Shale Regulatory Environment: Walking in Your Footsteps

Comparing North America and Europe when it comes to regulation

It’s a huge challenge: minimizing unconventional gas’s environmental footprint. But it was a challenge delegates at the European Unconventional Gas Summit Paris 2011 were willing to grapple with in an interactive session comprised of policy makers from both North America and Europe.

Among other topics, participants in the panel offered legal and regulatory success stories from North America, considered how land ownership figures into the equation for the profitability of a shale gas operation, and how public perception can influence both the industry and how it is regulated.

David L. Goldwyn, US Former Special Envoy and Coordinator for International Energy Affairs opened the session, offering that because there were challenges in the US, some of the solutions might also be applicable in Europe.

“The only thing that is really new is the scale of the manufacturing. We’re talking about a lot of wells in a lot of places, and the proximity to population centers make it a different kind of problem.”

Goldwyn continued, “Public education is another challenge: people are fearful and don’t understand what the process is. No one has taken the responsibility at a national level. There’s an awful lot of info out there, but not all of it’s accurate.”

He spoke of the kinds of trade offs that could be made concerning unconventional drilling: e.g. jobs versus physical dislocation, noise, etc.

In terms of industry regulation, Mr. Goldwyn noted the voluntary disclosure of fracking solutions by some within the industry: “Some are saying ‘we’ll just tell you what that is.’”

He said that more data was necessary on hydraulic fracturing and that it would be available via a forthcoming study from the US Environmental Protection Agency (EPA).

“To do it right does take time,” Goldwyn explained. “Just designing the study took until June. The EPA will be doing the study a decade or longer - having it done right so it’s not subject to attack by all sides is important.”

He noted that 11% of gas production in the US takes place on federal lands

“The Department of the Interior is committed to the process to re-evaluate these rules, and is looking at standards for how fracking is done. States will look to those standards, for good or for ill.”

According to Goldwyn, standards and practices, particularly on drilling and casing, are not uniform in the US. “96% of the states require bottom to top casing - they have evolved. What are the front end requirements so people are confident about the wells, and so that there’s a miniscule chance of groundwater contamination?”

He emphasized the importance of “voluntary standards.”

“It will be up to the industry whether they’ll get ahead of these issues or not.”

Goldwyn noted the change in economics for shale gas drilling: In 2009 there were forward contracts; and in 2010 foreign companies were buying into assets. “But 2011 is a bit uncertain with a gas price of $4 dollars - a lot of the urgency comes from the pace of production which could conceivably slow.”

Europeans also took the podium, like one from Germany. Michael Gessner, Director of the Energy Climate Protection and Mining Department from the Ministry for Economy and Energy of North Rhine-Westphalia stated his belief that gas-fired power plants would be able to supplement power plants in the long run.

He noted that mining law usually economic driven law and that unconventional drilling in Germany was gaining public acceptance.

“Shale gas has mainly been exploited in the US,” said Gessner, “but the information on the environmental aspects is sparse. Does it pose a potential risk to human health through surface water contamination? The possible contamination of groundwater appears to be a major challenge.”

He concluded, “There are not so many horizontal drilling experiences in Germany, so it’s necessary to investigate the geologic structure at each location. And public fears must be discussed.”

And there are some places in Europe where natural gas production from unconventionals would be possible, but the approach is definitely “wait and see.”

Anne Simonsen, Deputy Director General of the Danish Energy Agency told delegates that Denmark had been an oil & gas producer for a number of years, but that all activity was offshore.

“We share energy policy objectives with most EU countries,” she said. “We decided that in 2050 our society has to be independent of fossil fuels.”

Simonsen admitted that gas was a crucial fuel for Denmark. She harkened back to a time when her country made a complete turnaround in 1980, as the energy system was oil dependent.

“Now we are investing heavily in a Danish gas transmission system. By 2020 we’ll run out of Danish gas in the North Sea.”

According to her, the Danish ‘Alum Shale’ could be a new source for the country.

“It has not been drilled so we don’t know if it’s technical or economic potential is there.”

“We have a heavy population density there,” she explained, “so we have some challenges. We need technology development today if it’s going to be viable in Denmark, and it needs to be done in a safe matter.”

Regarding the Danish license area for unconventional drilling, she noted that in December 2010 an “open door procedure” was initiated.

“The existing regulation might be able to handle shale gas,” opined Simonsen. “If someone finds it we’ll try to take it on a case-by-case basis, try to prove the play via a safe program and provide a lot of information to the public. But now we don’t know if any shale gas can be economically exploited