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Summary
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Key words
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seismic testing and well sinks are required to forecast whether Europe's
shale plays will be as productive as those in the US.
At the present European shale gas, including Poland is expected to
be at least twice as expensive to extract as in the US due to deeper
geological layers, tougher regulations and a less competitive and more
oligopolistic oil and gas service sector.
Introduction
Shale gas is natural gas trapped in sedimentary rocks formed by the
solidification of mud deposits in ancient tidal flats and deep water basins
and belongs to the category of unconventional natural gases, which also
includes coal-bed methane, gas from tight sandstones (tight gas) and
methane hydrates.1 The biggest resources can be find in China(1,115
trillion cubic feet)2, followed by Argentina (802 trillion cubic feet) and
Algeria (707 trillion cubic feet) and the United States ranks fourth with
665 trillion cubic feet3 China's shale gas potential, combined with its large
domestic market, has also attracted foreign firms:
Royal Dutch Shell has taken the lead among major IOCs, signing
China's first shale gas PSC for the Fushun-Yongchuan block in the
1
natural gas seeping from rocks was first reported in 1669 in Ontario County, New York, by the French
explorer, Mr de La Salle, and a French missionary, Mr de Galinee. Shallow shale gas formations were also first
exploited in New York, with the first commercial natural gas well drilled in Fredonia in 1821 by William Hart, a
local gunsmith. By the 1880s, natural gas was widely used in the State of New York for lighting and heat and to
supply energy for the drilling of oil wells.
2
In 2012, China consumed an estimated 10.2 mb/d, namely about 11.5% of the total world demand for oil. Between 1992 and 2012, the
Chinese oil consumption increased from roughly 2.6 mb/d to 10.2 mb/d, i.e. + 292% (EIA, 2014). The IEA estimates that the pace of Chinas
oil demand should grow by an average of 3.7% per year until 2020. Starting from that year, the Chinese appetite for oil should increase by
only 1.3% per year (IEA, 2013).
3
EIA, Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the
United States, June 2013, p. 10,
3
Sichuan basin. It is planning to spend US$ 1 billion per year to develop
shale gas resources in the country; and
other prominent IOCs involved in China include ExxonMobil, Chevron,
ConocoPhillips and Eni. ConocoPhillips and Eni have entered into JSAs
with PetroChina and its parent company CNPC as part of overseas farm-
in deals. These can be converted into PSCs if commercial discoveries
are made during exploration.
As shale gas has been identified by the Chinese authorities as a new
type of mineral resource, it is subject to a separate legal regime from
conventional oil and gas. To date, a clear regulatory framework and
detailed regulations for shale gas are lacking. However, Chinese
authorities have started to build on the existing regulatory system by
issuing some regulations and policy statements in relation to shale
resources.
On 26 October 2012, the Ministry of Land and Resources
("MOLAR") issued a Notice Regarding the Strengthening of Shale Gas
Exploration, Prospecting, Supervision and Administration ("Notice"). The
Notice is effective for five years. It spells out in broad terms the
requirements and guidance of MOLAR for establishing and granting
shale gas exploration rights and exploitation rights, as well as for the
exploration and exploitation activities of the right holders. In particular,
the Notice gives existing holders of conventional oil and gas mining
rights three months from the date of its issuance to apply to MOLAR for
amendment of their mining rights, to include shale gas deposits located
in the blocks covered by such mining rights. It further provides that failure
to apply for such amendment may result in MOLAR granting mining
rights over such shale gas deposits to new applicants. The Notice also
requires an exploration right applicant to provide MOLAR with an
undertaking as to its investment amount, work commitments, work
progress, relinquishment, liability for breach and similar matters. This
requirement applies both to amendments of existing licences (to add
shale gas) and grants of new licences through bidding rounds. On 30
October 2013, the National Energy Administration ("NEA"), which is part
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of the National Development and Reform Commission (NDRC) and
regulates the energy sector, issued a Shale Gas Industry Policy
(Policy). The Policy contains, among other things, general principles
on industry regulation and policies on industry technologies, markets,
transportation, energy conservation, environmental protection and fiscal
support. For example, the Policy encourages diversified investors
(including private companies) to invest in shale gas exploration and
development and requires market pricing of shale gas "ex-works". The
Policy also encourages Chinese companies engaged in shale gas
exploration or development to co-operate with "foreign entities with
advanced shale gas technologies" in order to bring to China their shale
gas exploration and development technologies as well as their
production and management expertise.
Energy Information Administration EIA agency of the United States
Department of Energy estimated for 2013 a total "wet natural gas"4
resource of 2,431cubic feet (Tcf), including both shale and conventional
gas. Shale gas was estimated to be 27% of the total resource.5 In an
initial assessment of shale oil resources and an update of shale gas
reserves, shale deposits could add 345 billion barrels of oil to global
reserves, increasing the total to 3,357 billion barrels according to the EIA
predictions.6 Shale gas adds 7,299 trillion cubic feet of natural gas, or 32
percent of the world total, the EIA report estimated. In 2000 shale gas
provided only 1% of U.S. natural gas production; by 2010 it was over
20% and unconventional gas production grew at a rate of 48% between
2006-2010.7 By 2035 the United States will produce 342 billion cubic
4
"Wet natural gas" is methane plus natural gas liquids, and is more valuable than dry gas
5
Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United
States". Analysis and projections. United States Energy Information Administration. 13 June 2013.
6
(US) Energy Information Administration (EIA) (2013a), Europes Energy Security: Options and
Challenges to Natural Gas Supplies Diversification, Washington, D.C.
7
N A T O P a r l i a m e n t a r y A s s e m b l y, T h e ECONOMIC AND STRATEGIC IMPLICATIONS OF THE UNCONVENTIONAL OIL
AND GAS REVOLUTION, 11 MARCH 2013
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meters of shale gas or 47% of its total gas production as opposed to
16% in 2009. 8
We shall not forget that even Russia is to enter shale exploration
market with a joint venture between Shell and Gazprom Neft to drill in
Western Siberia. The Bazhenov formation could be the worlds largest
deposit of shale oil. It covers 570 million acres, which is the size of Texas
and the Gulf of Mexico combined. It could possibly be 80 times as big as
the huge Bakken shale in North Dakota, USA. Bazhenov already has
significant oil pipeline infrastructure running across it, due to its proximity
to other oilfields.
European countries together account for roughly 10% of the total
global shale gas reserves. The petro-physical properties of these
deposits, however, differ substantially and each poses unique drilling and
collection challenges. It is not yet known how much of these reserves are
economically recoverable. Europe has estimated shale gas reserves of
639 trillion cubic feet (18.11012 m3) compared with America's 862 trillion
cubic feet (24.41012 m3), but its geology is more complicated and the oil
and gas more expensive to extract, with a well likely to cost as much as
three-and-a-half times more than one in the United States. Different
levels of exploration are underway in Austria, Germany, Hungary,
Ireland, Poland9, Sweden, the United Kingdom and Ukraine. Poland, ,
France and Ukraine appear to have large potential deposits but France
has imposed a moratorium on exploration. Ukraine has an estimated 42
trillion cubic feet (tcf) of technically recoverable shale gas reserves,
according to the U.S. Energy Information Administration (EIA), ranking its
8
US natural gas production will increase by an estimated 44% in the next 25 years, and the majority of this will be due to exploitation of
shale plays. World Pipelines Volume 14 number 3 2014
9
The Polish government has awarded a number of exploration concessions to over 30 companies covering a territory of 35 thousand square
miles or a third of the country. Polish officials had initially hoped to begin commercial exploitation by 2014 and to achieve some degree of
gas self-sufficiency by 2035
6
deposits as the fourth largest in Europe behind Poland (187 tcf), France
(180 tcf) and Norway (83 tcf).
The most promising are two large shale gas deposits, one (the
Lubin basin) in the Ukrainian speaking west, which extends from
Western Ukraine into Poland, and another (the Dniper-Donets basin) in
the Russian speaking east. The eastern one has nearly 76 trillion cubic
feet (Tcf) of potentially recoverable gas, the western basin shared by
Moldova and Poland another 72.5 (Tcf).10 These deposits are therefore
sizeable and close to existing pipelines making both production for
domestic consumption and export possible. If Ukraine could attract
investment to develop these fields then it could measurably improve its
energy and economic independence from Russia.11
Shale gas is not yet commercially produced in Ukraine, although drilling
has commenced in one of the earliest operations, led by Polish company
Kulczyk Oil Ventures in a license area it acquired in June 2010. Ukraine's
government has signed two deals for shale exploration:
one with Royal Dutch Shell in January 2013; and
one with Chevron in November 2013.
10
http://openeuropeblog.blogspot.com/2014/03/could-ukrainian-shale-gas-break.html
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Russias state-owned Gazprom, controlling nearly one-fifth of the worlds gas reserves, supplies more
than half of Ukraines gas annually, and about 30 percent of Europes. It has often used this as political and
economic leverage over Kiev and Brussels, cutting gas supplies repeatedly over the past decade (in the
winters of 2005-2006, 2007-2008, and again in 2008-2009), leading to energy shortages not only in
Ukraine, but Western European countries as well.
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the rights granted by the mining allotment act (in full or in part) to a third
party. Unlike most European countries, there has been limited public
opposition to shale gas projects (at least according to the local media).
This means that one of the biggest obstacles to shale gas development
is noticeably absent in the country.
Even so, shale gas reserves are part of the governments future
development plans. On May 20 2011, the president of Ukraine enacted a
law amending the National Programme for the Development of Minerals
to, among other changes, include shale gas reserves.2 On Nov. 27,2013
the Ukrainian government signed another production-sharing agreement
with a consortium of investors led by Italian energy company Eni to
develop unconventional hydrocarbons in the Black Sea. We have
attracted investors which will within five to seven years maximum double
Ukraines domestic gas production, Yanukovych said following the
agreement.
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forward despite Yanukovych fleeing the country. We are continuing to
finalize our joint operating agreement and the government continues to
be supportive, Van Ast said.
It is clear that all of these oil and gas companies backed by their
governments, including those of the Russian Federation and the United
States are deeply embroiled in the Ukrainian crisis, with much invested
and much at stake. But with their disproportionate influence over
Ukraines future, it should be kept in mind that the number one
responsibility of any corporation is to increase profit margins for its
shareholders, not necessarily to promote the democracy or sovereignty
of the countries they are operating in.
This is particularly the case for Chevron and Shell, both of which have
been implicated in major human rights violations in Nigeria. Chevron has
been accused of recruiting and supplying Nigerian military forces
involved in massacres of environmental protesters in the oil-rich Niger
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Delta, and Shell has faced charges of complicity in torture and other
human rights abuses against the Ogoni people of southern Nigeria.
With this in mind, the Ukrainian people whether in the east of the
country or the west might want to rethink what is meant by energy
independence, and whether the future they seek can truly be met by
placing their hopes in the benevolence of foreign oil and gas companies.
Figure 2. Current and planned EU-27 LNG re-gasification capacity (as of September
2011)
10
Source: JRC, 2012 based on Gas Infrastructure Europe, GIE LNG Investment Database,
2011.
But Europe has had a relatively mild winter in 2014( January and
February), therefore, gas supplies are at or above normal levels, and
even if the U.S. did approve more export licenses, it would take until the
end of 2015 for gas to be delivered.
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imports from Russia's OAO Gazprom (OGZD), the main supplier of gas
to EU.12
Russia accounts for about 1/8 of world production and net exports of
crude oil and 1/5 of world production and net exports of natural gas. All
hydrocarbon reserves while in the soil belong to the Russian state. Once
extracted, the reserves generally belong to the licence holders. Russia
does not have specific regulations for unconventional hydrocarbons.
Their exploration, production and protection is governed by the general
rules established by the Subsoil Law of 21 February 1992 ("Subsoil
Law") and by the Federal Law on Production Sharing Agreements of 30
December 1995 ("PSA Law"), which are applicable to all hydrocarbons.
Exploration licences may be granted for a term of up to five years for
onshore fields (or seven years in certain specific regions of Russia) or for
up to 10 years for offshore deposits. Exploration licences are generally
extendable subject to certain conditions. An extension may be granted
for any period required for the completion of the work but, in practice, it is
usually granted for an additional five year period. There are no
restrictions with respect to the number of extensions Development and
production licences may be granted for the term required to complete
development of the deposit but, in practice, they are usually granted for a
20 year period. They are generally extendable subject to certain
conditions. An extension may be granted for any period required for the
completion of the work. There are no restrictions on the number
ofextensions. Combined licences (exploration and production) are
usually granted for a 25 year period and are also generally extendable
subject to certain conditions.13 There are however a number of
companies that have begun exploration in the Bazhenov region of the
West Siberian basin, including:
Lukoil, Rosneft, Gazprom Neft and ExxonMobil in a joint venture with
Rosneft; and
Royal Dutch Shell in a joint venture with Gazprom.
12
In March 2014, David Cameron said that energy
independence and the production of shale gas should top
Europe's political agenda and suggested the shale gas reserves
in South-eastern Europe, Poland and the UK could be a means to decrease dependence on Russia.
13 Shale Gas, an International Guide2014 Baker & McKenzie (1st edition: 23 January 2014,
12
Samara region. The joint venture will spend three years on a pilot
program assessing the potential for commercial production, planning to
drill at least six exploration wells in the region before 2021.
Russia is a key supplier of natural gas not only for Ukraine14 but
also for Poland, which at present cannot get by without energy from
Russia. In the case the U.S. or Europe will try to respond to recent
events by imposing further economic sanctions, one possible response
would be a partial embargo by Russia on sales of energy to those
countries, including Poland that would be most vulnerable to such a
disruption.15 . The White House has argued that Russia's dependence on
gas revenues makes it unlikely that the country will cut off supplies to
Europe despite the ongoing crisis in the Ukrainian region of Crimea,
where the Russian military still conducts military operations disregarding
international law.
