Public concerns about shale gas could significantly limit the industry’s growth globally. It needs to provide more reassurance – and self-regulation
The shale gas industry promises a revolution in global energy supplies, but quite how secure are its foundations for growth? Many countries are keen to replicate the dramatic expansion of shale gas in the US, where it has transformed the energy security situation and brought gas prices plummeting. At the same time, the technique used to extract shale gas – hydraulic fracturing, popularly known as ‘fracking’ – has been criticised by activists for causing depletion of water reserves, contamination of aquifers, pollution by waste products and triggering of earthquakes.
Many of the criticisms are strongly disputed by the industry. But public opposition on these environmental grounds poses a real risk that its growth will be significantly slowed if not stalled in some key regions outside North America (one potential parallel is the way in which popular fears in Europe around genetically modified, or GM, crops – though exaggerated in the view of industry actors – has effectively frozen prospects for their cultivation there since the 1990s). With shale gas extraction already banned or suspended in various areas, the industry must face up to the vital task of addressing public concerns and establishing itself in the public mind as environmentally responsible.
The general public must find it difficult – for two main reasons – to assess the truth about environmental damage caused to date by fracking in the US. Firstly the industry is relatively new and although the US Environmental Protection Agency is due to publish its comprehensive report into the safety of fracking in 2014 (with interim findings due to be made public in late 2012) there has till now been relatively limited assessment of the environmental complaints by neutral independent authorities.
Secondly shale gas companies have often in the past performed poorly in terms of public transparency – with firms sometimes responding to allegations of environmental harm with simple denials, for example, and maintaining secrecy about the chemicals used in fracking fluid (albeit more are now recognising the need for transparency: US companies are increasingly disclosing the chemicals they use through FracFocus.org, an industry supported website). One expert view that now appears to be emerging is that any actual incidents of environmental harm may be the result of shoddy practices by small operators rather than the inherent dangers of fracking. Past industry secrecy and the lack of independent assessment has nonetheless fuelled public conjecture and alarm.
Regions of concern
To briefly survey the state of the industry worldwide, in North America – unlike in other regions – shale gas extraction has moved significantly beyond the exploratory stages. The US industry itself faces vociferous local opposition in some areas and is the subject of national political debate about how much regulation it should face. In neighbouring Canada, shale gas reserves throughout the country are in various stages of exploration and exploitation, but in more heavily populated areas (for example, the St Lawrence valley in Quebec) development is being stalled by public opposition.
Elsewhere a divide seems to be opening up between countries where shale gas extraction looks more likely to take off without major obstacles and those where public opposition is creating more significant problems. In the former category both China and Poland have strong government drives to develop shale gas extraction to ensure energy security. China has huge estimated reserves but despite possible technical challenges with fracking there appears to have been a relative absence of challenge to government policy from civil society. Similarly Poland has among the largest estimated reserves in Europe and a government particularly eager to use shale gas to reduce dependence on Russian gas. In a number of other countries – such as Australia and Argentina – public opposition to fracking has so far at least not been as loud as elsewhere (in the case of Australia this may be partly because of the location of reserves in thinly populated areas).
In many other countries with reserves, particularly in Europe, environmental opposition is creating real obstacles. Fracking was banned in both France and Bulgaria in 2011. Elsewhere in Europe exploration has begun but is encountering serious opposition. In the UK, exploration in Lancashire was put on hold in 2011 following two small earthquakes (though a government analysis released in April this year cleared a way for a potential resumption of activities, subject to tougher procedures). In Germany exploration licences have been granted to major companies but opposition has led to a moratorium on fracking in one state – North Rhine Westphalia. A similar situation has developed in South Africa where government plans to exploit reserves in the arid Karoo region has run into fierce opposition particularly over depletion of water reserves.
With the ‘licence to operate’ globally of the industry at some risk, there are a number of steps it might take to address weaknesses such as lack of transparency and self-regulation and to generally strengthen its position:
- It must be seen to respond to concerns arising from the US experience rather than be perceived as pressing ahead regardless of these. The argument that problems have been caused by shoddy operators and are not an inevitable part of the fracking process needs to be more persuasively put and substantiated. Companies should cooperate and be proactive on this.
- On a more substantive level, companies need to step up their collaboration to more clearly define best practices and an industry code of conduct on key issues such as proper casing of wells (to prevent chemical and gas leaks), water use, waste disposal and chemicals used. Although major companies are already understood to be following good practices here, joint action is required to establish a responsible reputation for the industry as a whole. Some moves in this direction have already been made. The Canadian Association of Petroleum Producers introduced a set of operating guidelines in January 2012. On an international level, the International Energy Agency, aware of the inadequacy of national regulation, is planning to publish a report with recommendations for best practice in the industry in May. This report may prove to be the industry benchmark that is required.
- The industry must further restrain its inclination towards secrecy regarding fracking fluid chemicals. FracFocus.org in the US shows a model for more transparency in this area. Companies need to recognise that any individual commercial advantage gained from secrecy may be outweighed by the suspicion or alarm created and the harm to the reputation of the industry as a whole. Clear and strong government regulations on disclosure covering all industry players can reduce the problem of competitive disadvantage – companies should consider explicitly calling for such regulation (see Critical Resource’s recent interview with Peter Voser, Shell’s CEO, for an example of this).
- The industry may have lots to learn from the mining sector in these areas. A decade ago the large global mining firms establish a body (the International Council on Mining and Metals) with a more explicit mandate to drive standards and good practices for the sector than that of traditional industry bodies.1 Mining companies also have deeper experience than many energy companies in consulting with local communities at an early stage and establishing procedures for environmental monitoring to build local trust (albeit many mines of course remain highly controversial).
Such proactive approaches will require significant leadership and coordination between shale gas operators on a global basis. But the GM crop companies who lost their own multi-billion dollar market in Europe in 1990s will likely attest to the importance of energetic early efforts at reassurance and standard setting before public fears solidify into outright rejection.
1 Declaration of interest: Critical Resource has served ICMM as a client
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