through initiatives such as the creation of the FracFocus website, a voluntary online registry to which companies submit data about chemicals used in hydraulic fracturing operations… (IEA report, p. 105)

To focus on the existence of environmental concerns, rather than the steps that the shale-gas industry and its regulators are already taking to responsibly deal with them, is to miss the whole point of the IEA report. It holds up the American shale-gas experience as a positive example for other countries to follow. It says hydraulic fracturing is a safe technology and that regulations governing its use can be tailored to the specific demands of each country, or even different regions within a country.

The IEA report also says that despite the efforts of some environmental activists to scare the public about hydraulic fracturing, America’s shale-gas companies have earned the public’s confidence, and will maintain that confidence as long as they continue to develop this abundant natural resource responsibly. That’s probably why a Harris Poll in March found 57 percent of Americans support the use of hydraulic fracturing, with only 22 percent opposed. That’s a margin of more than two to one.

But the IEA report also has a more fundamental message, one that recalls the reason why the agency was founded in 1974 – the Arab oil embargo. For decades, the world has been dangerously dependent on a small number of energy-rich countries, namely the members of OPEC, and the IEA says shale gas can help break that dependence. And that’s why, the IEA says, “there has been a surge of interest from countries all around the world in improving their security of supply and gaining economic benefits” by using horizontal drilling and hydraulic fracturing to responsibly produce their own shale gas.

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