By John Kemp
LONDON May 29 With the publication of its
"Golden Rules for a Golden Age of Gas," the International Energy
Agency (IEA) has stuck to platitudes, missing an opportunity to
develop detailed and credible standards that could speed
international acceptance for drilling and fracking
unconventional gas wells.
The golden rules, published on Tuesday, are the outcome of a
process of consensus-building led by the IEA that has brought
together governments, natural gas producers and environmental
groups to address social and environmental concerns expressed
about fracking and shale gas.
The report's declared aim is to help the industry win a
social licence to operate and "(pave) the way for the widespread
development of unconventional gas resources on a large scale,
boosting overall gas supply and making the golden age of gas a
reality." The prize is a vast increase in global gas resources
that could improve energy security and help reduce greenhouse
gas emissions by increasing the use of cleaner burning gas in
place of coal.
But overall the report is a disappointment. Rather than
spelling out best practices and prescribing detailed
international standards that could serve as a benchmark for
national regulations, lending them much-needed international
credibility, the report is mostly couched in vague principles so
broad they are virtually meaningless.
HARD TO DISAGREE
The golden rules amount to a list of 22 separate principles
grouped under seven sub-headings like "watch where you drill",
"isolate wells and prevent leaks," "treat water responsibly" and
"ensure a consistently high level of environmental performance."
These are all very sensible and worthy objectives.
No one would argue with rule 5 "choose well sites so as to
minimise impacts on the local community, heritage, existing land
use, individual livelihoods and ecology," or rule 10 "take
action to prevent and contain surface spills and leaks from
wells, and to ensure that any waste fluids and solids are
disposed of properly".
Nor would anyone disagree that regulators should "find an
appropriate balance in policy-making between prescriptive
regulation and performance-based regulation in order to
guarantee high operational standards while also promoting
innovation and technological improvement".
The rest are similarly uncontroversial -- and just as
DUCKING HARD CHOICES
As the report notes, no set of regulations can reduce the
environmental impact of unconventional gas production to zero.
Like any other industrial process, it has costs and benefits.
Policymakers must make "trade-offs between reducing the risks of
environmental damage ... and achieving the benefits that can
accrue to society from the development of economic resources."
"In designing an appropriate regulatory framework,
policymakers need to set the highest reasonable social and
environmental standards, assessing the cost of any residual risk
against the cost of still higher standards (which could include
the abandonment of resource exploitation)," according to the
Making these trade-offs involves a political decision taken
at the highest national level. But the IEA could and should have
performed a valuable role helping policymakers understand them,
and suggesting some basic standards to guide regulation in
Unfortunately, the report ducks this responsibility.
Instead, it adopts the principles-based approach beloved of
bureaucrats and industry when they can't reach real agreement.
Rather than prescribe detailed and inflexible rules, the
report sticks to a list of "principles intended to guide
regulators and operators". It claims flexibility is needed
because "what is reasonable will evolve over time," as
technology and industry best practice evolve.
As a result, the report fails to break new ground. It
largely repeats the findings of last year's compendium on
"Prudent Development: Realising the potential of North America's
abundant natural gas and oil resources" published by the U.S.
National Petroleum Council in September 2011.
What national policymakers need, and the IEA failed to
produce, was a more detailed set of benchmarks so national
regulators can say to those sceptical about shale development:
we have adopted national standards and they comply with
international best practice so fracking is as safe as we can
The IEA's golden rules are simply too vague to fulfil this
sort of credibility-building role.
The most interesting and useful section concerns the
implications for the industry.
The report estimates the cost of complying with the golden
rules in four key areas (isolating wells and preventing leaks;
eliminating venting and minimising flaring and other emissions;
treating water responsibly; and disclosing more information and
engaging with local communities) would add around $580,000 or 7
percent to the cost of a typical shale gas well in the Eagle
Ford or Haynesville shale plays of Texas.
The estimate has a strong back-of-the-envelope flavour since
the cost of various processes will depend heavily on the type of
well, its location and a host of other factors. Nonetheless, the
cost of compliance will seem moderate, especially if it allays
social and environmental concerns and leads to much wider public
acceptance of the procedure.
The real value, however, is in the report's discussion of
various best practices currently employed to reduce harmful
impacts, such as flaring and well failures, as well as its
speculation on how fracking techniques could be improved further
"Golden rules" highlights the possibility of realising
significant economies of scale if field development is planned
in advance to ensure centralised infrastructure for water
treatment and gas/water separation is in place from the start.
For oil fracking operations, "early installation of
gas-gathering infrastructure would bring forward capital
expenditure, but would probably not increase the net cost, as
any additional charges, including interest charges, would
probably be offset by the value of the gas captured."
Putting in a gas-gathering network from the start would
avoid the problem in North Dakota's Bakken, where rapid
development of tight oil production has been accompanied by a
massive and wasteful increase in natural gas flaring because
there is no gas-gathering infrastructure.
Similarly, the report showcases the potential for central
water-treatment facilities to minimise freshwater and allow
closed loop recycling of waste water.
Finally, the report highlights the possibility of a smarter
approach in future. In comments that echo ideas outlined by
Schlumberger's chief executive at the end of March on the future
of fracking, the IEA emphasises the possibility
to reduce costs and the environmental impact by reducing
"At present the vast majority of shale gas developments are
drilled and hydraulically fractured geometrically, that is at
regular intervals, without regard to the changing geology
between those intervals ... a detailed study of more than 7000
wells in the Barnett shale showed that half of the horizontal
wells were unprofitable ... even at $6 per million Btus," the
"Reservoir characterisation and modelling techniques for
shales is applied only in a limited manner at present. It is not
unreasonable to expect that, had there been smarter selection of
drilling targets, the least profitable 20 percent of wells in
our sample would not have been drilled at all" reducing the
environmental impact without loss of economic output.
If the report does not provide much concrete guidance to
policymakers about how best to strike trade-offs between
environmental protection and gas development, it does illustrate
the possibility for the industry to develop more cost-effective
and environmentally friendly approaches in future.