LNG
Shale-derived natural gas can be exported from the States to
Europe by means of LNG tanker and this is may attract high levels of
investment. Gas is typically shipped via pipeline, but is impractical for
reaching markets in Europe . LNG terminals super-chill gas to its liquid
form and load it under extreme pressure into specially designed tankers
for shipment overseas. Once at its destination, LNG must be re-gasified
before it can be fed into pipelines for local distribution.
14
Ukraine is heavily dependent on Russian natural gas, and previous disputes between Ukraine and Russia have led to gas supply cuts.
Russian state gas company Gazprom has increased the pressure on Ukraine's new government, which now owes $1.89 billion for Russian
natural gas, by warning that if Ukraine doesn't pay off its debt, there could be a repeat of 2009, when Russia cut off supplies to Europe
because of a pricing dispute with Ukraine.
15
Recently as of April 10th 2014 President Vladimir Putin sent to 18 European leaders, as provided in English by the Kremlin warning that
Russia could cut natural gas supplies to Ukraine if the country fails to pay its gas bills on time and warned there could be a reduction in
onward deliveries to Europe. It was sent to the leaders of Germany, France, Italy, Austria, Hungary, the Czech Republic, Poland, Slovakia,
Slovenia, Croatia, Serbia, Bosnia, Bulgaria, Romania, Macedonia, Greece, Turkey and Moldova
13
In December 2013 the U.S. Department of Energy had approved
EOS LNG LLCs and Barca LNG LLCs applications to export LNG from
a proposed floating liquefaction unit and storage tanker at the Port of
Brownsville, Texas to nations with a Free Trade Agreement (FTA) with
the US.
USA legislation
The fracking law are undertaking on both state and national level in
form of federal regulations. Hydraulic Fracturing (commonly referred to
as "fracking") is the process of injecting at high pressure water and
proppants (known as the "frack fluid") down a wellbore. The pressure of
the frack fluid on the target formation causes the target formation to
fracture, whilst the proppants in the frack fluid hold open the fractures.
This fracturing of the target formation causes the permeability of the
formation to be artificially increased and allows the oil and gas to flow
more freely back into the wellbore. It is noteworthy that on September 13
2013 California Governor Jerry Brown signed Senator Fran Pavleys
Senate Bill, which established the states first legislation regulating
hydraulic fracturing and other well stimulation operations. Before passing
the bill, the State Assembly added language that arguably limits the
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application of CEQA requirements to oil companies engaged in hydraulic
fracturing or well stimulation treatments. The amendment requires state
regulators to conduct a statewide environmental impact report (EIR) by
July 1, 2015, to provide the public with detailed information regarding any
potential environmental impacts of well stimulation treatments in the
state. The EIR must address impacts from the well stimulation activities
defined in the law, including, but not limited to, hydraulic fracturing and
acidizing, that may occur at oil wells in the state existing prior to and after
July 1, 2015. Instead of requiring an operator to submit an EIR for each
proposed project, the amended clause authorizes a state regulator to
approve a proposed fracking or stimulation project if he or she believes
its potential impacts already have been investigated by the statewide
review. In such cases, no additional review or mitigation shall be
required. Some are concerned that this provision will give the state
unfettered discretion to exempt all fracking projects in California from
CEQA requirements. Oil companies counter that CEQA does not apply
to hydraulic fracturing and other well stimulation activities in the first
place Californias law requires operator notification to those residing
within 1,500 feet of a wellhead at least thirty days before commencing
operations, creates model criteria for groundwater monitoring, and
obligates operators to perform baseline and subsequent groundwater
testing upon request from nearby residents. Additionally, it requires
operators performing hydraulic fracturing and stimulation activities on
land shared with a federal entity to comply with state rules as well as
applicable federal regulations, and establishes a new crime and
associated civil penalty, ranging from $10,000 and $25,000 per day per
violation, for certain violations. The law requires the California
Department of Conservations Division of Oil, Gas, and Geothermal
Resources to finalize and implement the new requirements by January 1,
15
201516 Under the law, the Division, in consultation with other state and
local entities, must adopt rules and regulations on or before January 1,
2015, specific to hydraulic fracturing and well stimulation, including, but
not limited to, well and casing construction and fluid disclosure
requirements. In the interim, if the Division determines that a fracking
application meets all the basic requirements of the California
Environmental Quality Act (CEQA), it shall allow the project to continue
and no additional review or mitigation shall be required. The law does
not place any time limits on the agencys review.
The new law also requires all fluid suppliers to provide operators
certain information regarding the well stimulation fluid used within 30
days following conclusion of the treatment. Within 60 days of concluding
the treatment, the operator must post on a public website well stimulation
fluid information similar to that required by FracFocus.org and other
information, such as whether the base fluid is water suitable for irrigation
or domestic purposes; the source, volume, and disposition of all water
used; the disposition of all well stimulation treatment fluids other than
water; whether any radiological components or tracers were injected into
the well; the radioactivity of the recovered well stimulation fluids; and the
location of the portion of the well subject to the well stimulation treatment
and the extent of fracturing or other modification surrounding the well
induced by the treatment. The law requires the Division to develop a
website for operators to report specific well stimulation information by
January 1, 2016. If operators post the specific information to an alternate
website, such as FracFocus.org, the Division must obtain the data and
make it available on its website. While the law allows suppliers to claim
a trade secret privilege for the chemical composition of additives used in
16
http://www.velaw.com/resources/CaliforniaLawmakersPassFirst-EverFrackingLaw.aspx
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a well stimulation treatment, the supplier must nevertheless disclose the
composition to the Division. The supplier must indicate where trade
secret information has been withheld and provide substitute information,
including the chemical constituents of the additive and Chemical Abstract
Service identification numbers, for public disclosure. A well granted
confidential status will not be required to disclose well stimulation
treatment fluid information until the confidential status of the well
ceases. In any event, the Division may disclose the protected trade
secret information to an officer or employee of the Division, state, or local
governments, a health professional, or associated contractors if it
determines that disclosure is necessary and required to perform a
contract or to protect public health and safety
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2015. The study will evaluate potential hazards and risks that well
stimulation treatments pose to natural resources and public,
occupational, and environmental health and safety. The study must
consider groundwater and surface water contamination, greenhouse gas
emissions, air pollution, seismic impacts, noise pollution, and effects on
wildlife, native plants, and habitat, among other things.
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applications are approved and the companies export at full capacity, the
United States could soon be exporting more than 20 percent of current
consumption. On 8 August 2013, the Department of Energy authorised
Lake Charles Exports (a joint venture between BG Group and Energy
Transfer Partners Southern Union Co) to ship up to 2 billion cubic feet
per day over 20 years to countries that do not have a free trade
agreement with the US. This allows for exports to countries including
China, Japan, India, Taiwan and Thailand.
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used for hydraulic fracturing in oil and gas operation and production
activities. The bill also would require the companies to disclose what
chemicals and other substances they add to the fluids to help crack open
the rock and keep the fissures open. Government agencies would be
required to verify the information submitted and release it to the public,
with the exception of proprietary chemical formulas.19 The United States
launched the GSGI in April 2010 as part of an effort to promote global
energy security and climate security around the world and aims on
sharing information about the umbrella of laws and regulations that
exist in the United States.20
19
This bill was assigned to a congressional committee on June 11, 2013, which will consider it before possibly sending it on to the House or
Senate as a whole.
20
David L. Goldwyn, Special Envoy for Intl Energy Affairs, U.S. Dept of State, Briefing on the Global Shale Gas Initiative Conference
(Aug. 24, 2010), http://www.state.gov/s/ciea/rmk/146249.htm; see also David L. Goldwyn, Global Shale Gas Initiative: Balancing Energy,
Security, and Environmental Concerns, DIPNOTE (Sept. 3, 2010), http://blogs.state.gov/index.php/site
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and result in formation damage) for fracking and drilling. The EPA is the
federal agency responsible for administering the Safe Drinking Water Act
SDWA- the primary federal law for protecting public water supplies from
harmful contaminants.21 The Obama administration announced its first
steps on Friday toward possibly tighter regulation of hydraulic fracturing,
or fracking, seeking public input on whether companies should be
required to disclose the contents of fluids used in the oil and natural gas
drilling technique.
21
Enacted in 1974,232 and broadly amended in 1986 and 1996,233 the SDWA is administered through a variety of programs that regulate
contaminants in public water supplies, provide funding for infrastructure projects, protect underground sources of drinking water, and
promote the capacity of water systems to comply with SDWA regulations
22
http://articles.chicagotribune.com/2014-05-09/news/sns-rt-us-usa-fracking-epa-20140509_1_fracking-fluids-
hydraulic-fracturing-disclosure-rules
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disclosure about the mix of chemicals and fluids used to frack thousands
of wells across the country.
Jones told reporters the EPA wants to learn what is happening at the
state level and what voluntary mechanisms are available for reporting.
The EPA said its notice may not result in formal measures, and it would
consider non-regulatory approaches.
Drillers say they are worried that greater disclosure may jeopardize
commercially secret formula for the fluids they use to coax the maximum
oil or gas out of a given well. Still, the industry has become more
transparent in recent years in dealing with public health concerns about
fracking.
Last month, Baker Hughes, one of the largest U.S. oil service
companies, said it plans to disclose all chemical ingredients contained in
its fracking fluids, without giving specific formulas.
IMPROVED TRANSPARENCY
22
Industry groups said the oil and gas sector has already taken significant
steps to report chemicals.
"I'm not sure this is going to push anything forward that isn't happening of
its own accord," said Jason Hutt, a partner representing industry clients
at law firm Bracewell & Giuliani.
Fracturing litigation
23
Marcellus Shale, N.Y. Dept. of Envtl. Conservation, http://www.dec.ny.gov/
23
The fracturing litigation in the US has big impact the property and
casualty (P&C) insurance industry, raising numerous coverage and
liability issues. The most likely sources of liability from fracking are:
violations of the Clean Water Act, public nuisance claims arising from
seismic activity caused by fracturing, wrongful death claims arising from
gas accumulation explosions in residences and businesses, strict
liability, negligence and recklessness claims arising from medical
conditions caused by fracking chemical runoff and natural gas leaks,
sub-surface trespass claims, landowner-lessors liability for damage
caused to neighboring properties and residents.
24
portion of Allegany County, the Marcellus is between 5,000 and 9,000
feet deep and between 150 to 200 feet thick (Maryland Geological
Survey, undated).
One of the most interesting cases was the U.S. Court of Appeals
for the 11th Circuit ruling in 1997 that the hydraulic fracturing of coal
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beds for methane production constituted underground injection that must
be regulated.24
26
resulting from their fracking operations. In the Berrys' class action
complaint, the couple alleges that residents living within a three-mile
radius of gas wells operated by Southwestern Energy, XTO Energy,
Chesapeake Energy, and BHP Billiton Petroleum have suffered from
noxious odors, chemicals and contamination that have caused
diminution in property values. Along with claims of groundwater
contamination, the Berrys contend that the fracking contaminated their
soil and air . Monitoring of air quality near fracking sites in western
Colorado found over 50 non-methane hydrocarbons (NMHCs) near shale
gas wells. Of these, 44 have health impacts including 35 which affect the
brain and nervous system. Some of these were found at levels which
could potentially harm children exposed pre-birth Although the pollution
was not conclusively linked to the gas wells, there is little other industry
and not much traffic in the area monitored. 25
25
Colborn et al (2012) An Exploratory Study of Air Quality near Natural Gas Operations
http://www.endocrinedisruption.com/files/HERA12-137NGAirQualityManuscriptforwebwithfigures.pdf
26
Food & Water Watch The case for ban on gas fracking http://www.foodandwaterwatch.org/reports/the-case-for-a-ban-on-gas-fracking/
p8
27
fracking fluid to migrate into their groundwater supply. In February, the
residents' claims of strict liability for an ultrahazardous activity survived
the defendants' motion to dismiss. However, the U.S. District Court for
the Middle District of Pennsylvania cautioned the residents that
Pennsylvania case law may create difficulties for their claims later on in
the case. In the case of Fiorentino v. Cabot Oil and Gas Corp., 63
residents of Dimock and Montrose, Pennsylvania, signed leases with the
Cabot Oil and Gas Corporation permitting Cabot to extract natural gas
from their property. Their properties are located in the Marcellus Shale
region. These plaintiffs alleged, in a complaint filed in the US District
Court for the Middle District of Pennsylvania, that Cabot improperly
conducted the fracking process, allowing "...methane, natural gas, and
other toxins" to infiltrate their land and groundwater.
The Fiorentino court ruled on whether plaintiffs may proceed with
"abnormally dangerous" activity claims. The court, relying on Federal
Rule of Civil Procedure (FRCP) 12(b)(6) precedent such as Bell Atl.
Corp. v. Twombly and Ashcroft v. Iqbal, declined to dismiss "abnormally
dangerous" activity claims raised by the plaintiffs. The court held that
such claims contained "sufficient factual matter, accepted as true, to
'state claim to relief that is plausible on its face.'" Even though other
Pennsylvania courts have ruled that storage and transmission of gas and
petroleum products are not "abnormally dangerous," there is, as yet, no
settled law on whether drilling and extraction of gas and petroleum
products constitutes an "abnormally dangerous" activity
Per the court:
As noted by both parties, Pennsylvania courts have yet to address
whether the conduct at issue sub judice, gas-well drilling, is an
abnormally dangerous activity that is subject to strict liability under
Pennsylvania law. While we understand that there is case law that
28
suggests that other activities, such as the operation of a pipeline, are not
subject to strict liability, we believe it improvident to automatically extend
this reasoning to drilling activities without more thorough consideration.
