SUSTAINABILITY BOARD
CEEP/13SB05
01/08/2013
FRACKING
BACKGROUND DOCUMENT
DEFINITION
SHALE GAS is natural gas, labelled as unconventional resource, trapped in fine-grained
sedimentary rock called shale that has a characteristic ‘flaky’ quality.i It can be piped off
through HYDRAULIC FRACTURING ("FRACKING"). The process of "fracking" involves drilling a hole
deep into the dense shale deposits, ii then pumping in at very high pressure a mixture of
water, sand and chemicals. This creates small fractures in the rock, allowing the natural gas
to flow up to the surface. Fracking improved the economic viability of the extraction of
unconventional gas as it can increase both production rates and the total amount of gas that
can be recovered.iii
RESOURCES
The International Energy Agency (IEA) has estimated that globally, UNCONVENTIONAL GAS
RESOURCES could be large - perhaps doubling its importance by meeting more than 30% of the
increased global demand for gas by the year 2035.iv As exploration is still at a very early
stage worldwide the actual size and productivity of shale gas deposits remain highly
uncertain.v However, unconventional gas can play a crucial role in meeting rising demand.
US Energy Information Administration (EIA)'s current estimate of technically recoverable dry
shale gas resources is 637 trillion cubic feet, including proved reserves of 94 trillion cubic
feet. US and CIS countries account for 60 % of available shale gas resources worldwide,
whereas Europe only for 7 %.vi
1 Shale gas reserves around the world, British Geological Survey data
In the US, where fracking experimentation and exploration first began twenty years ago,
shale gas production has grown rapidly from 9 % of total consumption in 2007 to 35 % in
2011. Progress in other parts of the world has been limited, with production in Europe not
expected to be substantial until after 2020.vii In Europe, the number of drilling rigs required
is between 500 and 600; while there are currently around 50 land rigs.viii For the moment,
production of unconventional gas is still overwhelmingly a North American phenomenon
with 90 % of global unconventional gas outputix coming from that region.
EUROPE’S SHALE GAS RESOURCES are found in three major areas that contain multiple basins, subbasins and different plays: from eastern Denmark and southern Sweden (including Alum
shales) to northern and eastern Poland (Silurian shales); from northwest England, through
the Netherlands and northwest Germany to southwest Poland; and from southern England
through the Paris Basin in France, the Netherlands, northern Germany and Switzerland.x
THE LEGAL SITUATION IN EUROPE
Shale gas development is in its early stages in the UK, but there have already been almost
200 licenses for onshore oil and gas exploration issued. The government made revently an
agreement with the industry according to which companies have pledged to engage with
communities prior to any application for planning permission, and to provide community
benefits in areas where shale is commercially extracted. These will include £100,000 for
communities situated near each exploratory well, and 1% of revenues from every production
site. xi “Development must be done in partnership with local people,” commented UK Energy
Minister Michael Fallon.
Several major companies have scaled back their operation in Poland after shale gas reserve
estimates have been reduced to a tenth of their original size.xii The country with the most
supportive attitude towards unconventional gas emphasizes that exploration will bring
economic growth and environmental progress as well as increase energy independence,
especially from Russia.xiii A new Geological and Mining Law came into force early 2012. The
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most significant change was that licences for exploration of hydrocarbons can now be
granted only through tenders (until now exploration licences were on a first-come, firstserved basis).xiv Poland is strongly arguing against a common European regulatory
framework.xv
Other countries are more cautious. After public protests France banned hydraulic fracturing,
as of July 1, 2011, including its use for research purposes,xvi although the country might have
the largest reserves in Europe.xvii Shale gas potential is primarily located in two major shale
basins: the Paris Basin and the Southeast Basin,xviii both heavily dependent on tourism.
Revision of the mining code is under consideration to include previous public consultation.
Some analysts suggest that shale gas reserves in Spain could be as high as 1.4 trillion cm. In
spite of this, hydraulic fracturing was banned in April in the northern Cantabria xix region,
believed to be rich in shale gas, countering government hopes to stimulate the economy.
