Why EPA's Shale-Gas Study Isn't Likely to End the "Fracking" Party
Just as a new technique used to unlock once-inaccessible natural gas supplies is helping sparking a production boom in the U.S., the EPA is launching an environmental study that could end the party. So why is the oil and gas industry so calm about the EPA announcement? Big Oil and Gas are convinced they've got history and time on their side.
The EPA study will determine whether hydraulic fracturing, or "fracking" -- a method used to access unconventional natural-gas reservoirs more than a mile beneath the earth's surface -- contaminates water supplies. The EPA will likely push to regulate hydraulic fracturing under the Safe Water Drinking Act. In the past, the industry has argued the EPA would make fracturing either illegal or so expensive it would ruin its commercial viability.
The oil and gas industry is right, it does have history and time on its side -- for now. Earlier studies of hydraulic fracturing, including a 2004 EPA investigation, haven't found evidence of contamination. And by the time the EPA wraps up the study, two years from now, shale natural gas production will be operating at full tilt.
Currently there are thousands of operating sites, and the industry wants hundreds of thousands of sites, Amy Mall, senior policy analyst of the National Resources Defense Council told the Financial Times recently.Still the implications of the EPA's findings -- even if doesn't happen for two more years -- will be huge, not just for the oil and gas industry here in the U.S., but for Europe as well. Europe's unconventional gas reserves may total 1,200 trillion cubic feet -- about five times the continent's proven gas reserves, according to Royal Dutch Shell (RDS). But Europeans tend to raise more environmental objections to shale gas production, making it difficult to find places to drill. The EPA study would only compound those environmental fears.
And then there's the financial impact on major oil companies like Exxon (XOM) that purchased independent gas producers with unconventional gas holdings. Exxon was worried enough about the prospect of EPA regulation that it included a fracking-related escape clause in its $41 billion acquisition of independent oil and gas producer XTO Energy (XTO). But the deal is expected to close in the second quarter of 2010, long before the EPA study is finished.
And this isn't the only investigation into hydraulic fracturing. House Democrats launched a probe last month into the chemicals used by hydraulic fracturing companies. And there are two pieces of legislation floating in the House and Senate that would require federal regulation of fracturing.
There are two compelling arguments -- recognized by Congress -- that could stave off federal regulation for a little while. Shale gas production could make the United States self-sufficient in natural gas by 2030. And lawmakers realize natural gas -- which emits less carbon dioxide than oil or coal -- is the country's best bet to curb U.S. greenhouse gas emissions until other alternatives become commercially viable. The oil and gas industry will have to apply even more lobbying pressure if it hopes to convince Congress that the benefits of hydraulic fracturing trumps any federal regulation.
Photo of natural gas flaring by Flickr user todbaker, CC 2.0 See additional BNET Energy coverage of hydraulic fracturing:
- Congress Probes "Fracking," a Natural-Gas Drilling Technique; Next Stop, Regulation
- Exxon, XTO Chiefs: Frack-Fluid Disclosure OK as Long as EPA is Not in Charge
- Chu on This: U.S. Energy Head Against Fracking Ban
- Full Disclosure: Schlumberger, Hydraulic Fracturing and the Public Access Debate
- One Big Fracking Problem for Oil and Gas Industry