Plainly, the record at this early juncture is insufficiently developed for the
Court to render an informed decision as to whether this line of cases and
the logic expressed therein should apply to the gas-well drilling activities
at bar. Therefore, we will deny Defendants' Motion to Dismiss with
respect to Count IV. If warranted, Defendants may reassert their
argument with respect to strict liability in a motion for summary judgment,
based upon what we assume will be a more fully developed record on
this point, when appropriate.
29
activity is abnormally dangerous is fact-intensive, courts often wait until
discovery is complete before making this determination. making this
determination.
The Berish court also reiterated the holding in Fiorentino that the
applicable test in Pennsylvania for determining whether an activity is
"abnormally dangerous" can be found in the Restatement (Second) of
Torts. The last noted activity in Berish was the amendment of the
plaintiffs' complaint in May 2012. Tucker v. Southwestern Energy Co. A
case in the early stages of litigation, Tucker v. Southwestern Energy Co.
[PDF] encompasses civil procedure issues similar to Fiorentino and
Berish. Filed in the US District Court for the Eastern District of Arkansas,
Northern Division, Tucker concerns natural gas extraction from the
Fayetteville Shale. The judge in Tucker, citing concerns about the
factually-intensive nature of determining whether fracking is an "ultra-
hazardous" activity and should therefore held to a strict liability standard,
cited Fiorentino and Berish in his opinion. Refusing to dismiss the
plaintiffs' claim outright, the Tucker court instead requested that the
plaintiffs amend their complaint, and scheduled the matter to move
forward to summary judgment stage. As of June 2012, this case was still
pending. Anschutz Exploration Co. v. Town of Dryden In the New York
trial court decision of Anschutz Exploration Co. v. Town of Dryden, the
town of Dryden, located within the Marcellus Shale region, passed
zoning regulations banning fracking activity within town limits. The
plaintiff, a natural gas company with mineral and gas leasing rights to
approximately 22,200 acres within town limits, objected to the
implementation of the fracking ban after the leases had been obtained
and drilling infrastructure had been built. The natural gas company sued
the town, seeking rescission of the zoning regulation, arguing that the
30
state permits it had obtained superseded the town's zoning ordinance.
Ultimately, the court ruled that the town could not seek to invalidate an
otherwise lawful permit. However, the court did not bar all potential
remedies in the case:
31
The court in Kamuck granted the defendants' motion for dismissal
of all contract claims, as the plaintiff did not have any contracts with the
named defendants. They also granted the motion to dismiss Kamuck's
"anticipatory trespass" claim, ruling that an actual trespass had to take
place: [W]e have found no Pennsylvania cases which permit recovery on
an anticipatory trespass theory of liability. Moreover, when we endeavor
to assess whether the Pennsylvania courts might embrace such a claim,
we are struck by the fact that, while Pennsylvania recognizes the tort of
trespass, it is well-settled that: "Trespass is a strict liability tort, 'both
exceptionally simple and exceptionally rigorous.'" However, the court
denied the defendants' motion to dismiss on the plaintiff's negligence and
"ultra hazardous" (strict liability) claims. Referencing Fiorentino, Berish
and Tucker, the Kamuck court refused to dismiss an "ultra-hazardous
activity" claim before discovery
Plaintiffs in the South and the West are also filing fracking lawsuits
alleging groundwater contamination. The Strudleys, a family in the
western Colorado town of Silt, are suing Antero Resources and its
affiliates, declaring that they were forced to abandon their home after the
drilling process polluted their well water. Another company operating
drilling sites in Colorado, Encana, is reportedly in the process of settling
claims with residents after U.S. EPA studies concluded that groundwater
contamination in Silt may be connected to fracking. In Louisiana,
plaintiffs asserted damages arising from the mysterious death of their
cattle. Chesapeake Energy quickly responded to this incident by
sending a letter to the U.S. EPA reassuring the agency that the company
was seriously investigating and handling the claims of the cattle deaths.
A recent case in Oklahoma illustrates how negligent activity of
employees involved in fracking operations has the potential to lead to
criminal liability.
33
Case No. RG12652054 (Sup. Ct. Alameda Cnty. filed Oct. 16,
2012), a case pending in California state court in which environmental
groups assert that the state has failed to follow rules under CEQA that
require the agency to consider the impacts of hydraulic fracturing.
35
overturn new and more stringent regulations governing their operations.
The Pennsylvania Independent Oil and Gas Association is asking a
judge to overturn a federal ban on using surface and groundwater in the
Allegheny National Forest to conduct fracking operations within the
boundaries of the National Forest. Last year, the Independent Petroleum
Association of America and the U.S. Oil & Gas Association petitioned the
U.S. Court of Appeals for the District of Columbia to review the permit
regulations for hydraulic fracturing. In their petition, the associations
attempted to exempt injection wells disposing of fracking fluids
containing diesel fuel from being considered Class II wells for regulation
purposes. In West Virginia, Northeast Natural Energy is suing the city of
Morgantown in an effort to lift the city's recently passed ordinance
banning fracking within one mile of city limits. However, not all residents
are opposing fracking in their region. In one instance in Pennsylvania,
property owners are taking a different tack and are suing Rex Energy to
live up to its contractual obligations and begin exploration on their
property.
Plaintiffs are also seeking financial damages stemming from the fracking
process itself. In Texas, a farming company unsuccessfully sued
Environmental Processing Systems, claiming that the company's fracking
operations constituted an actionable trespass for which it should be able
to recover monetary losses. The Texas Court of Appeal relied on
Coastal Oil & Gas Corporation v. Garza Energy Trust in holding that no
trespass occurs when authorized subsurface injections migrate across
property lines in deep subsurface formations into adjacent tracts of land.
Along with trespass claims alleging financial damages, the advances in
horizontal drilling and fracking are leading to claims of patent
infringement. A horizontal well is first drilled vertically and then turned at
36
an angle to horizontally track the target formation along a lateral extent.
This exposes more of the wellbore to the target formation, whilst
minimizing environmental impact, as only a single surface location is
needed for multiple horizontal laterals. Before being used for shale gas
exploration and production, horizontal wells were mainly used for plays
with a shallow pay zone but extending over a large area (e.g. a formation
that is 50 feet thick but thousands of feet in length) or plays where
vertical access was difficult or impossible (e.g. a reservoir under a town).
And, on Feb. 17, 2012 the court in the consolidated cases Tucker
v. Southwestern Energy Co. , E.D. AR, Docket No. 4:2011-cv-44-DPM,
and Berry v. Southwestern Energy Co. , E.D. AR, Docket No. 4:2011-cv-
45-DPM, ordered the plaintiffs to replead their claims. The court stated
that the plaintiffs failed to meet the standard articulated by the U.S.
Supreme Court in Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 1949
(2009), which requires plaintiffs to plead facts sufficient to permit a "court
38
to draw the reasonable inference that the defendant is liable for the
misconduct alleged." The Supreme Court in Iqbal stated that a plaintiff
must plead facts sufficient to move his or her claims "across the line from
conceivable to plausible." The court specifically stated that the plaintiffs
failed to "allege specific facts tending to show Southwestern Energy did
anything to cause" the contamination alleged. While the court chose not
to dismiss the plaintiffs' complaints outright, the court has required
plaintiffs to file amended complaints that provide "particular facts about
particular fracking operations by particular fracking companies using
particular substances that allegedly" caused the plaintiffs harm.
27
Robinson Township v. Commonwealth of Pennsylvania, ___ A.3d ___, 2013 WL 6687290 (Pa. 2013). See also another cases:
Susquehanna County v. Commonwealth, 458 A.2d 929, 931 (Pa. 1983) (county has standing to appeal executive agency order related to
operation of sanitary landfill by corporate permit holder); Franklin Twp., 452 A.2d at 720 (municipality and county have standing to appeal
agencys decision to issue permit to operate solid waste facility).
39
Shale. Judges reasoned that by any responsible account, the
exploitation of the Marcellus Shale Formation will produce a detrimental
effect on the environment, on the people, their children, and future
generations, and potentially on the public purse, perhaps rivaling the
environmental effects of coal extraction. The Supreme Court of Alaska
argued that states public interest constitutional standard for resource
development to require that courts take a hard look at whether state
agencies adequately considered the cumulative environmental impacts
of oil and gas leases.28 The Supreme Court of Montana has subjected
state decisions that implicate the environmental rights provision in its
constitution to strict scrutiny29
28
Sullivan v. Resisting Environmental Destruction On Indigenious Lands, 311 P.3d 625 (Alaska 2013).
29
Montana Environmental Information Center v. Department of Environmental Quality, 988 P.2d 1236 (Mont. 1999)
30
The case Parr v. Aruba Petroleum, Inc., No. 11-1650 (Dallas Co. Ct. at Law, filed Mar. 2011)
40
The jury returned its 5-1 verdict confirming that Aruba
Petroleum intentionally created a private nuisance though its
drilling, fracking and production activities at 21 gas wells near the
Parrs' Wise County home over a three-year period between 2008-
2011jury agreed with Robert and Lisa Parr that Aruba Petroleum
intentionally created a private nuisance and awarded $2.95 million in
damages, including $2 million for past physical pain and suffering,
$250,000 for future physical pain and suffering, $400,000 for past mental
anguish, and $275,000 for loss of market value on their property.
The State and the Colorado Oil and Gas Association, an industry
group, have sued the City twice. The first lawsuit involves local oil and
gas regulations which the City Council passed in July 2012. The
regulations generally restrict new oil and gas surface operations in
residentially zoned areas, require disclosures of fracking chemicals to
the Citys first responders, set groundwater monitoring rules, and limit
visual and noise disturbance, among other things. The regulations ask
industry to incorporate best management practices used throughout the
41
state in their Longmont operations.31 The second lawsuit filed against the
City by the oil and gas industry and the State challenges the citizen-
initiated hydraulic fracking restriction, passed by the voters in November
2012. That measure also prohibits fracking waste disposal in Longmont,
and is known as Amendment 300 or Article XVI. Both lawsuits are before
the same judge, the Honorable D.D. Mallard, in Boulder County District
Court.
Until recently, the court and the parties had been focusing on the
first case, regarding the regulations. The State and COGA asked the
court in late 2013 to rule in their favor and invalidate many of the Citys
new regulations, without hearing any facts about the effect of these
regulations or any evidence substantiating citizens legitimate concerns.
The City responded aggressively, filing a 92-page response and
countering with its own motion asking the court to uphold the
regulations. In reply, the State and COGA asked the court to stay the
regulations case to delay it until the court resolves the hydraulic
fracking case. The City believes that its strong position in the case,
including the fact that the only company actively producing oil and gas in
Longmont has agreed to the regulations, may explain why the plaintiffs
requested a full halt to the case. The City has reluctantly agreed to the
stay in order to conserve City resources and staff time. The regulations
remain in full force during the stay.The Citys legal team will vigorously
defend the fracking initiative in court. The parties and the court will now
focus on the Amendment 300 case, and resolve it first. If the court
upholds the citizen-backed restriction on hydraulic fracking, the City will
not have to expend further resources defending the regulations.
31
http://www.ci.longmont.co.us/news/pr/2014/fracklawsuit.htm#.U2Or9Lfehy0
42
The State and COGA have told the court that, if the City wins the
fracking case, the regulations case will become moot meaning the
challenge to the City's regulations will not proceed. In the latest
development A group of pro-gas drilling landowners from upstate New
York filed a lawsuit on February 14 2014 against Gov. Andrew Cuomo,
seeking to compel the state to complete its review of high-volume
hydraulic fracturing. A de facto moratorium on high-volume hydraulic
fracturing, or fracking, has been in effect since the state Department of
Environmental Conservation began a review of the practice in 2008. And
the state Department of Health has been conducting its own health
review of fracking since the fall of 2012. Whether the state will grant
fracking permits depends on the outcome of both reviews. The Joint
Landowners Coalition of New York, which represents over 70,000 people
spread over 14 counties, said in its lawsuit that Mr. Cuomo has
overstepped his authority by becoming involved with both fracking
reviews conducted by the DEC and DOH. Mr. Cuomo's involvement has
been politically motivated, the complaint said. "The major reasoning
behind this is that we have been at the process for over a half decade,"
Scott Kurkoski, an attorney for the coalition. The governor has delayed
both reviews because "he is worried about how people will react to this
issue." Mr. Cuomo's office didn't immediately respond to a request for
comment.
The DOH and its Commissioner Nirav Shah along with the DEC
and its commissioner Joseph Martens were also named in the complaint.
A DEC spokeswoman said the department didn't comment on pending
litigation. A spokesman with the DOH didn't immediately return a
requests for comment. As an alternative to compelling the state to
complete its fracking review, the landowners are asking for a hearing and
43
jury trial that would require Mr. Shah and Mr. Martens to testify. The
petitioners are also seeking to subpoena all records related to the
fracking review from the DEC and DOH and the governor's office under
that alternative scenario. "Since taking office in January 2011, Gov.
Cuomo has injected himself in the [fracking review,] controlled its
progression, and precluded the DEC and Commissioner Martens from
independently exercising their discretionary decision-making authority,"
the lawsuit said. "Governor Cuomo has no approval authority over any
aspect of the" DEC review. Mr. Cuomo has also prevented Mr. Shah
from completing the health review, the complaint said. Mr. Kurkoski said
that Mr. Cuomo is seeking to put off a decision on fracking until after the
2014 gubernatorial election. Commissioner Martens said that it is unlikely
that any fracking permits would be issued before 2015 at a legislative
budget hearing in Jan. 2014. "It's apparent to the world that Gov. Cuomo
is dragging out the [fracking review] for his political purposes," said Dan
Fitzsimmons, president of the Joint Landowners Coalition of New York.