The Netherlands, Luxembourg and the Czech Republic have suspended drilling for shale gas
as well. Due to strong public opposition MPs of Bulgaria also introduced a ban early 2012.xx
NGOs und civic groups organised protest in Romania, where the government also lifted a
year-long moratorium in March this year. Shale gas deposits shared with Bulgaria and
Hungary are estimated to be more than 538 bcm — enough to meet the country's gas needs
for 40 years.xxi In Hungary the first exploratory test drills started by Exxon in 2008; however,
as exploration efforts have not resulted in any full-scale extraction possibilities, public
opposition has remained relatively low.xxii In Austria the energy company OMV tried a new
method, called “clean fracking” that relinquishes chemicals, which proved to be
uneconomical so the company suspended test drillings.xxiii
Exploration drilling has been undertaken in Sweden’s shale gas resources. Reserves contain
a high concentration of uranium, thus, opposition to fracking had delayed the activity and
threatens to deter renewed exploration activity.xxiv
Recently, Lithuania restricted its environmental law for shale gas exploration and
production; winner of shale gas exploration tender Chevron still wants to invest.xxv
In Germany, legislation on fracking is expected only after the elections. The country’s shale
gas resources are in the large North Sea German basin, estimated at 230 bcm. Until now,
several companies have acquired exploration licences and ExxonMobil has drilled at least
three exploratory shale gas wells in Lower Saxony.xxvi
At European level there is no specific regulation available for shale gas exploration and
production, Member States can only rely on the legislation on conventional gas
(Hydrocarbons Licensing Directive) and environmental directives, such as rules regarding
water protection (Water Framework Directive, Groundwater Directive and Mining Waste
Directive), the use of chemicals (under REACH regulation), the protection of natural habitats
and wildlife, requirements to carry out an environmental impact assessment, under general
environmental legislation, liability for upstream operators to incur penalties for
environmental damage (under the Environmental Liability Directive and the Mining Waste
Directive).xxvii A 2011 report of the Commission’s DG for Energy found that there are no
significant gaps in the legislative framework both on the European level and at the national
level when it comes to regulating shale gas activities.xxviii The Commission included in its
2013 Work Programme an 'Environmental, Climate and Energy Assessment Framework to
Enable Safe and Secure Unconventional Hydrocarbon Extraction' as new initiative (subject to
an Impact Assessment). An on-line stakeholders' consultation was carried out from the end
of 2012 until 23rd March 2013;xxix results will be made available by the end of July. The vast
majority of respondents were individuals, though other stakeholders, such as businesses,
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NGOs, industry associations and governmental bodies also took part. When the results of
the consultation were weighted by nationality, about 60% of respondents were against the
development of shale gas on the continent. Responses from Poland, representing over half
of the total (11,714 out of 22,122 individuals), were very supportive. xxx
Energy Commissioner Günther Oettinger takes a favourable position on shale gas, whereas
Climate Commissioner Connie Hedegaard seems to be more cautious, emphasizing the
importance of paying attention to what local people think.xxxi
The European Parliament has also dealt with the topic, as its Committee on Environment,
Public Health and Food Safety presented two documents, and a draft report has been also
worked out by the Industry, Research and Energy Committee.
THE NEXT STEPS
According to estimations of IEA, by 2020 unconventional fuel production, mainly shale gas,
in the EU will climb to just over 10 bcm, but will grow more rapidly thereafter, reaching
almost 80 bcm by 2035. Unconventional gas will contribute almost half of the European
Union’s total gas production and meet just over 10% of its demand by 2035.
The financial aspect – is it economical?
Generally, the cost of unconventional gas extraction is higher than the cost of conventional
resources, due to the larger quantity of wells and drilling necessary.xxxii On top of that,
known reserves of shale gas in Europe are 1.5 times deeper on average than in the US, xxxiii
which would increase drilling costs by a factor of three, according to Schlumberger, an
oilfields service company.xxxiv For the fracking process a larger water supply is needed, which
can cost up to 10 times as much in Europe as it does in the US, notes a KPMG report. State
ownership of gas rights can reduce the incentives for communities to accept development of
those resources, compared with the US where these rights are held mostly by private landowners.xxxv Drilling activities can reduce the land value for agriculture or tourism
significantly.
