Fracking, or hydraulic fracturing, is not a new technology; it has been carried out in the US for over 60 years. The combination of fracking with horizontal drilling, however, has made it possible to reach pockets of oil and gas trapped in shale layers a mile or more below the surface, which has led to its aggressive use in the US in the past decade.
There is an estimated 13.6 trillion m3 of technically recoverable shale gas available in the US, according to the US Energy Information Administration (EIA), which comes as no surprise to US lawyer Wayne D’Angelo at Kelly, Drye & Warren: ‘The US has always been the leader in the oil and gas industry in terms of technology development and implementation. And shale drilling is more suited to the US, compared with Europe, because of its lower population density and established infrastructure in many regions of the country.’ In addition, he explains, US citizens own the rights to oil and gas deposits below their property, which is not the case in many nations in Europe, Asia, Africa and South America.
The exploitation of shale gas and oil has brought tremendous benefits to the US. In 2010 alone, the industry supported 600,000 domestic jobs, according to IHS Global Insight. In December 2011, PricewaterhouseCoopers (PwC) predicted a fall in US gas costs of up to $11.6bn by 2025 as a result of the new resource. A study by the American Chemistry Council in March 2011 found that a 25% increase in ethane supply, resulting from cheaper natural gas, would generate more than 400,000 new jobs in the US chemical sector, along with more than $132bn in US economic output and $4.4bn in new annual tax revenues. By October 2012, PwC was reporting that investment in shale gas technology would increase ethylene production capacity by 33%. In fact, the cost of natural gas in the US is now about three times less than that in Europe, which is giving the US chemical and other manufacturing industries real competitive advantage.
But there is a limit. If the price of natural gas falls too low, it will not cover the actual production costs; there is already evidence this scenario is occurring. Investment in the Marcellus Shale, the largest US deposit, for example, has slowed significantly, partly due to the low prices and partly because foreign investors have already made their plays, according to Steve Haffner, a partner with PwC’s energy practice. Eventually, the market is expected to balance itself to a point where production is profitable.
Environmental concerns also plague the fracking industry. Current technology consumes huge quantities of water and produces large amounts of waste fluid. In addition, there have been reports of alleged drinking water pollution from the chemicals used in fracking fluids and methane gas released from underground, and tremors have also been associated with underground waste water disposal. While there is also much scientific evidence to refute these claims, the issue is an emotive one that cannot be easily dismissed. In response, the industry is taking these concerns seriously and is pursuing voluntary fracturing fluid disclosure in conjunction with the Ground Water Protection Council (GWPC).
Many companies are also working to develop products and processes that minimise the risks. Halliburton, a leading US oilfield services company, has developed a suite of technologies, including a fracture fluid (CleanStim), comprising materials sourced entirely from the food industry; a biocide system (CleanStream) that uses UV light with fewer chemicals; and a system (CleanWave) for treating waste water at the well site, so that it can be reused and recycled by the operator, significantly reducing the need for freshwater.
‘The CleanStream product is the most popular of these technologies owing to its wide range of applicability,’ notes Nick Gardiner, Halliburton’s strategic business manager for production enhancement. ‘Just about every well requires some type of bacteria control, and, when possible, our customers would rather not use a chemical biocide.’ Halliburton is also developing waterless fracturing methods, exploiting nitrogen and CO2, which are cheap and safe, adds Gardiner.
Global oilfield services firm Baker Hughes uses only chemicals that have been evaluated using a hazardous assessment process that is underpinned by the Globally Harmonized System for Classification and Labeling of Chemicals, as well as 22 worldwide regulatory lists. The company also offers fracking fluids that can be recycled or incorporate foams or lightweight proppants, resulting in 70–95% less water usage.
Canada’s Ridgeline Energy Services has developed water recycling technology, while GreenHunter Energy in Texas, US, is looking to use saltwater disposal wells for waste water management. GasFrac Energy Services, also of Canada, is using liquid propane, which is naturally occurring in shale formations, instead of water, as the main component to its fracking fluid. Other companies are investigating the use of liquid carbon dioxide and helium, which expand once warmed in the shale.
The great variety of geologies and hydrologies in the US, as well as increased development in many states that do not have robust extraction laws, has led to increased state regulation of fracking activities, according to D’Angelo. The US Environmental Protection Agency (EPA) has asserted its authority through the Safe Drinking Water Act (SDWA), the Clean Air Act (CAA), and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) to regulate ground water, air emissions, and spill and contamination issues, respectively.
‘Having failed to prevent drilling in the US, environmentalists are now focused on making fracking unprofitable through increased regulation and prevention of necessary infrastructure development, such as pipelines and liquid natural gas (LNG) export facilities,’ D’Angelo observes. ‘Further, the regulatory impact could be huge if the hazardous waste exemption for oil and gas under the Resource Conservation and Recovery Act (RCRA) were removed, or the EPA aggregated the emissions from oil and gas wells so that they meet the minimum quantities covered by the Emergency Planning and Community Right-to-Know Act (EPCRA),’ he adds.
In the meantime, several companies are planning to build offshore export terminals to ship LNG abroad and take advantage of the price differential. In addition, the majority of newly planned electrical generating capacity is based on natural gas.
Most activity is located in Ohio, Pennsylvania, Texas, Wyoming and Colorado. However, some states, including New York and New Jersey, have placed moratoria on fracturing, while others, such as Vermont, have banned the practice.