44
sued two companies involved in fracking, blaming the process for a
series of earthquakes, including the state's largest in 35 years. In a
complaint filed in federal court, Daryl and Nicole Davis and Joel and Terri
Van Pelt charge that fracking caused "swarms and mini-clusters" of
earthquakes in 2010 and 2011 that damaged their homes in Greenbrier,
Courthouse News Service reported Wednesday. The lawsuit names
Chesapeake Operating Inc. and BHP Billiton Petroleum as defendants.
The couples charge the earthquakes have hurt the value of their
property. In court papers, the plaintiffs say that geologists have
determined that injecting wastewater from fracking back into the ground
causes earthquakes. While most of the quakes in the Greenbrier area
were small, in February 2011, a 4.7-magnitude quake struck less than a
mile from the Davis home and just over two miles from the Van Pelts.
The couples said there have almost been quakes measuring 3.8 and just
over 4.0. A number of other lawsuits have been filed around the country
blaming fracking for earthquakes.32
blames-fracking-for-Arkansas-earthquakes/UPI-
32591392857700/#ixzz30Zngsd5c
45
trade secrets under the Freedom of Information Act applies in Public
Records Act cases, such as this one. In contrast, the Oil and Gas
Commission wanted to use a broader definition of trade secrets, which
would allow more withholding of chemical information from public
disclosure and review. Were pleased the Court recognized that the Oil
and Gas Commission has to fully and rationally justify its use of trade
secrets exemptions before it can hide fracking chemical information from
public review, stated Marilyn Ham, Resource Council Board Member
from Laramie County, Wyoming. Were looking forward to the next stage
of the case and hopefully to getting better information out to the public on
what chemicals are used in fracking operations. It is important for public
health and safety that citizens have timely access to what chemicals are
used in fracking operations on and near our land, stated Kristi Mogen,
Resource Council Board Member who lives near fracking operations in
Converse County, Wyoming. We applaud Powder River Basin Resource
Council for their hard work in bringing this case and for their dedication to
empowering the residents of Wyoming. If chemical information is being
improperly labeled a trade secret that means it is not available as public
information as Wyomings hydraulic fracturing regulations intended, "We
appreciate that the court took seriously the need for the public to know
what chemicals are being injected during oil and gas production. We
hope that now the state agency will do likewise," stated Bruce Baizel of
EARTHWORKS. The Wyoming Supreme Court affirmed that the publics
right to know is paramount under state law. If fracking operators dont
want to reveal what chemicals they use, they will have to prove that the
chemicals are trade secrets, which means they shouldnt be able to
capriciously keep secrets from the public about dangerous chemicals,
said Katherine OBrien, an attorney with Earthjustice, which represents
the plaintiffs. We will continue the fight in the trial court to ensure that
46
the identity of fracking chemicalswhich threaten the water supplies that
communities depend uponcannot be kept secret from the public.
shale costs
Since 2008 domestic gas price (Henry Hub) has fallen 62% to below
US$2/MMBtu in March 2012, before recovering to $4.3/MMBtu in 2013.
under hub-pricing, gas prices are determined by the supply and demand
equilibrium.
Hence, gas prices could surge as a result of a demand (or possibly less
likely) supply shock. It is entirely possible that prices of hub-linked gas
surpass oil-indexed prices in periods of high demand (e.g. during a cold
snap). Storage sites could help address this. However, such facilities
are capital-intensive and costly; therefore, their large-scale deployment
should not be expected for years to come and carry a significant price
tag. The immediate effect of this is in reducing the dependence on
foreign natural gas imports, which has experienced a dramatic decline.
After the Henry Hub price per million British Thermal Units (mmbtu) had
almost reached 13 U.S. dollars in mid-2008, it decreased to below 2 U.S.
dollars in April 2012 and has stayed below 5 U.S. dollars. According to
the World Energy Outlook (2013) of the International Energy Agency
47
(IEA)33, European industrial consumers paid on average more than twice
as much for electricity than their competitors in the United States and
gas prices in the US are one-quarter of those in Europe, but , the price of
imported gas varies throughout the EU member states. Particularly
energy-intensive sectors (steel, aluminum, chemicals, pulp and paper to
name just a few) as well as those which use natural gas as feedstock
such as the fertilizer, chemical, and plastics industries have noticeably
benefited from low gas prices.34
In 2008 US and European gas prices were roughly the same, but
already in 2012 gas prices in Europe were roughly five times greater
than in the United States, which have fallen roughly two thirds since
2008.35 For natural gas to be cost-competitive, it will need to be priced
something under US$8.50 per mBTU (US30/cm). Presently the pricing
hovers close to US$4 per mBTU (US14/cm) prices of oil-indexed gas
would fall in the years to come if oil prices fall. Unlike gas, oil is a global
commodity. Oil production in North America is surging. Canada is
determined to explore its tar sands deposits. The Energy Information
Administration (EIA) forecasts that by 2016, oil production in the US will
have risen to 9.6 million barrels per day (mb/d, reaching almost the
highest level in 50 years (EIA, 2013b). Moreover, some OPEC member
states (namely Iraq, Iran, Libya and Algeria) are also intending to boost
their production levels in 2014. Hence, if the growth rate of Chinese
demand for oil slows down5 and if the social and political unrest in the
Middle East and North Africa were to calm down in the months to come,
the oil market could regain its lost stability. These factors may result in
excessive oil supplies, possibly leading to price adjustments of oil and
oil-related products.
33
International Energy Agency (IEA) (2013), World Energy Outlook 2013, Paris.
34
EIA, Henry Hub Gulf Coast Natural Gas Spot Price, <http://www.eia.gov/dnav/ng/hist/rngwhhdm.htm> (accessed 21 October 2013).
35
European Commission (2013), Quarterly Report on European Gas Markets, second quarter
2013, Brussels.
48
In 2012 Gazprom renegotiated supply contracts with a number of
European customers after receiving complaints that customers were
paying too much for gas under long-term, oil-linked contracts, which
were significantly above spot gas market levels. These price cuts in
some cases approached 10% of previously agreed prices. France's GDF
Suez, Wingas of Germany, the Slovakian gas company SPP, ENI in Italy
and Botas in Turkey were among the clients that managed to negotiate
price adjustments (Platts). In 2012 these concessions totaled $ 2.7
billion and Gazprom is setting aside $ 4.7 billion for negotiated
reductions in 2013.
In the United States, natural gas prices are projected to fall to
US$4.63 per thousand cubic feet by 2015. By one estimate, however,
the spot gas price of shale gas should amount to US$7.508 per
thousand cubic feet to recover the full cost extraction (Ben Dell,
Bernstein Research)36. Extraction projects require big amounts of
financial resources. The limited availability of infrastructure is expected to
push costs even higher. Further, shale gas reserves tend to decline
faster than conventional gas wells. As a result, producers may have to
resort to making profit in a shorter period, leading to more price risks
concentrated in the early months of production than for conventional gas.
Shale gas tends to cost more to produce than gas from
conventional wells, because of the expense of the massive hydraulic
fracturing treatments required to produce shale gas, and of horizontal
drilling. Hydraulic fracturing in tight gas formations typically needs
several hundred thousand litres of water per well for each fracturing
process mixed with proppants and chemicals while hydraulic fracturing in
shale gas formations consumes several million litres of water per well.
Estimates of shale gas extraction costs in North America range from
36
Ben Dell, Bernstein Research, quoted in The True Cost of Shale Gas Extraction, Financial Times, March 7, 2010.
49
US$4- 8/Mcf. The actual drilling costs will be pushed higher as
environmental regulations are established. Costs related to water
reclamation and chemical cleanup will add to production costs which
could drive prices between US$6-8/Mcf. Present regulations introduced
by the U.S. Environmental Protection Agency37 require drillers to adhere
to more environmentally friendly practices what in turn will drive
production costs higher; as new regulations are established, the margin
between shale gas and traditional basin exploitation costs will likely
narrow over time.
At present, shale gas production in Poland has not yet achieved
profitability. The shale gas business is a long-term, capital-intensive and
therefore high-risk project. One major cost driver in Poland are the high
drilling costs to be expected owing to the depth of the boreholes that
have to be sunk.38 Whereas these costs come in at between 7 and 17
euros/megawatt hour (MWh) in the U.S., the cost spread anticipated for
Germany lies between 11 and 44 euros/MWh, with the lower end of this
scale only being achieved well down the line. By comparison, the
average price point of Germany's gas exchange over the whole of 2011
was 22.7 euros/MWh, rising to 24.3 euros/MWh in 2012.39
In Poland the price of shale gas extraction will be determined by
accessibility, environmental regulation and proximity to natural gas
infrastructure. In shale basins that are isolated, of course, the costs will
be higher due to the need for processing stations and pipelines to
markets. It is expected that due to shale gas production, already from
2020, the national average gas price in Poland will drop by 60 USD for
37
the Energy Policy Act of 2005 [EPA 2005]. In Section 322 of the Energy Policy Act of 2005 hydraulic fracturing was exempted from
majorEPA regulations. The Expedited LNG for American Allies Act of 2013, for example, would allow exports to other NATO members,
Japan, and other non-FTA countries specifically identified by the administration.26 The American Natural Gas Security and Consumer
Protection Act and the Keep American Natural Gas Here Act,
38
See more at The report of the Center for Social and Economic Research Scientific Foundation (CASE), entitled "Economic potential of the
production of shale gas in Poland in the years 2012-2025"
39
New A.T. Kearney Study on Shale Gas Production in Europe, May 2013 http://www.atkearney.ro/news-media/news-releases/news-
release/-/asset_publisher/00OIL7Jc67KL/content/new-a-t-%C2%A0kearney-study-on-shale-gas-production-in-europe
50
1000 m3 and will amount to 360 USD. Along with the further development
of this sector in Poland, already after 2031,1000 m3 of gas may cost us
only 260 USD, namely drop by almost 40 percent as compared to today's
price40 By comparison the cost of extracting offshore shale gas in the UK
were estimated to be more than $200 per barrel of oil equivalent (UK
North Sea oil prices were about $120 per barrel in April 2012). However,
no cost figures were made public for onshore shale gas.41
Art. 194 of the Lisbon Treaty from 2009 provides for energy as a shared
competence And affirms that each Member State has the right to
determine the conditions for exploiting its energy sources, its choice
between different energy sources and the general structure of its energy
supply42
42
The EURATOM Treaty is still in force and promotes the use of nuclear energy, but neither the existing treaties nor the new Lisbon
Treaty can force countries to accept nuclear power plants in their territories. Previously, there was no general chapter in the EU treaties on
energy, but Art. 3 u TEC in the Nice Treaty quoted energy as one of the fields in which the Union could act to achieve its objectives, the
European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to
achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of the Economic and Social Committee and the
Committee of the Regions. Such measures shall not affect a Member State's right to determine the conditions for exploiting its energy
resources, its choice between different energy sources and the general structure of its energy supply, without prejudice to Article 192(2)(c).
51
skilled resources and the infrastructure, creating questions over the long-
term economic viability of shale gas ventures.
43
Terms of Reference for EPA/DCENR/NIEA Research Program related to the Environmental Impacts of Unconventional Gas Exploration
& Extraction (UGEE), Northern Ireland Environmental Agency 2013
44
Many of these reserves are located in Europes three major regional shale plays. One of the oldest and most sought after being the Lower
Paleozoic play, stretching from Eastern Denmark into southern Sweden and to the north and east of Poland, while the second major play runs
from the Cheshire Basin in northwest England across the Anglo-Dutch Basin as well as Northwest German Basin and the third regional play
similarly extending from southern England to the Netherlands, northern Germany and Switzerland. There are also numerous local plays such
as the Vienna and France basins.
52
process of granting or have granted concessions and/or
prospection/exploration licences over the past three years: Denmark,
Germany, Hungary, Netherlands, Poland, Portugal, Romania, Spain,
Sweden and the United Kingdom7. However, not all license holders have
started concrete prospection or exploration activities. Currently, such
activities (at prospection or exploration stages) have taken place or are
ongoing in Denmark, Germany, Poland, Romania, Sweden and the UK.
As yet, there is no commercial production of shale gas in Europe,
although a few pilot production tests have already been conducted, for
instance in Poland. Production could start in 2015-17 in certain Member
States (e.g. Poland, UK).45
Denmark has extensive experience producing oil and gas in the North
Sea. However its offshore production is declining and renewable
energies will not be sufficient to meet the country's future energy needs.
In response, Denmark is exploring for onshore oil and gas, including
shale gas.
In 2010, the Danish Ministry of Climate and Energy awarded Total two
exploration licenses as operator, in partnership with the Danish North
Sea Fund. Located in the Norddjylland and Nordsjaelland regions, the
cover a total surface area of 5,261 square kilometers. An exploration well
is scheduled to be drilled on one of the licenses in 2014.
45
European Commission, Executive Summary in the Impact assessment, Brussels 22 2014
53
Exploration began in 2010 and will continue until 2016. The work
conducted during this period will determine whether or not gas is present
and, if so, whether it is technically and economically feasible to develop.
During this process, Total has pledged to take into account
environmental and social aspects, consistent with national and local
concerns.
