Tuesday, May 29, 2012

Shale Gas Boom at Risk

Story first appeared in The Wall Street Journal.

Global exploitation of shale gas reserves could transform the world's energy supply by lowering prices, improving security and curbing carbon dioxide emissions, but the industry might be stopped in its tracks if it doesn't work harder to resolve environmental concerns, the International Energy Agency said Tuesday.

The IEA's report shows how the shale gas industry, which has already dramatically altered the energy landscape in the U.S., stands at a tipping point.

If the social and environmental impacts aren't addressed properly, there is a very real possibility that public opposition will halt the unconventional gas revolution in its tracks, according to Natural Gas Expert Witnesses.

The industry can win public support if it follows a set of "golden rules," including the careful choice of drilling sites to avoid earth tremors, using the highest standards of well design to avoid groundwater contamination, properly disposing of waste water and eliminating emissions of polluting gases from the well head, the IEA said.

For companies involved in the industry, this is an immediate issue that could have global implications. Adopting the rules would only add around 7% to operating costs.

Shale gas has only recently become a major energy source as a process called hydraulic fracturing, which releases gas from impermeable rock, has become more widespread. It has produced a natural gas boom in the U.S., driving prices to 10-year lows, but is only beginning to spread elsewhere.

But opposition is significant, particularly in Europe, from groups concerned about the risks of water contamination, earth tremors or the release of greenhouse gases. Hydraulic fracturing has been banned in France and Bulgaria and temporarily halted in the U.K.

Environmental group Greenpeace, which opposes all exploitation of unconventional gas reserves, criticized the IEA for failing to propose specific procedures for preventing many of the environmental hazards.

But the head of sustainability at the £142 billion ($222.7 billion) asset manager Scottish Widows Investment Partnership and a past critic of the shale gas industry, said the IEA's recommendations would make a big difference if widely adopted.

If its blueprint is followed, the IEA said that between 2010 and 2035 natural gas could be by far the fastest growing fuel, with consumption increasing by 50% to overtake coal as the second largest source of energy.

Countries that were net importers of natural gas in 2010 are likely to be the biggest winners as they increase domestic energy production, while natural gas prices would be around 30% lower in most major markets, the IEA said.

However, if lack of public acceptance stifles the industry at an early stage, global emissions of carbon dioxide would actually be 1.3% higher as coal would make up a greater share of global energy supplies, it said.

The IEA doesn't have any powers to enforce its recommendations on shale gas drilling, and it will be up to the governments of each country to determine how to regulate the industry, said Ms. Van der Hoeven.

Leaders of the Group of Eight leading nations agreed earlier this month to review the IEA's recommendations.

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