The Golden Rules underline the importance of full transparency, measuring and monitoring of environmental impacts and engagement with local communities; careful choice of drilling sites and measures to prevent any leaks from wells into nearby aquifers; rigorous assessment and monitoring of water requirements and of waste water; measures to target zero venting and minimal flaring of gas; and improved project planning and regulatory control.
At their recent Camp David summit, G8 leaders welcomed and agreed to review this IEA work on potential best practices for natural gas development. “To build on the Golden Rules, we are establishing a high-level platform so that governments can share insights on the policy and regulatory action that can accompany an expansion in unconventional gas production, shale gas in particular,” said Maria van der Hoeven. “This platform will be open to IEA members and non-members alike”.
“If this new industry is to prosper, it needs to earn and maintain its social license to operate,” said IEA Chief Economist Fatih Birol, the report’s chief author. “This comes with a financial cost, but in our estimation the additional costs are likely to be limited.” Applying the Golden Rules could increase the cost of a typical shale-gas well by around 7%, but, for a larger development project with multiple wells, investment in measures to reduce environmental impacts may in many cases be offset by lower operating costs.
The report argues that there is a critical link between the way governments and industry respond to these social and environmental challenges and the prospects for unconventional gas production. Accordingly, the report sets out two possible future trajectories for unconventional gas:
In a Golden Rules Case, the application of these rules helps to underpin a brisk expansion of unconventional gas supply, which has far-reaching consequences:
- World production of unconventional gas, primarily shale gas, more than triples between 2010 and 2035 to 1.6 trillion cubic metres.
- The United States becomes a significant player in international gas markets, and China emerges as a major producer.
- New sources of supply help to keep prices down, stimulate investment and job creation in unconventional resource-rich countries, and generate faster growth in global gas demand, which rises by more than 50% between 2010 and 2035.
- The competitive position of gas in the global fuel mix deteriorates amidst lower availability and higher prices, and the share of gas in energy use barely increases.
- Energy-related CO2 emissions are higher by 1.3% compared with the Golden Rules Case but, in both cases, emissions are well above the trajectory required to reach the globally agreed goal of limiting the temperature rise to 2°C.
Natural Gas, by the Book
Reports from international agencies usually make for dull reading. “Golden Rules for a Golden Age of Gas,” from the Paris-based International Energy Agency, does not. It should be required reading for regulators and the industry — and for anyone who cares about energy, the environment and climate change.
Does A Golden Age of Gas Depend on Golden Rules for Gas?
The report spells out seven principles that IEA sees as prerequisites for securing the necessary concurrence from governments and publics. While several of them merely enunciate common sense, others will likely be controversial on one side or the other--if not in theory then in their implementation. IEA's description of these principles can be found in the report's executive summary. I would paraphrase them as:
1. Operate with transparency
2. Choose appropriate sites
3. Contain potential contaminants
4. Be vigilant with water!
5. Control emissions
6. Recognize scale
7. Regulate carefully
None of these is likely to startle my regular readers, since I've been writing about shale gas extraction and its potential economic, environmental and geopolitical consequences for several years. The aspect of these principles that got my attention during Friday's presentation concerned IEA's admonition to "Be ready to think big." Dr. Birol cited statistics indicating that there are currently around 100,000 unconventional wells in the US today--a figure that might include unconventional oil wells. Supplying the levels of shale gas forecasted by IEA and other agencies would require on the order of one million wells. That compares to a total US well population of roughly a half-million. Drilling on that scale requires that we get it right, because if we don't, even small consequences could compound. However, Dr. Birol also made it very clear that in the view of the IEA, the industry is entirely capable of getting it right.
The findings of this report--at least the high-level findings--have been widely embraced across the environmental and business spectrum. Among groups embracing the report are the American Petroleum Institute and the Investor Environmental Health Network, while EPA Assistant Administrator Gina McCarthy, who was also on Friday's panel, seemed to place her agency's regulatory approach to shale gas in the context of IEA's principles. The harshest criticism I've seen so far is that while it acknowledges the industry's work on best practices, it fails to recognize that much of this is already standard practice, at least in the US. Along those lines, API and the American Natural Gas Alliance (ANGA) are jointly issuing a new report on methane emissions from hydraulically fractured ("fracked") gas wells today.
IEA's report and the early reactions to it clearly illustrate that despite the many thousands of unconventional gas wells that have already been drilled, and the dramatic impact of shale gas on both natural prices and gas-dependent industries, we are still in the early days of a possible global energy revolution. The extent of that revolution hasn't yet been determined, and it will be shaped as much by the reactions of numerous stakeholders as by the investment plans of producers. Whether you see that as a good or bad thing, it's an indisputable feature of the world in which we now live. However, I don't think it's appropriate to view IEA's seven principles exclusively as a set of rules to be imposed on a reluctant industry; they're as much about getting the rest of society comfortable with an energy resource that could provide enormous economic and environmental benefits, globally, particularly with regard to greenhouse gas emissions. Although Dr. Birol emphasized that unleashing all this shale gas won't be sufficient to solve the climate problem, he also demonstrated that without it, our chances of reining in emissions look even worse, because the main trade-off globally is not gas vs. renewables, but gas vs. coal. Getting this right is crucial for many reasons, and the IEA's report looks like a helpful contribution to the dialogue that must take place.