France
France reportedly has the second largest shale reserves in Europe
after Poland. The estimated 180 trillion cubic feet could fuel gas
consumption in France for twelve years assuming recovery of only 10%
of these reserves. Currently, natural gas consumption accounts for
roughly 15% of the annual energy consumption in France. Almost all of
that natural gas is imported (roughly 98.5%). Frances shale reserves are
reportedly located in several regions including the Southwest, the Paris
Basin and in certain west central regions. According to the Senates fact
finding during a recent legislative session, hydraulic fracturing has been
used roughly fifteen times in France without a single claim of damages to
the environment
In 2010, the French Ministry of Ecology awarded Total the Montlimar
license for a five-year period. It was one of three subsurface exploration
licenses granted in France to prospect for shale gas. The Montlimar
license covers an area of 4,327 square kilometers extending southward
from below Valence to the region around Montpellier, in southeastern
France.
55
Parliamentary Office for Scientific and Technological Choices and the
Academy of Sciences), France is no further forward in promoting its
shale gas potential.47 At the beginning of October 2013 the French
Constitutional Court rejected a challenge to the exploration ban imposed
in 2011. The Court noted that in the current state of scientific knowledge,
the ban was not disproportionate. France banning the method. Energy
companies have been banned since 2011 from exploiting shale gas in
France over fears of environmental risks from the potential air and water
pollution involved in fracking. France would maintain its ban on the
exploration for shale gas throughout his five-year term.
Presently French Minister for Industrial Renewal Arnaud
Montebourg, a member of President Francois Hollande's Socialist Party,
called in February 2014 on the president to reconsider his opposition to
hydraulic fracturing due to what he calls the emergence of
environmentally safer methods to extract natural gas trapped in shale
rock. Despite Hollande's public reiteration in July 2013 of opposition, on
environmental grounds, to any exploitation of shale gas during his
tenure, Montebourg has renewed his efforts to push for a change in
policy -- touting a potential of a type of fracking that uses fluoropropane,
rather than a mix of water and chemical additives, to break apart
underground rock formations48 A report published by the French weekly
Le Canard Enchaine indicated Montebourg is backing a proposal to allow
local governments to decide whether they want to allow fracking by
employing fluoropropane, a non-flammable liquid used as a propellant in
47
Since the basin covers a large area including Paris and the vine rich area close to Champagne, opposition rose despite the fact that the basin
has already been developed with conventional oil wells for about 50 years.
48
Read more: http://www.upi.com/Business_News/Energy-Resources/2014/02/03/French-minister-supports-
allowing-clean-shale-gas-fracking/UPI-25851391403720/#ixzz31VStVaqp
56
inhalers and fire extinguishers, as an alternative to the banned
techniques.49
England
Natural gas from conventional sources currently plays a major role in the
UKs energy system. Roughly one-third of the gas used in the UK is for
electricity generation this accounted for 41% of electricity generation in
2011 (though the 2012 figure is likely to be lower because of low coal
prices relative to gas). Another third is for domestic use such as heating
and cooking, and the remaining one-third of gas demand is from
industry, energy industry, public buildings and commerce. UK gas
production more than halved between 2000 and 2011, and imports rose
significantly, so that the UK is now a net importer of gas. More than half
of the gas imported comes via a pipeline from Norway, but a growing
share 46% of imports in 2011 is in the form of Liquefied Natural Gas
(LNG) imported by tankers, mainly from Qatar2 .50
49
Read more: http://www.upi.com/Business_News/Energy-Resources/2014/02/03/French-minister-supports-
allowing-clean-shale-gas-fracking/UPI-25851391403720/#ixzz31VTOyZIW
50
Unconventional, unnecessary and unwanted
Why fracking for shale gas is a gamble the UK does not need to take, Friends of Earth Society May 2013
51
Energy Information Administration ("EIA") June 2013 report on shale gas resources
57
Developing a shale gas industry in the UK has the potential to
inject 33bn worth of investment into the economy and create over
64,000 new jobs. However, the lack of a clear framework standardising
and simplifying the approach towards shale gas exploration is making it
difficult for investors and developers to see where they fit in. On 27 June
2013, the British Geological Survey (BSG) report1 identified a larger
volume of potentially exploitable shale gas within the north of England
than previously thought, with as much as 1,300 trillion cubic feet at the
Bowland site in Lancashire, In Lancashire, Cuadrilla has drilled four wells
in the Fylde and test-fracked one, triggering earthquakes. It has
announced that it is looking for more drilling sites in Lancashire9.
Cuadrilla hs also announced plans to drill a shale oil exploration well in
Sussex, but not to frack at this stage.
On 2 April 2014, IGas announced that it has found shale gas at Barton
Moss (Eccles). It will take up to 6 months to analyse the samples.
52
http://www.naturalgaseurope.com/baker-mckenzie-report-shale-gas-uk
58
Coastal Oil & Gas has planning permission for exploratory drilling near
Sandwich in Kent and in the Vale of Glamorgan in south Wales11.
Some of the companies with licences (see above) have started to make
positive noises about the prospects in their area, including Egdon
Resources in the East Midlands12 and IGas in Salford13.
In Northern Ireland, Tamboran Resources is interested in drilling in
Fermanagh.
Production at the Blackpool aquifer was voluntarily suspended due
to concerns that the operation was causing seismic activity, but this
53
claims has not been proven. Cuadrilla, the company drilling in
Lancashire, has estimated the resources in its licence area at around
5,660bcm, or around 56 years worth of current UK gas consumption.
Cuadrillas CEO, Francis Egan, has said that they can supply a quarter
of UK gas demand from its licence area alone3. DECC has estimated
that this area could produce around 133bcm.54The Government is
expected to publish new BGS figures in the near future and there has
been widespread speculation that the new estimates could be
substantially higher4.
53
https://www.gov.uk/government/publications/bowland-shale-gas-study
54
Daily Telegraph 5th April 2013 Shale gas could heat all homes for 100 years
http://www.telegraph.co.uk/earth/environment/9975652/Shale-gas-could-heat-all-homes-for-100-years.html
59
55
double the current 50% figure. the UK government has proposed
reforms to the planning regime for onshore gas exploration. This would
include the removal of the current requirement to notify landowners of
planning applications where only underground operations will take place
under their land. The UK government is also considering reforming
trespassing laws to enable shale gas operators to drill legally without
obtaining the consent of the landowner Currently under UK law,
licensees must obtain consent from the landowner for vertical drilling and
the consent from any landowners under whose land there will be
horizontal drilling. Failure to do so will amount to trespass.
56 [2010] UKSC 35, United Kingdom Supreme Court, Lord Hope, Deputy
President, Lord Walker, Lord Brown, Lord Collins, Lord Clarke,
http://www.i-law.com/ilaw/doc/view.htm?id=251452
61
including the minerals that are to be found there, unless there has been
an alienation of them by a conveyance, at common law or by statute
to someone else, going down as far as the point at which physical
features such as pressure and temperature render the concept of the
strata belonging to anybody so absurd as to be not worth arguing
about. This was plenty deep enough in their Lordships eys to include
the substrata 1,300 foot below the Oxted Estate, which accordingly
belonged to Bocardo57
57
http://ukscblog.com/case-comment-star-energy-weald-basin-ltd-or-respondents-v-bocardo-ltd-appellant/
62
of oil underneath his feet and four years of litigation before the English
Courts, was left with a somewhat pyrrhic victory on his hands: 1,000,
and more legal bills to pay.
The facts of this interesting and unusual case are shortly set below
Under a PEDL the licensee must surrender 50% of the originally licensed
area at the end of the Initial Term.
The third phase of a PEDL is the production phase, which is granted for
20 years. The Secretary of State can extend the term if production is
continuing. DECC also recognises that it is not desirable for production
to cease simply because the term of the licence has expired, and
therefore has a policy of extending licences where the relevant criteria
are met.
64
developments are carried out through international oil corporations . The
government derives revenues from taxes on such developments.
58
https://consult.environment-agency.gov.uk/portal/ho/climate/oil/gas?pointId=2582509
65
controls on all oil and gas activities and he has subsequently said that
fracking is safe80.
66
The UK government proposals focus on the introduction of a new
"onshore allowance" which will apply to onshore shale gas drillingand
extraction sites, and which will apply to both conventional and
unconventional hydrocarbons:
the allowance will exempt a portion of oil and gas profits from the
supplementary charge by reference to broadly 75% of capital
expenditure on the exploration, appraisal, development and production of
onshore oil and gas, including the acquisition of onshore oil and gas
rights; and
the allowance will not apply where production from the site is
either expected to exceed seven million tonnes, or where production
from the site actually exceeds that threshold.
The government also proposes to extend the ring fence
expenditure supplement for shale gas projects from six to ten accounting
periods. This will enhance the value of certain unused UK taxallowances
and losses, recognising the longer payback period for shale gas projects.
This will be extend to all onshore unconventional hydrocarbon projects in
the UK759.
67
income exempt from the supplementary charge would be a proportion of
cumulative capital expenditure incurred on a shale gas pad.
In the 2013 Budget, the Chancellor announced consultations on
new tax breaks for the shale gas industry and on community benefits
measures to encourage communities to accept fracking. These could
include lower energy bills and, according to one leading industry figure,
additional police officers or school teachers61the Government confirmed
that they were consulting on the extent of the incentives to be offered to
those involved in the exploitation of shale gas. In the Spending Round
2013 presented before Parliament on 26 June 2013, George Osborne
said it was the Governments intention to make the tax and planning
changes which will put Britain at the forefront of exploiting shale
gasWe will provide our country with the energy of the future at a price
we can afford.3The Environment Agency has previously published a
statement to streamline and simplify the process of issuing licences for
exploratory activity for shale gas. This would ensure that shale gas
permits are issued within the standard 13 week period by September
2013, and by February 2014 issued within 1-2 weeks by developing
standard rules.62 On 19 July 2013, the Department for Local
Communities and Local Government published guidance to local
councils taking planning decisions on how applications for shale gas
developments should proceed through the planning system.5 It sets out
the procedures in which applications should be made and that planning
permission that is required for each of the three phases; exploration,
appraisal and production.
It also sets out a list of planning matters called material
considerations to be taken into account when a decision is made on a
61
See also DCLG (2012) Nationally significant infrastructure planning: extending the regime to business and commercial projects
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/15333/extending_the_regime_to_business.pdf Annex A
62
See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/209279/PU1524_IUK_new_template.pdf
68
planning application. A list of principal issues included noise
association, air quality, landscape character, land stability/subsidence,
ecology and site restoration and aftercare.
Issues such as loss of property value, loss of view and opposition
to the principal of development activity shall not be considered when a
planning decision is taken.63 On 19 July 2013, the UK government
unveiled draft tax breaks for shale gas investment. The new tax pad
allowance will mean that tax payable on income from shale production
will be a fraction of traditional oil and gas taxation, creating a tax rate of
30% as opposed to the current 62% taxation for oil and gas companies.
It will operate in a similar fashion to existing field allowances, exempting
aproportion of production income from the supplementary charge. The
amount of production income exempt from the supplementary charge
would be a proportion of cumulative capital expenditure incurred on a
shale gas pad.
The draft bill was subject a three month consultation which
completed on 13 September 2013. The Treasury confirmed that these
tax benefits would not just be a temporary measure and that it hopes the
changes will have worldwide impact. Mr Osborne in the Treasury
statement made in commented We want to create the right conditions
for industry to explore and unlock that potential in a way that allows
communities to share in the benefits, and also that [t]his new tax
regime, which I want to make the most generous for shale in the world,
will contribute to that. It is likely that the new tax regime will enter the
Finance Bill in 2014.
All of the latest announcements and publications are in-keeping with the
Governments encouragement of unlocking shale gas reserves in the UK
63
5https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/224238/Planning_practice_guidance_for_onshore_oil_and_
gas.pdf
69
and reducing reliance on natural gas imports, with a hope to creating
jobs and keeping energy bills low. Many within the shale gas industry
viewed tax incentives as vital for encouraging participation given the high
costs associated with exploration. On may 8th 2014 The House of Lords
recommended the British Prime Minister David Cameron to streamline
and improve the existing regulation to make it more effective and
rigorous.64 The House of Lords called on the government to do much
more to encourage exploration and get development moving.
Recognizing that shale gas is not the answer to all UKs energy security
problems, the 102-page report claimed that substantial economic
benefits would flow from successful development. It would among others
reduce imports and help maintain security of supply. This would be
especially valuable given the continuing fall in output from the North Sea
and Europes reliance on Russia, its biggest gas supplier, highlighted by
the crisis in Ukraine.
Germany
In Germany, the legislative powers regarding hydrocarbon activities
are concurrent between the Federal Government, the Lnder (States).
The Lnder may only pass laws in this area if the Federal Government
has not already done so. In the field of hydrocarbons, the Federal State
has taken over the power to adopt legislation by adopting the
Bundesberggesetz. The Bundes Lnder have the power to implement
such federal law. in this country, the exploitation of geographical areas
for the purpose of prospecting, exploring for and producing hydrocarbons
(oil and gas) is governed by the Federal Mining Act of 1982, as
amended. It sets the framework for petroleum development with the
64
http://www.naturalgaseurope.com/house-lords-recommends-uk-streamline-shale-regulation
70
individual federal states prescribing local regulations. In practice, the
states are responsible for overseeing oil and gas licensing and
operations. In the German state of North Rhine-Westphalia, affected
citizens, local politicians from almost all parties and representatives from
water supply authorities and mineral water companies raised their
concerns opposing hydraulic fracturing. The State Parliament of North
Rhine-Westphalia also pledged for a moratorium until improved
knowledge would be available. A first step was to set water protection at
the same level as mining laws and to ensure that permits are not granted
until water authorities agree. The discussion process is not yet finalised.