The question whether benefits derived from shale gas outweigh the drawbacks of fracking
has not been yet answered as besides environmental and social concerns there are plenty
ARGUMENTS IN FAVOUR as well. With demand amounting to around 550 bcm in 2010, xxxvi the
European Union is the second-largest regional gas market in the world, however, strongly
dependent on import from Russia. Access to affordable domestic natural gas could not only
contribute to energy security and free foreign policy from the constraint of energy
diplomacy, but it can also moderate gas prices, currently over twice the US levels.xxxvii
According to a senior EU official, quoted by EurActiv, “the effect [of shale gas] on prices is
not necessarily going to be major". German economic research institute ZEW consulted over
200 gas and industrial experts who predict that shale gas will only become economically
viable if the gas price reaches 40-50 €/mcf – whilst the current gas price in Germany and
Belgium is at 27 €/mcf.xxxviii The costs of production are expected to be about 50% higher
than in the USxxxix due to geological and geographical differences as well as to the higher
population density, and a less developed gas infrastructure in some countries.xl On the other
hand, shale gas boom can facilitate innovations, industries such as chemicals could benefit
from the shale gas boom and plan for expansion, and high-tech jobs would probably
proliferate. Extracting oil and gas currently supports over 1.7m American jobs and this
number will grow significantly.xli (However, it is questionable whether there is enough
qualified personnel in Europe.) This has the potential to bring in substantial tax revenue, an
important aspect especially for local communities. In this regard, tax breaks or other
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possible tax incentives can invalidate this argument. Some argue that replacing coal with gas
for power generation could mitigate GHG1 emissions.xlii Energy is a high stakes game; it is
central to our economy, our security and our efforts to tackle climate change.
WHY IS IT CONTROVERSIAL?
All forms of energy production, including renewables, have some impact. The main reason
for the potentially larger environmental impact of unconventional gas operations is the
nature of the resources themselves: unconventional resources are less concentrated,
involving a generally larger environmental footprint.xliii
Series of potential social and environmental costs can call into question the benefit of
actually exploiting the resource. The extent of water use and the risk of water
contamination are key issues for any unconventional gas development: the largest volumes
of water are used during the hydraulic fracturing process: each well might need between a
few thousand and 20 000 cm.xliv Many shale deposits are buried under aquifers, the process
of fracking can release the chemicals such as hydrochloric acid and carcinogens into it.xlv
After being injected into the well, 20-50% of the fracturing fluidxlvi still containing some of
the chemicals is returned as flow-back. 2 Transport of water from its source and to disposal
locations can be a large-scale activity. However, the World Energy Outlook of IEA notes that
none of these hazards is specific to unconventional resources; they also exist in conventional
developments.
During drilling leaks of methane can occur. Besides, fracking always generates small seismic
events; in general, these are several orders of magnitude too small to be detected at the
surface.xlvii Drilling in the UK was suspended in 2011 after fracking at Cuadrilla’s wells caused
two minor earth tremors near Blackpool.xlviii Shale gas has higher production-related
greenhouse-gas emissions than conventional gas.xlix
Although full environment impacts of unconventional gas extraction are unclear,
environmental groups and civil opposition have raised a number of concerns which has
encouraged governments to invest more efforts in scientific research.
The most common concerns raised are not directly associated with the stimulation process
itself, but rather relate to the increase in industrial operations in close proximity to
communities. The best way we can minimise impact is through open dialogue with local
communities and working closely to meet their concerns,l reacted Bill Maloney, Executive
vice-president for development and production at Statoil NA.