A global perspective
Large deposits of shale gas and oil have also been found in other parts of the world, but while some countries are eager to reap the benefits from a domestic energy supply, they must first overcome several hurdles, including lack of technology and infrastructure. Others are looking for more evidence on the environmental impacts of fracking and for now have elected to ban or place moratoria on the activity.
Intensive fracking is taking place in western Canada and there are plans to build LNG facilities on the coast, while Quebec has placed a moratorium on the activity until at least late 2013, subject to an environmental review. Mexico has the world’s fourth-largest shale gas deposits but, according to Mexican oil minister Jordy Herrera, will require an investment of $10bn/year for the next 10 years if the country is to benefit from it. There are also large shale deposits in Argentina, but little activity because of uncertainty about the country’s regulatory environment, according to PwC’s Haffner.
There has been a wide-ranging response by European countries. France, Bulgaria and Romania have banned fracking, while the Czech Republic and the UK implemented moratoria. ‘Europe is faced with environmental challenges like the US. There is a cloud hovering over the industry because of the large uncertainty with respect to future regulations and also the unknown taxation aspects,’ says Haffner. In September 2012, the EU Commission’s energy and environment committees passed separate non-binding resolutions stating that member states should have robust rules on all shale gas activities and be ‘cautious’ pending further analysis of whether EU level regulation is adequate.
The moratorium in the UK has now been lifted, however, and the government is considering ‘generous’ tax breaks for shale gas exploration to encourage investment in the industry. Data from the exploration firm Cuadrilla Resources in Staffordshire, UK, suggest that shale gas could meet nearly 20% of the country’s current annual gas demand by 2035.
Meanwhile, Poland, Lithuania and Ukraine are eager to tap into their shale deposits in order to establish a domestic supply of natural gas and gain independence from Russia’s Gazprom, but will need to invest in the necessary infrastructure and technology. According to Poland’s finance minister, Mikolaj Budzanowski, the government will have committed €15.5bn to shale gas exploration by 2020. In Russia, meanwhile, Gazprom dropped plans to develop a new Arctic gas field, and its profits have fallen nearly a quarter. President Putin has recently acknowledged that cheap shale gas is affecting the market, and that the country needs a new energy strategy.
Demand for energy is greatest in Asia, and this need is driving development of shale gas in Australia. The first commercial shale gas well was launched in October 2012 in Cooper Basin in Australia, which has 11 trillion m3 of technically recoverable shale gas resources, according to the EIA. An LNG export facility intended to serve the Asian market is also being built in Gladstone Harbour, Queensland. However, at least one province – Victoria – has banned the practice. Also in October 2012, shale oil was extracted for the first time in Japan, which is looking for energy sources to replace its reduced nuclear power output. The reserves are small, but provide an opportunity for the country to develop its own technology.
Asian and Indian companies have gained access to the technology through investment in US shale projects. ‘Initial investments in the Marcellus Shale were largely driven by foreign companies looking to learn about the technology and process, as well as to tap into new energy supplies,’ Haffner explains. ‘Natural gas pricing has historically been local rather than global due to the difficulty in transporting it. That is changing with the exporting of liquefied natural gas (LNG), but pricing still remains fairly localised. So it is not surprising that other countries are eager to gain fracturing technology for themselves.’ India, for example, will be introducing a less intrusive policy regime to expedite domestic oil and gas exploration, according to petroleum and natural gas minister Jaipal Reddy.
China, which has the largest deposits of technologically recoverable shale gas in the world, according to the EIA, hopes to produce 6.5bn m3/year of shale gas by 2015, and 60–100bn m3 by 2020. The challenge is to overcome the higher costs of drilling in remote regions where water is scarce and infrastructure is lacking. The challenges to fracking are also evident in South Africa. Even though the country has the world’s fifth largest natural gas deposits, and the government recently lifted a fracking moratorium, developers face water shortages and growing opposition from environmentalists. In addition, there is little incentive for farmers to allow drilling on their land, because they cannot benefit financially.
Despite the challenges, hydraulic fracturing is expected to grow as an extraction method worldwide. With demand for natural gas predicted by the EIA to increase by 50% in the next 20 years, largely in India and China, access to such previously untapped resources will be necessary. Fortunately, points out Halliburton’s Gardiner, the majority of chemical solutions and fracturing equipment technologies developed for US application can transfer to other regions of the world.
In addition, there are more advances to be made, according to Baker Hughes’ business development manager, Satya Gupta, who concludes: ‘We believe that, even with multistage horizontal well fracturing, as an industry we are only contacting about 20% of the available resource in shale deposits. Future technology developments will focus on increasing this resource utilisation and efficiency, as well as the fracturing of deeper shale formations.’
Fracking 101
In the fracking process, a hole is bored thousands of feet downward and then horizontally through the shale. Millions of litres of fluid, typically water mixed with sand and various chemicals – in the ratio of ~90%: 9.5%: 0.5% – are injected through the bore hole under high pressure to fracture the rock surrounding an oil or gas well; the sand, or other fracking ‘proppants’, penetrates the rock and holds open the fracture, releasing gas and oil once the water is removed. The composition of the fracking fluid varies depending on the characteristics of the geological formation and the properties of the oil/gas in the deposit, and may include such chemicals as biocides, viscosity aids, pH adjusters/buffering agents, crosslinkers, surfactants, gelling agents, corrosion inhibitors, and scale inhibitors.
Cynthia Challener is a freelance science writer based in Calais, Vermont, US.
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