Also, the most strongly involved company ExxonMobil started an open
dialogue-process to discuss the concerns of the citizens and to assess
the possible impact.
65
Only 12 % of Germanys natural gas consumption originates from domestic natural gas production. In addition, the annual domestic
natural gas production is decreasing due to depletion of conventional reservoirs (conventional and tight gas) data from the annual report
LBEG, 2012 Der Bericht "Erdl und Erdgas in der Bundesrepublik Deutschland 2012" Germany's unconventional gas deposits are mainly
made up of shale gas, which may play a central role in improving the security of supply from a domestic energy source.
71
Assessment.66 Currently, onshore licensing is governed by local mining
legislation. This requires an authorisation for exploration and a
concession to be granted for exploitation activities. According to the
European Commission, 12 exploration licences have already been
granted to companies including ExxonMobil and BNK Petroleum. There
are nine other projects that are pending authorisation. GDF Suez has
stated that they are evaluating and analyzing exploration in Germany. In
February 2013, the Chancellors government set up a draft law to allow
hydraulic fracturing in the country. The proposed legislation will not allow
drilling activities to be carried out in protected areas or in close proximity
to drinking wells. It will also provide terms that all potential projects are to
carry out an Environmental Impact Assessment.67 Currently, onshore
licensing is governed by local mining legislation. This requires an
authorisation for exploration and a concession to be granted for
exploitation activities. According to the European Commission, 12
exploration licences have already been granted to companies including
68
ExxonMobil and BNK Petroleum. There are nine other projects that are
pending authorisation.
66
http://www.bloomberg.com/news/2013-02-26/germany-agrees-on-regulation-to-permit-fracking-for-shale-gas.html
67
http://www.bloomberg.com/news/2013-02-26/germany-agrees-on-regulation-to-permit-fracking-for-shale-gas.html
68
20 http://ec.europa.eu/energy/studies/doc/2012_unconventional_gas_in_europe.pdf
72
The Lithuanian Governments Strategic Committee may have
significantly bolstered the resolve of potential bidders to participate in the
Baltic countrys new shale gas exploration and extraction tender- now set
for late May or June- by passing a ruling that shale gas extraction will be
tax-free for three or four years since the start of the activity. A modest 15
percent tax will be applied thereafter, Lithuanian Environment Minister
Valentinas Mazuronis commented.
Our Ministry has been told by the Committee to draw up such a legal
environment (for the endeavor) that it would work well in attracting
potential foreign investors. Such a new taxation system would be similar
to that one that Poland is to employ soonWe are still working on the
durance of the tax exemption (period). Will it be three or four years
depends on the results of the analysis we are carrying out, the minister
told.
The Committee has also insisted on having the conventional gas tax
tariff changed- from the current 2-20 percent- it depends now on the
volume of oil extraction- to a fixed 12 percent tariff.
73
To placate the publics unease about the adverse impact of shale gas
mining on the environment- a concern that had thwarted Chevrons shale
gas extraction plans in the country- the Government told the
Environment Ministry to draw up a well-thought PR plan on informing the
public about the activity.
I really believe that it had been done too little in that regard, Butkevicius
noted.
Chevron, the sole bidder in the previous shale gas procurement, pulled
out last October after securing the right, citing adverse tax and legal
environment in Lithuania.
Among other lures for shale gas investors, the Ministry is mulling
exempting future investors from a requirement of having environmental
assessment impact (ESI) performed before exploratory drills.
74
ESIs will be needed only for very deep exploratory drills. This is what
the European Commission Directive recommends. This is how it is in all
our neighbor countries, which we have to overtake in terms of shale gas
investment attraction to have that kind of investors in the country, the
Environment minister underscored.
Though the tender date is slated for May or June, the minister did not
elaborate last week on a more precise date.
The major task ahead is to convince local people that (shale gas)
exploration plays in their favor. On the other hand, we have to find out
whether we will have serious potential investors, even with the revised
shale gas legislation. From the technical standpoint, we are ready to
launch the tender pretty soon the minister said.
As of now we have approved all the necessary legislative acts and the
conditions for a new competition, I am looking forward to having the
Government and Lithuanian Parliament passed respective shale gas
exploration and extraction taxation legislation. I am really looking ahead
to seeing those things moved forward. I think that the most realistic date
for a new tender issuance could be late May or June, the minister said.
Chevron, the sole bidder in the previous shale gas procurement, pulled
out after securing the right last October citing adverse tax and legal
environment in Lithuania. The US companys exasperation was largely
75
over the numerous shale gas legislation changes and especially the
Baltic lawmakers brewing proposal to tag a 40 percent basic tax on
shale gas, which, if adopted, would have been the largest rate
worldwide.
Under one of the options weve discussed at the Ministry we will leave
the taxation of traditional oil unchanged and keep the current tax average
at 10 percent; or raise it slightly, perhaps to the average of 12-13
percent. I assume the average taxation of shale resources could be 15
percent, the minister said.
76
Poland
Optimistic estimates show that Poland could have up to 1.92 trillion cubic
metres (67.8 trillion cubic feet) of exploitable shale gas deposits, possibly
the third largest reserves in Europe after Norway and the Netherlands.69
Plentiful natural gas would also potentially allow Poland to reduce its
reliance on dirty domestic coal for 90 percent of its electricity production,
a situation that has caused tensions with European partners concerned
about missing clean air targets. In Poland, shale gas deposits are
located in the zone stretching from the north-west to the south-east of
the Member State. Due to the specificity of the upstream activities and
the complex geology of Polish Basins it is assumed that only 25% of the
initial exploration wells will be successful. The Polish Geological Institute
released a report in June 2012 which suggested shale gas reserves
could be up to 1.9 trillion cubic meters and is expected to publish a new
report on the countrys shale gas reserves in 201470 According to
estimates by Wood Mackenzie, an oil and gas research group, Polands
69
Poland could have between 800 billion and two trillion cubic metres of exploitable shale gas deposits, according to the Polish Geological
Institute
70
Assessment of shale gas and shale oil resources of the lower Paleozoic Baltic-Podlasie-Lublin basin in Poland, Polish
Geological Institute, Warsaw, March 2012, available at www.pgi.gov.pl/pl/component/docman/doc_download/769-raport-en;
77
unconventional gas reserves could be as high as 48 TCF.71 Following
initial large potential resource estimates, the US Energy Information
Administration (EIA) reduced Polands shale gas resources to 148 trillion
cubic feet this year, from its 2011 assessment of 187 trillion, mainly due
to a downgrade of the countrys Lublin Basin resource72. If confirmed,
this would significantly increase the European Unions proven reserves
of natural gas and make Poland, which imports 72 per cent of its gas,
selfsufficient for the foreseeable future. Significant shale gas production
in Poland could also alter the gas geopolitics for the entire European
region, which has historically been dependent on Russian supplies of
natural gas. In Poland are present several major energy companies
investing in shale gas industry and included among others Chevron,
Canadian-based Talisman. and ConocoPhillips.73 On March 31 2014
Polskie Grnictwo Naftowe i Gazownictwo (PGNiG) and Chevron Polska
Energy Resources signed a collaboration agreement for shale gas
exploration in south-eastern Poland on Monday, surfing the wave of
revived optimism about unconventional gas in the country.
71
Robin Pagnamenta, Dash for Polands Gas Could End Russian Stranglehold
on Supplies, TIMES (London), Apr. 5, 2010, at 33. see also Kim Talus, Access to Gas Markets: A Comparative Study on Access to LNG
Terminals in the European Union and the United States, 31 Houston Journal of International Law 343, 354 (2009).
72
Decision time for Poland, Regester Larkin Shale Report January 2014
73
There has been recent success for Lane Energy Poland (a subsidiary of ConocoPhillips) which announced that it is extracting in the region
of 8,000 cubic meters of shale gas per day at a test well in the north of the country. This is the highest amount seen in Europe to date and the
company is planning to drill two or more wells in 2014.
78
parties could then move to the second stage of collaboration, with
additional joint exploration activities.
74
The Company believes that it controls about 285,000 net acres that have good potential to produce natural gas and another approximately
285,000 net acres that are also prospective but have higher associated risk.
75
http://www.naturalgaseurope.com/chevron-commences-shale-gas-drilling-in-romania
79
plans to proceed with exploration for the unconventional gas saw
protests and the occupation and blockage of a drilling site that saw
Chevron twice suspends its plans in Eastern Romania. Exploratory
drilling at the well site near the village of Silistea, Pungesti commune in
Vaslui County, is targeting a depth of approximately 4,000 metres.
Chevron also holds three shale-gas exploration blocks in the south-
eastern region of Dobrogea, near the Black Sea
76
In January 2013 , Ukraine and the Anglo-Dutch group Shell signed a $10-billion production-sharing agreement to explore shale gas at the
Yuzovska deposit in the eastern Donetsk region.
77
But Ukrainians were concerned about the ecological consequences of shale gas exploration in the mountainous forest region, which is also
a prominent tourist resort.
80
In the aftermath of global financial crisis and global energy
ExxonMobil in 2012,78 Marathon and Talisman dropped shale gas
exploration in Poland, after disappointing drilling results - finding deposits
too deep to extract using the conventional method of hydraulic fracturing,
or fracking along with the environmental concerns. Exxon already
cautioned that commercial production of Polish shale was at least five
years away, said it would not go forward with exploration That was until
March 2013 , when a government report revealed the country's likely
reserves were about one-tenth the size of previous estimates.79 Exxon
realised that commercial extraction was not possible with currently
available technology. In addition Eni, the Italian oil company in Janaury
2014 announced that is giving up on producing natural gas from shale
rock in Poland, Italian oil giant Eni withdraw totally from its shale gas
project in Poland, allowing two of its three exploration licenses expire,
with a third one likely to follow Eni has let its licenses expire due to
unclear regulations and difficult geology.
78
In December 2009, ExxonMobil (Exxon) announced plans to buy XTO Energy (XTO) in an all-stock transaction worth about $41 billion
(including debt of $10 billion), Exxons interest in XTO was driven primarily by XTOs
strong unconventional gas resource base and its technical expertise in extracting shale gas through hydraulic fracturing technology.
79
Poland had high hopes for shale after a study by the U.S. Energy Information Association in 2011 estimated Polish reserves at 5.3 trillion
cubic metres, enough to cover domestic demand for some 300 years. The government's study in March slashed estimates for recoverable
shale gas reserves at 346 to 768 billion cubic metres
80
ExxonMobil has submitted applications to the Ministry of Environment regarding the relinquishment of two exploration concessions in the
Podlasie Basin (Legionowo and Misk Mazowiecki) and one, together with its partner (French operator Total E&P Poland), in the Lublin
Basin (Werbkowice). Both companies eventually has had pulled out of shale gas extraction. Canadian International Oil Corp. (CIOC) has
filed for three concessions in south-central Poland, Pro Energis for two and Mazovia Energy Resources for nine
81
FINAL REPORT ON UNCONVENTIONAL GAS IN EUROPE In the framework of the multiple framework service contract for legal
assistance TREN/R1/350-2008 lot 1 Prepared by the law firm Philippe & Partners Brussels, 8 November
81
non-conventional hydrocarbons as companies have flocked to the
country, but and the biggest holders of shale gas concessions are state-
owned companies, most notably Polish Oil and Gas Company (PGNiG).
Despite over 110 exploratory shale concessions having been awarded,
no company has made a Declaration of Commerciality and, as a result,
no license has moved into the Production Concession stage. Licenses
covering primarily the most promising shale belt area, reaching from
Pomorze to Lubelskie have been granted to Polish private as well as
state-controlled companies and foreign registered companies. Out of
nineteen companies involved only three are partly State-owned.
82
Judgment of the Court (Fourth Chamber) 23 June 2013 In Case C-569/10
83
Poland might face claims for damages from plaintiffs who will establish a connection between a decision not to grant a licence and
material damages and that a licence would have been granted to the company, if the EUs directive had been correctly implemented.
82
The polish government plans to invest 12.5 billion euros ($17.3
billion) in exploration and development of its shale gas sector by 2020,
with total investment in exploration and development of the shale gas
sector in Poland by both domestic and foreign companies could reach
12.5 billion euros. The country plans to invest 12.5 billion euros ($17.0
billion) Politically Poland remains supportive of shale gas development
with the Deputy Environment Minister announcing Poland would
commence commercial shale gas production in 2014. However, the
terms of and delays in the enactment of new legislation to regulate the
licensing and tax system have led to industry criticisms.84 The Polish
government has shown continuing strong support for the shale gas
industry in the past six months. On 12 June 2013, two draft bills were
published, one entitled Bill on Hydrocarbon Taxation, the other Bill to
Amend the Geological and Mining Act. These bills are intended to
address gaps in the existing legislation, to better provide for shale gas,
and eventually to increase government revenues.
84
See also W. Bagiski, shale gas in Poland,, Warsaw, 2012
83
extraction of unconventional oil and gas reserves could reach as high as
130%.7 These new rates are important when discussing the countrys
shale gas potential, because Poland has high hopes of finding significant
amounts of shale gas over the next few years.
85
Entry on Burson-Marsteller in the EU's Transparency Register:
http://ec.europa.eu/transparencyregister/public/consultation/displaylobbyist.do?id=9155503593-86
84
Nevertheless we must take into account the report criticizing the
progress on shale gas exploration by Poland' supreme Audit Office (NIK
(senior auditing institution) which warned that at the current rate it will
take 12 years before the country's shale gas potential can be properly
assessed and pointed out that while 113 licenses have been issued,
only a small proportion of the territory in question has actually been
explored. The report explained that work on the legal framework for
shale gas exploration and extraction was started with a considerable
delay in 2011. License issuing processes were unreliable and did not
promote equality, they also took more time than was necessary, the
report went on to say. All this irregularities could lead to potential
corruption, NIK concluded. The office was also skeptical of the progress
in estimating the size of Polands shale gas reserves. If the current rate
of test drilling is maintained, it may take about 12 years to complete the
process, the report said. NIK also criticized companies that were granted
exploration licenses. According to the report, they did not conduct
necessary geological studies, or conducted them with significant delay.