According to a report of the Commission’s Joint Research Centre on unconventional gas,
although it is important to highlight national regulations on the exploitation of
unconventional hydrocarbons, in practice the first mover that crucially determines obstacles
of development activities are local authorities. Therefore, a top-down analysis of national
regulations and centralised infrastructure planning for large-scale development and
production of shale gas should be complemented by a bottom-up analysis of the surface-level
constraints and opportunities present in each shale gas play.
1
The EU has committed to reduce greenhouse gas emissions to 80-95% below 1990 levels by 2050.
NB: Studies by the UK Environment Agency on return water from Cuadrilla’s test wells found higher than
permitted levels of sodium, chloride, bromide, iron, lead, magnesium and zinc.
2
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The first priority should be the protection of the environment and our drinking water in
particular. Experience in the continent shows that the best way of persuading local people to
accept for example wind farms is to ensure they have some share of the potential benefits. li
This could be the way to handle the issue of fracking to give local communities whose lives
are disrupted by the extracting a greater say. People living in those areas rich in shale gas
should not forfeit their rights to a healthy environment.
In brief, basic principles of how to deal with fracking should be minimizing environmental
and social risks through adequate legal framework and environmental impact assessment,
and ensuring transparency and responsibility of energy companies.
SOURCE MATERIALS
i
JRC Report (2012): Unconventional gas: Potential energy market impacts in the European Union
AEO 2013 Assumptions report
iii
Carbon Connect (2013): Power from fossil fuels
iv
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
v
Carbon Connect (2013): Power from fossil fuels
vi
KPMG Central and Eastern European shale gas Outlook 2012
vii
Carbon Connect (2013): Power from fossil fuels
viii
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
ix
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
x
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xi
UK Government press release Estimates of shale gas resource in North of England published, alongside a
package of community benefits (27 June 2013)
xii
Carbon Connect (2013): Power from fossil fuels
xiii
KPMG Central and Eastern European shale gas Outlook 2012
xiv
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xv
KPMG Central and Eastern European shale gas Outlook 2012
xvi
KPMG Shale Gas – A global perspective (2011)
xvii
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xviii
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xix
Euractive Shale-rich Spanish region votes to ban fracking (09 April 2013)
xx
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xxi
Globalpost Will Europe keep on fracking? (22 April 2013)
xxii
KPMG Central and Eastern European shale gas Outlook 2012
xxiii
The Economist Frack to the Future (02 February 2013)
xxiv
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xxv
The Lithuania Tribune Chevron remains keen to invest in shale gas exploration and extraction in Lithuania
(10 July 2013)
xxvi
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xxvii
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xxviii
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xxix
European Commission: Environmental Aspects on Unconventional Fossil Fuels
xxx
Euractive EU official: shale gas el dorado out of Europe's reach (13 June 2013)
xxxi
Euractive EU's chief science advisor gives shale gas go-ahead (18 April 2013)
xxxii
Carbon Connect (2013): Power from fossil fuels
xxxiii
KPMG Central and Eastern European shale gas Outlook 2012
xxxiv
Bloomberg Shale-Gas Drilling Cost in Poland Triple U.S., Schlumberger Says (Nov 29, 2011)
xxxv
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
ii
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IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
Euractive EU official: shale gas el dorado out of Europe's reach (13 June 2013)
xxxviii
ZEW Schwerpunkt Energiemarkt, Sonderteil ZEWnews · Januar/Februar 2013
xxxix
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xl
Euractive EU official: shale gas el dorado out of Europe's reach (13 June 2013)
xli
The Economist Debate fracking Statoil's perspective (February 2013)
xlii
The Economist Debate fracking Statoil's perspective (February 2013)
xliii
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xliv
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xlv
Guardian Shale gas fracking Q&A (20 April 2011)
xlvi
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xlvii
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
xlviii
Carbon Connect (2013): Power from fossil fuels
xlix
IEA World Energy Outlook 2012 “Golden Rules for a Golden Age of Gas”
l
The Economist Debate fracking Statoil's perspective (February 2013)
li
The Economist: Tilting opinions (May 25, 2013)
xxxvi
xxxvii
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