Whilst shale gas extraction known as hydraulic fracturing (or fracing) has existed for around 60 years, only recently has its press and popularity exploded. As awareness grows over its utility, with larger oil and gas companies looking to get a piece of the market, and the controversy over its environmental effects develops, Shale Gas will become more and more important, both as a resource and as a topic of environmental debate.
Its utility is threefold. The first, being that it may hold an important solution to concerns over energy supply at least in the medium term. Malthusians often contend, and recent reports from the Resource 2012 Conference seem to confirm the view, that with ‘overpopulation’ we will reach a point of catastrophe in terms of resources. This clearly underestimates human potential and innovation in working to solve these issues, according to “Simons” Axiom as the world’s population has grown, living standards and life expectancy have risen due to innovation. As oil and natural gas become expensive, the IEA stating that oil has reached the ‘critical level’ of accounting for 5% of world GDP in 2011, searching for and employing the use of unexploited resources becomes a profitable enterprise, in this case, shale gas. Supplies vary between nations, but Poland, with perhaps the largest supplies in Europe, is anticipated to have sufficient natural gas to fulfil its energy requirements for 300 years. In Britain, reports keep improving as further investigations take place, estimates for the North West, where Cuadrilla began (but have since ceased) fracing, now claim it holds 200 trillion cubic feet of shale gas, and this is without recognising the supposedly larger reserves in the North East. Looking to the effects of these developments, it is hard not to be optimistic. The US is the best (and only) real example of a country that has made use of this technology for a substantial period of time. Over the past 60 years its operations have expanded to a point where fracing accounts for 21% of its natural gas consumption, with a 48% year on year increase, by 2035 production is expected to triple. This expansion has been reflected in the price of natural gas, with a 25% drop in price since 2008, returning to its lowest level in 10 years, whilst oil at the same time has increased 175%. This has led to savings in electricity prices for consumers, and considering the political capital that lies in reducing energy costs for the public, it would be a wise decision and a PR gain for the coalition to make use of this resource sooner rather than later. Granted that the savings are unlikely to be of the same scale as in the US, especially in the short term, with shale gas extraction a relatively primitive industry in Europe, there is still a possibility of reducing energy costs. A further boost would come in the form of job creation, in the US 600,000 people are employed in Shale Gas extraction in some form, and this number is set to expand by another 270,000 by 2015, reducing unemployment and providing an opportunity for people to develop a useful and employable skillset, again a likely PR gain for the government. Importantly, the discovery has aided manufacturing in the US, with companies, such as Dow Chemicals, choosing to base themselves at home, rather than in China, as reduced energy costs make up for higher labour costs. Whilst this seems to be more of a pleasant unintended consequence rather than a set out aim, with the British manufacturing sector on its knees, a leg up would not be amiss.
There is also significant potential for political gain in terms of energy security to all nations who have reserves, but most prominently, to European countries who are all (except Norway) net importers of energy. Russia’s situation is becoming increasingly complicated; a hostile investment climate stifling the development of new gas fields, the energy-based courting of Asian nations by Russia diverting their attention from supplying Europe and memories of the disputes with the Ukraine in the latter half of the last decade creating shortages throughout the continent have led European leaders to look elsewhere. Considering the additional threat from Iran to block the Strait of Hormuz, choking off the world from Qatari LNG, which accounts for 25% of the world’s supplies, as well as the oil reserves from the region, a viable alternative is looking increasingly necessary to ensure energy security. Poland, France, Britain, Ukraine and Bulgaria all have significant supplies, and the relative stability of these nations can give security to them and to the rest of the continent. Indeed, Eni, the Italian energy giant has looked this way, recently signing an agreement with Ukrainian producers to produce shale gas in the Lviv Region of the Ukraine to reduce dependence on Russian and Middle Eastern supplies.
Clearly there is an issue with externalities resulting from fracing, and the well-publicised concerns over environmental damage, particularly with regards to earthquakes and contamination of the water supply, must be addressed. Earthquakes have, undeniably, been the result of fracing operations. In the UK Blackpool has seen a series of minor tremors causing Cuadrilla to halt extraction for a period and, in the most severe case, Ohio has had a 5.6 richter scale earthquake. These occurrences, however, must be taken in context; an earthquake above 3.0 like Ohio is very unlikely, especially for a country or region that doesn’t lie near a fault. A variety of precautions can and are taken with regards to earthquakes, such as using existing geological stresses which reduces the chance of seismic activity, installing seismic monitoring and closing the site temporarily when incidents do occur. Earthquakes are both a minor and a manageable risk of fracing.
The second risk, of contamination of the water supply has been exaggerated, whilst the polemic Gasland, made much of flaming faucets caused by methane leaking into the groundwater (which is less to do with fracing per se and more to do with the presence of natural gas in the area), polluted water supplies are a minor risk, especially if precautions are taken. Bearing in mind the depth at which extraction takes place and the casings that are used, the chances of pollution are slim. Concerns over the chemicals that are used in the process are also misguided, with these diluted in a 1:200 ratio, rendering them harmless. A report by Willis, a Global Insurance Broker, maintains that if sufficient precautions are taken and best practice applied, the risks are similar to any other industrial process and have been blown out of proportion. Whilst accidents may happen and penalties will apply, serious concern is not warranted. Indeed, the EPA in a 04’ study concluded that fracing operations have been taking place for 60 years without any serious concern.
In addition, the massive potential for reducing carbon emissions through the use of fracing, with natural gas power stations producing up to 70% lower greenhouse gas emissions than coal-fired stations, there is an environmental benefit to fracing. According to the Economist, in the last decade, the importance of coal in America’s energy mix has reduced by a 1/3rd whilst the use of natural gas has increased by 8%, leading to a fall in carbon-dioxide emissions by 450m tonnes, more than any other country in the last 5 years. Whilst, perhaps only a bridge to renewable energy, it is still an improvement, and with China possessing large reserves of shale, and coal accounting for 70% of their energy mix in 2010, there is substantial progress that can be made now. Shale Gas can be the bridge to zero carbon energy generation.
Strong environmentalists may find this view abhorrent for a number of reasons. Firstly, the presence of vast quantities of natural gas, which was previously undiscovered weakens their argument substantially. For environmentalists, the best motivator is fear, and fear of catastrophe with running out of energy resources has been an effective means by which to convince some members of the public that government investment in renewable energy is a necessity. A valid and major concern of Environmentalists over the rise of Shale Gas is the probability that public and private investment in renewable and zero carbon energy sources will decline. Making renewable technology viable is a worthy goal, and whilst all barriers to entry should be removed to encourage them to compete, government spending and subsidies are not appropriate, especially during a recession. In using taxes to pay for a business that wouldn’t survive without subsidies and keeping energy costs artificially high, the public suffers in terms of taxes and electricity bills. To add to this, it would be wrong to let the goal of developing zero carbon technology stand in the way of making improvements in the emission levels from moving from coal to shale.
In a time where political opinion over this matter is divided, from the extremes of France and Bulgaria where it is banned to the US where it has proceeded relatively freely, concerns for environment have been important in shaping attitudes towards this practice. Whilst valid, these externalities can be mitigated, to not take advantage of this valuable resource and the improvement it brings with regards to moving towards a reduced carbon energy mix, would be a mistake we would live to regret.