They also delayed the payment of licensing fees.86
The Polish Exploration and Production Industry Organization
(OPPPW) argues that lack of regulatory clarity is to blame for the radical
slowdown in shale exploration this year. At the current rate of just over
ten wells a year, the country will take about 25 years to reach a reliable
assessment of the countrys shale gas resources.
86
http://www.wbj.pl/article-64745-nik-lambasts-polands-shale-gas-exploration.html?type=lim
85
contamination is present at all stages of extraction. These include
surface spills and leakages, emissions from gas-processing equipment,
and pollution from the large numbers of heavy transport vehicles
involved. There is therefore ample opportunity for pollutants to
contaminate the air, and ground and surface water.87 The fracking drilling
sites have larger surface footprints, and may be like in Poland much
closer to where people live. The need to transport and store large
volumes of toxic chemicals and contaminated water are likely to pose
negative consequences for health. In addition to local threats to health
and environment, another key consideration is the contribution of shale
gas to climate change. There is conflicting evidence about whether
fracking produces more or less greenhouse gas emissions than coal. In
any case, the evidence from the US is that shale gas has developed
alongside the use of coal, rather than replacing it, leading to an overall
increase in greenhouse gas emissions. In Poland, the Act of 25 February
2011 on Chemical Substances provides for penalties with the purpose of
enforcing compliance with REACH. If obligations under REACH are
violated during industrial activities, the consequences of this may vary
depending on the nature of the breach. Such consequences can be a
fine, detention, or eventually imprisonment. Non compliance with REACH
can also be punished under the Penal Code (if it fulfils the conditions
described in it).
Selected Problems
Fracking involves the injection of chemicals and water under very high
pressure to fracture shale rock formations deep underground and so
87
Nathaniel R. Warner, Cidney A. Christie, Robert B. Jackson, Avner Vengosh, Impacts of Shale Gas Wastewater Disposal on Water
Quality in Western Pennsylvania" Published Oct. 3 in Environmental Science & Technology
86
release the gas and oil they contain, but there have been concerns the
process can pollute water supplies and the soil. It must be noted that
during hydrofracking, corrosive salts, potentially carcinogenic chemicals
and even radioactive particles that exist in rock formations are mixed
with already polluted water as it is injected underground 915-2440
meters. Almost 25% of the water is ultimately pushed back to the
surface along with these chemicals. Benzene, radium, methane,
petroleum distillates and glycol ethers are some of the many harmful
substances that have been identified in hydrofracking water.88 Despite of
all scientific expertise, and although much of the fracking technology
used to extract the gas from shale rock is well established, there are still
a large number of unknowns surrounding fracking, including the potential
effects on health. early findings suggest this form of extraction might
increase health risks compared to conventional oil and gas wells. When
considering the viability of fracking, it will be important for health impact
assessments to include the long term implications of waste disposal,
fugitive methane emissions escaping from the ground or the well, and
other implications for human health not just analyses of the
environmental and public health risks during active development.89 With
a technically challenging and global industry it's vitally important that data
and expertise is readily shared. Fugitive Methane emissions from
hydraulic fracturing processes can have a huge impact on
the greenhouse gas balance. Existing assessments give a range of 18 to
23 g CO2- equivalent per MJ from the development and production of
unconventional natural gas. The emissions due to methane intrusion of
aquifers are not yet assessed. However, project specific emissions might
88
Haluszczak, Lara A. R. (2013). Geochemical evaluation of flowback brine from Marcellus gas wells in Pennsylvania, USA. University
Park, PA: Pennsylvania State University .
89
The USA has one of the best environmental regulations like the US Clean Water Act and the Resource, Conservation and Recovery Act
87
vary up to a factor of ten, depending on the methane production of the
well.
Depending on several factors, greenhouse gas emissions of shale gas
relative to its energy content are as low as those of conventional gas
transported over long distances or as high as those of hard coal over the
entire life cycle from extraction to combustion.
88
being exposedsignificantly faster than the 20 years it usually takes
before symptoms appear Workers or other individuals who have been
exposed to silica dust created during the fracking process may be
eligible to file a lawsuit and seek compensation for their injuries. Fracking
lawsuits that have already been filed allege that workers have not been
provided with adequate safety equipment to protect them from the health
effects of silica sand exposure in the workplace.90
shale costs
90
See more at: http://www.hop-law.com/fracking-and-
silicosis/#sthash.lDoXH3oU.dpuf
91
Shale Gas Taxation in Poland Report by an independent expert Dr Pedro van Meurs Suggestions for shale gas terms in Poland June 2012
89
Natural gas production in the United States reached a historical
high in November 2011, when producers withdrew an average of 82.7
billion cubic feet per day, 18 percent higher than five years earlier. This
expansion in domestic natural gas supplies has led to a reduction in
domestic prices. Even while consumption of natural gas has been
increasing, the average wellhead price has stayed below $5 per million
cubic feet (Mcf) for more than two years. Shale gas now accounts for
more than a third of total U.S. gas resources. The Energy Information
Administration (EIA) estimates that shale gas will provide 49 percent of
total U.S. natural gas supply by 2035, up from 23 percent in 2010.11 Net
imports now represent 10 percent of total U.S. consumption, the lowest
proportion since 1993, and this share is expected to continue to shrink.92
Due to increasing gas supply, prices have fallen sharply. After the Henry
Hub price per million British Thermal Units (mmbtu) had almost reached
13 U.S. dollars in mid-2008, it decreased to below 2 U.S. dollars in April
2012 and has stayed clearly below 5 U.S. dollars since then.15
According to the World Energy Outlook (2013) of the International
Energy Agency (IEA), European industrial consumers paid on average
more than twice as much for electricity than their competitors in the
United States. Particularly energy-intensive sectors (steel, aluminum,
chemicals, pulp and paper to name just a few) as well as those which
use natural gas as feedstock such as the fertilizer, chemical, and plastics
industries have noticeably benefited from low gas prices.93 Unlike the oil
market, natural gas prices are not determined on a global market.
Natural gas prices in Europe and Asia are 3 to 7 times higher than in the
United States. This provides the American economy with a competitive
advantage in the manufacture of energy-intensive goods.. Natural gas
92
Energy Information Administration, Annual Energy Outlook 2012, available at http://www.eia.doe.gov/oiaf/aeo/
93
EIA, Henry Hub Gulf Coast Natural Gas Spot Price, <http://www.eia.gov/dnav/ng/hist/rngwhhdm.htm> (accessed 21 October 2013).
90
cannot currently be moved cheaply in volumes great enough to efficiently
link low-cost producing regions with high-demand regions. With massive
deployment of expensive infrastructureinternational natural gas
pipelines, special cryogenic LNG tankers, liquefaction equipment
regional natural prices would converge to a global price in the same way
that global oil prices have emerged.
Gas prices in Europe in 2012 were roughly five times greater than
in the United States, which have fallen roughly two thirds since 2008. For
natural gas to be cost-competitive, it will need to be priced something
under US$8.50 per mBTU (US30/cm). Today the pricing hovers close
to US$4 per mBTU (US14/cm) In 2008 US and European gas prices
were roughly the same. Japans gas prices in 2012 were an astounding
8 times higher than US prices and the Fukushima tragedy will reduce the
share of nuclear in that countrys energy mix In 2012 Gazprom
renegotiated supply contracts with a number of European customers
after receiving complaints that customers were paying too much for gas
under long-term, oil-linked contracts, which were significantly above spot
gas market levels. These price cuts in some cases approached 10% of
previously agreed prices. France's GDF Suez, Wingas of Germany, the
Slovakian gas company SPP, ENI in Italy and Botas in Turkey were
among the clients that managed to negotiate price adjustments (Platts).
In 2012 these concessions totaled $ 2.7 billion and Gazprom is setting
aside $ 4.7 billion for negotiated reductions in 2013.
In the United States, natural gas prices are projected to fall to
US$4.63 per thousand cubic feet by 2015. By one estimate, however,
the spot gas price of shale gas should amount to US$7.508 per
thousand cubic feet to recover the full cost extraction (Ben Dell,
Bernstein Research)94.6 Extraction projects require huge amounts of
94
Ben Dell, Bernstein Research, quoted in The True Cost of Shale Gas Extraction, Financial Times, March 7, 2010.
91
capital. The limited availability of infrastructure is expected to push costs
even higher. Further, shale gas reserves tend to decline faster than
conventional gas wells. As a result, producers may have to resort to
making profit in a shorter period, leading to more price risks concentrated
in the early months of production than for conventional gas. Shale gas
tends to cost more to produce than gas from conventional wells, because
of the expense of the massive hydraulic fracturing treatments required to
produce shale gas, and of horizontal drilling. Hydraulic fracturing in tight
gas formations typically needs several hundred thousand litres of water
per well for each fracturing process mixed with proppants and chemicals
while hydraulic fracturing in shale gas formations consumes several
million litres of water per well.
95
the Energy Policy Act of 2005 [EPA 2005]. In Section 322 of the Energy Policy Act of 2005 hydraulic fracturing was exempted from
majorEPA regulations.
The Expedited LNG for American Allies Act of 2013, for example, would allow exports to other NATO members, Japan, and other non-FTA
countries specifically identified by the administration.26 The American Natural Gas Security and Consumer Protection Act and the Keep
American Natural Gas Here Act,
92
to markets. The cost of extracting offshore shale gas in the UK were
estimated to be more than $200 per barrel of oil equivalent (UK North
Sea oil prices were about $120 per barrel in April 2012). However, no
cost figures were made public for onshore shale gas.96
96
Gloyston, Henning and Johnstone, Christopher (17 April 2012) Exclusive - UK has vast shale gas reserves, geologists say Reuters Edition
UK, 17 April 2012
93
Given the fact that shale gas operators use mixtures of chemical
substances in the course of hydraulic fracturing, they are part of the
97
category of downstream users under REACH. REACH defines a
downstream user as any natural or legal person established within the
Community/EU, other than a manufacturer, importer, distributor or
customer, who uses a substance, either on its own or in a mixture, in the
course of his industrial or professional activities (Article 3(13) of
REACH). The Commission wants to ensure the environmental integrity
of extraction of unconventional hydrocarbons, such as shale gas, and
ensure that risks that may arise from individual projects and cumulative
developments are managed adequately in Member States that wish to
explore or exploit such resources. The European Commission issued in
2011a Guidance Note98 confirming that the exploration and exploitation
of unconventional hydrocarbons has to comply with the requirements of
EU legislation. A comprehensive EU legislative framework on
environmental protection and non-discriminatory access to hydrocarbon
resources is already in place and applies to all hydrocarbons,
conventional and unconventional, from planning to the aftercare of sites
following exploitation. The Commission Guidance Note states that
exploration and exploitation of unconventional hydrocarbons fall within
the scope of the Environmental Impact Assessment (EIA) Directive
(2011/92/EU), which plays a central role in the assessment of the
environmental effects of proposed UGEE projects/ operations before
development consent can be granted. The Directive ensures that the
environmental implications of projects are taken into account in the
permitting process, before the final decisions are made. Any application
97
REACH needs to be complied with, since operators using chemical substances for hydraulic fracturing will considered being downstream
users in the meaning of REACH. However, up to now, we do not have certainty yet whether the chemicals used for hydraulic fracturing will
meet the relevant thresholds. As downstream users, they need to apply risk management measures for dangerous substances identified by the
supplier and communicated through Safety Data Sheets. They also have the obligation to make their use of a substance known to the
manufacturer so it can be registered as an identified use and covered in the suppliers chemical safety assessment.
98
http://ec.europa.eu/environment/integration/energy/uff_news_en.htm
94
for an exploration licence that includes hydraulic fracturing would be
subject to environmental assessment in accordance with the
requirements of the EIA Directive.
99
For instance see (2014), Gas Regulatory Forum, official website of the European Commission
(http://ec.europa.eu/energy/gas_electricity/forum_gas_madrid_en.htm).
European Parliament (2013), Report on making the internal energy market
100
Related studies: 2013: Overview of hydraulic fracturing and other formation stimulation technologies for shale gas production; December
2013 : Study on the Assessment of Land and Water Use Scenarios for Shale Gas Development: Poland and Germany; September 2013:
Assessment of the use of certain substances in hydraulic fracturing of shale gas reservoirs under REACH; September 2013: Study on the
regulatory provisions governing key aspects of unconventional gas development in eight Member States.
95
obtain evidence on issues relevant to unconventional fossil fuels (e.g.
shale gas).101 The public consultation "Unconventional fossil fuels (e.g.
shale gas) in Europe" took place between 20 December 2012 and 23
March 2013, to feed into the development of the Assessment Framework
and the related analysis of impacts. This online consultation was part of
the European Commission's wider efforts to listen to relevant
stakeholders and the general public on this topic, to better understand
their views and possible concerns, and to obtain evidence on issues
relevant to unconventional fossil fuels (e.g. shale gas). Contributions
were sought in particular from the oil and gas sector, environmental non-
governmental organisations, geological surveys, scientists, experts in the
management of industrial risks, national and local authorities and citizens
at large. The consultation referred notably to shale gas, because it is
currently expected to be the unconventional fossil fuel with the largest
potential in the EU and for which most public concern is raised.
101
public consultation on unconventional fossil fuels generated 22 875 responses, with citizen contributions accounting more than
95% of the total. More than 90% of citizen responses came from five EU countries: Poland, France, Romania, Spain and Germany. There
were 696 responses from organisations, including 33% from companies and 32% from NGOs
102
http://publications.jrc.ec.europa.eu/repository/bitstream/111111111/29386/1/req_jrc83512_assessment_use_substances_hydraulic_fracturi
ng_shale_gas_reach.pdf
103
European Parliament (2013), Report on making the internal energy market work,
2013/2005(INI), Strasbourg.
96
contracts, the report stated that oil indexation imposes high prices on
consumers. In this context, the report emphasised the need to develop
and support all products and mechanisms aimed at strengthening short-
term gas trading capacities and called for the abolishment of oil-
indexation and conversion to more flexible alternatives
97
The European Parliament also noted that mutual non-disclosure
agreements regarding damage to environmental, human and animal
health are not in line with EU and Member State obligations under the
Aarhus Convention, the Access to Information Directive (2003/04/EC)
and the Environmental Liability Directive.
104
2014/70/EU: Commission Recommendation of 22 January 2014 on minimum principles for the exploration and production of
hydrocarbons (such as shale gas) using high-volume hydraulic fracturing (2014/70/EU)
98
topics, including the monitoring of hydraulic fracturing fluids and well
integrity. This recommendation differs from the EU Commission' previous
stance, which favoured legally binding regulations for shale gas
extraction.
99
carbon dioxide emissions by 2020. 105The Commission Work Program for
2013 included the initiative Environmental, Climate and Energy
Assessment Framework to Enable Safe and Secure Unconventional
Hydrocarbon Extraction. This initiative aims to deliver a framework on
unconventional fossil fuels (through legislative and/or non-legislative
measures) to manage risks, address regulatory shortcomings and
provide maximum legal clarity and predictability to both market operators
and citizens across the EU. The initiative is subject to an impact
assessment. The impact assessment will look at options to prevent,
reduce and manage surface and subsurface risks, to adapt monitoring,
reporting and transparency requirements, and to clarify the EU regulatory
framework with regard to both exploration and extraction activities The
Commissions Program is in line with the European Councils call of
February 2011 to assess Europes potential for sustainable extraction
and use of conventional and unconventional fossil fuels in order to
enhance Europes security of supply. The Program equally addresses
the European Parliaments call of November 2012 to introduce an EU-
wide risk management framework for unconventional fossil fuels
exploration and extraction, with a view to ensuring harmonised
provisions for the protection of human health and the environment across
all Member States. Commission studies and assessments, a public
consultation and European Parliament reports setting out its position are
all informing the Commissions work. The Commission is expected to
adopt a binding legal framework which will produce a base level of
European regulation. Whilst the Frameworks legislative form is still to be
105
See also: Commission Recommendation on minimum principles for the exploration and production of hydrocarbons (such as shale gas)
using high volume hydraulic fracturing, C(2014) 267/3, 22 January 2014
Commission Communication to the Council and the European Parliament on the exploration and production of hydrocarbons (such as shale
gas) using high volume hydraulic fracturing, Draft - 22 January 2014
Commission Staff Working Document Impact Assessment accompanying the Communication on the exploration and production of
hydrocarbons using high volume hydraulic fracturing, Draft - 22 January 2014
Joint Research Centre, Assessment of the use of substances in hydraulic fracturing of shale gas reservoirs under REACH, September 2013
European Voice, Commission prepares shale-gas guidelines, 16 January 2014
RTCC, UK and Poland announce plans to push fracking across Europe, 10 January 2014
100
officially confirmed, it is increasingly expected to take the form of a
specific Directive similar to those covering waste water and
environmental impact assessments. In Brussels this framework is being
referred to as the Shale Gas Enabling Framework
106
The Commission has released a number of studies as part of its consideration of whether new policy proposals for unconventional shale
gas should be brought forward, included the January 2012 report produced by Brussels law firm Philippe & Partners which looked at
experiences in four Member States (Poland, France, Sweden and Germany). In addition, three studies were released in September 2012 on
101
above document points out that most experts agreed that shale gas
extraction leads to higher cumulative environmental risks and impacts
compared to conventional gas extraction. The recommendations are at
this stage non-binding but the Commission said it would "closely monitor"
their implementation and encouraged member states to adopt them as
best practice. EC explained that it will report again in 2015 and at that
point could "decide to put forward legislative proposals."107 that this
strategy could be released at the same time as the Shale Gas Enabling
Framework in early 2014.
107
In addition, EU member states are supposed to source 20 percent of their energy from renewable sources and achieve a 20 percent energy
efficiency gain by the same date. The European Parliament's environmental committee wants a 40-30-40 package but this looks ambitious,
with member states focused on getting a economy back on track rather than add to business costs
102
tonne or more. In addition, a chemical safety assessment (with exposure
scenarios) is required where a substance is manufactured or imported in
quantities of 10 tonnes or more per year. The aim of REACH is to
ensure that the risks of substances are properly understood and
managed appropriately. In 2011, DG Environment expressed concern
that chemicals used in hydraulic fracturing were not registered for that
use under REACH. However, based on current levels of shale gas
activity in the EU, it is likely that the tonnages necessary to trigger
registration under REACH will not have been reached. In addition, the
use descriptors which have to be submitted as part of the registration
process do not require details of the precise use of the substance, simply
that it is sufficient to allow adequate risk management measures. This
means that use descriptors do not have to be specific to shale gas.
Conclusions
Europe, the new frontier in shale gas rush, Financial Times, 7 March 2010.
108
109
Thomas Spencer, Oliver Sartor, Mathilde Mathieu (IDDRI) Unconventional wisdom: an economic analysis of US shale gas and
implications for the EU N02/14 february 2014 | CLIMATE
104
new means of national energy policy. It is very likely that investments in
shale gas projects in Poland might have a short-living impact on gas
supply which could be counterproductive , as it would provide the
impression of an ensured gas supply at a time when the signal to
consumers should be to reduce this dependency by savings and
efficiency measures. water sourcing and local infrastructure in Poland
might also present difficulties given the fact that the fracking process
requires large amounts of water that The biggest problem in Poland is to
simplify the existing bureaucracy, It is very important for local and
national agencies to identify ways to speed up the process, so that more
exploration and production can take place in order to learn more about
the countrys geology. The foreign companies complained that
administration procedures are inefficient, there is not enough expertise
of unconventionals in the administration, and while the government has
pledged to be more efficient, similar commitments at the local level are
required. The industry specialist predict that it may take 1-16 years
before shale gas can be added to Poland's energy supplies: from five
years to eight years to assess whether shale gas exists in commercial
quantities, maybe another seven years before production starts and
then a few more years before enough shale gas is produced on the
commercial scale.
Shale oil and gas have had limited benefits for the US economy
and their advantages for Europe will be lower than expected. The shale
boon in the US has mainly benefited local economies and the gas
industry with only "minimal" impact on macro-economic growth110
Between 2000 and 2010, the US drilled a total of 17,268 exploratory
110
The Report of Institute for Sustainable Development and International Relations (IDDRI) 2014
105
natural gas wells, at an average of 130 per month. Exploration in the EU
is in its early stage, with about 50 wells drilled" thus far.
The principal arguments for relaxing restrictions on U.S. oil and
natural gas exports are economic rather than geopolitical. Even if the
USA more very costly LNG facilities were approved tomorrow, it would
still take years before they would begin delivering gas to customers.111 In
the case of crude oil, it is even harder to make the case for relaxing
export restrictions because of geopolitical considerations. Despite recent
increases in U.S. production, the U.S. still imports on net around 5.5
million barrels a day.
Annexes
106
France 180 Poland 187 Brazil 226 Algeria 231 Libya 290 Canada 388
Australia 396 South Africa 485 Mexico 681 Argentina 774 US 862 China
1,275 Others 647
Source: World Shale Gas Resources: An Initial Assessment of 14
Regions Outside the United States, EIA, April 5, 2011
107
108
109
Key shale basins as having technically recoverable shale gas resources
in Poland
110
Map of Shale Gas Basins in the Ukraine and Eastern Europe
111
112
113
114
Shale Gas in France
115
Shale Gas in the United Kingdom
116
117
118
119
Companies currently involved in shale gas operations in Poland
120
121
122
geological traps
123
Well cluster
(current configurat ion)
124
HYDRAULIC FRACTURING
125
Source: RESOURCES FOR THE FUTURE, TOTAL October 2013
126
127
128
Natural Gas Prices around the World
129
130
Preliminary studies have identified over 688 shales in 142 basins. Red =
active exploitation.
Source: Hopkins, Schlumberger
131
Key shale gas basins in the UK:
132
Estimated Shale Gas Resource Potential - 2010
133
Oil deposits and conventional and unconvent ional gas reservoirs
134
Hydraulic Fracturing Process
135
Shale Gas Output in Poland Source: IEA estimates
136
Comparison of shale gas resource est imates for USA and Poland
(recoverable using state-of-the-art technology)
137
Figure 1: US gas supply 1990-2035 (trillion cubic feet / year)
138
Annual average prices for gas in seven scenarios (US dollars per
thousand cubic feet), 1990-2035
139
Shale Gas, an International Guide2014 Baker & McKenzie.
140
Water Usage in Perspective
141
142
143
144
145
146
147
148
149
150
151
152
153
154
Gas price trends in the USA
155
Source: ARTUS 2013, Artus, P. (2013): Shale gas and oil production in
the United States: A major trend break that is insufficiently analysed; a
major problem for Europe. Paris: Natixis. Flash Economics 53.p. 3
156
157
Shale gas water management schematic (courtesy of Schlumberger)
158
environmental risks, shown in the graphic below, produced by the UN
Environment Program
159
Impacts and risks of shale gas production on nature and the environment
160
SRU/Statement SRU (Sachverstndigenrat fr Umweltfragen) (2012):
No. 182013/Fig. 8
161
Source: U.S. Energy Information Administration: World Shale Gas
Resources: An Initial Assessment of 14 Regions Outside the United
States (April 2011)
162
Most important EU Directives effective on extractive waste
163
Figure Marcellus shale in Western Maryland
164
U.S. Primary Energy Consumption by Source, 1949-2012
165
U.S. Primary Energy Production by Source, 1949-2012
166
U.S. Primary Energy Trade, 1949-2012
167
U.S. Primary Energy Imports by Source, 2012
168
Petroleum and Gas Imports
169
Petroleum and Gas Exports
170
U.S. Petroleum Production and Net Imports
171
U.S. Production and Net Import Shares of U.S. Petroleum and Other
Liquids Demand, 2012
172
U.S. Top Sources of Net Crude Oil and Petroleum Product Imports, 2012
173
Petroleum and Gas as a Percentage of the Total Trade Deficit
174
EU Directives developed specifically for the extractive industries
175
3. Directive on the protection of groundwater against pollution and
deterioration2006/118/EC
4. Council Directive on limit values and quality objectives for discharges
of certain dangerous substances included in List I of the Annex to
Directive 76/464/EEC (1986/280/EEC)
5. Directive on pollution caused by certain dangerous substances
discharged into the aquatic environment of the Community (Codified
version) 2006/11/EC
6. Directive on the quality of water intended for human consumption.
1998/83/EC
7. Directive on industrial emissions (integrated pollution prevention and
control) IPPC-Directive 2010/75/EU
8. Directive concerning integrated pollution prevention and control
(codified version) 2008/1/EC
9. Environmental Impact Assessment Directive EIA Directive
1985/337/EEC
176
Suggested readings
http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/Alberta
CompetitivenessReview2010.aspx.
177
Chazan, Guy, Gazprom rejects Kyiv plea, Financial Times, 14 February
2013.
Fowler, Tom U.S. Oil Notches Historic Gusher, The Wall Street Journal,
21 January 2013.
178
Healy, J.. For Farms in the West, Oil Wells Are Thirsty Rivals . The New
York Times, 5
September 2012.
Herdon, Andrew and Brian Swint, Shale glut becomes $2 diesel using
gas to liquid methods,
Levi, Michal, The case for natural gas exports, The New York Times,
15 August 2012.
McFarlane, Robert and George Olah, Let the Market Decide, Financial
Times, 4 March 2013.
Makan, Ajay, Statoil seeks clarity on role for gas in Europe, Financial
Times, 4 March 2013.
179
Oil Sands Economic Benefits: Fact Sheet, May 2012
http://www.oilsands.alberta.ca/FactSheets/Economic_FSht_May_2012_
Online.pdf
Olson, Bradley; Lee, Michael. Crude Export Ban No Match for Lightest
Shale Oil.
Bloomberg, 26 February 2013.
OECD-IEA Briefing to the NATO PA Economics and Security Committee,
27 February
2013.
Olearchyk, Roman and Neil Buckley, Ukraine deal losens Russian Grip,
Financial Times,
24 January 2013.
http://ec.europa.eu/dgs/jrc/downloads/jrc_report_2012_09_unconvention
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30 June 2011.
Szalai, Pawel, Gas in Central Europe: From Russia to Qatar and Back,
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United States Energy Information Administration. US crude oil production
tops 7 million
barrels per day, US Energy Information Administration, 28 February
2013.
United States Department of Energy . (2009). Modern Shale Gas
Development in the United
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Wayne, A. Fracking Moratorium Urged by U.S. Doctors Until Health
Studies Conducted,
Bloomberg, 9 January 2012.
Witter, Roxana J. A. (2012). Health Impacts of Natural Gas Development
. Denver:
University of Colorado School of Public Health.
Yergin, Daniel. Unconventional Oil and Gas Revolution in US. US
House Energy and
181