Surveying the Shale Gas Revolution

shale-gas-7971-1The United States is in the midst of a transformation in its energy supplies that has been both dramatic and divisive. Over the past decade, advances in drilling technologies have enabled the commercial development of enormous reserves of natural gas located in deep underground shale formations. The ensuing “shale gas revolution” has led natural gas to partially supplant “King Coal” in power generation, contributed to lower U.S. carbon emissions, and generated millions of jobs in an otherwise sluggish economy. Yet shale gas has been a lightning rod for controversy, due to the potential environmental risks posed by widespread drilling and commercial development. Though these risks have been vulnerable to hyperbole, they should be a legitimate concern for both energy companies and the policymakers enacting new drilling regulations.

The shale breakthrough

Shale gas is no different in composition than conventional natural gas, but while the latter is found in concentrated reservoirs that enable it to freely flow to the surface when drilled, shale gas is trapped in much smaller pockets throughout the shale rock, preventing its extraction by conventional methods. Key to the development of shale gas has been hydraulic fracturing or “fracking,” a drilling technique that involves highly pressurized injections of water, sand, and chemical additives into shale rock layers some 3,000 to 8,000 feet underground. The fluids force open the rock, creating fissures for the natural gas within to flow into the well and upwards to the surface. Though fracking has been around since the 1940s, it achieved prominence within the energy industry only in the last fifteen years, as the development of new horizontal drilling techniques, three-dimensional geologic mapping, and an optimal mix of chemical additives for fracking fluid made large-scale shale gas extraction commercially viable.

That technological breakthrough coincided with a period of rising natural gas prices, spurring further investment in shale gas that had previously been too expensive to extract. Beginning in the early 2000s, vast new natural gas fields were developed from shale formations such as the Marcellus and the Utica in Pennsylvania and the Barnett, Haynesville, and Eagle Ford in Texas (map here).

The resulting changes to the American energy landscape have been rapid and extraordinary. Shale gas development reversed a thirty-year decline in U.S. natural gas reserves, with proven reserves of natural gas climbing by 60 percent from 2004 to 2010. Natural gas production in the U.S. reached all-time highs in 2012, and production from shale alone has more than doubled since 2010. Burgeoning supplies have caused natural gas prices, which reached record highs in 2008, to plunge to their lowest levels in over a decade last year. Although the price collapse has slowed drilling rates, production and investment continue in the major American shale plays, and the International Energy Agency predicts that the U.S. will overtake Russia as the world’s largest natural gas producer by 2017.

Economic driver and bridge fuel?

The sudden abundance of cheap natural gas is having a similar game-changing effect on the U.S. economy. A December 2011 report from PricewaterhouseCoopers pegs shale gas as the catalyst for a “renaissance in U.S. manufacturing,” predicting that its availability as a low-cost energy source could help generate 1 million manufacturing jobs by 2025. Indeed, signs of a gas-fueled industrial revival are already apparent. The need for drilling and pipeline components has generated growth in heavy manufacturing sectors such as the steel industry, which is reversing a decades-long trend of decline by investing in its historical manufacturing centers of Pennsylvania and Ohio, close to the booming Marcellus Shale. Another bright spot has been the petrochemicals industry, where natural gas is a crucial feedstock for the production of plastics, fertilizers, synthetic fibers, and paints. Attracted by the ready availability and low costs of domestic shale gas, chemicals firms have earmarked billions for new or expanded production facilities in the U.S. One company is even dismantling a methanol plant in Chile for reassembly in Louisiana.

Perhaps even more significant is the impact of shale gas on U.S. power generation. In the last decade, gas has made significant gains on coal as a leading electricity source, accounting for nearly 30 percent of electricity generated in 2012. Consistently low prices have made natural gas a competitive alternative, and strengthening air pollution regulations have made constructing new coal-fired power plants increasingly costly. Though utilities appear to be moving towards a balance of energy sources rather than a full replacement of coal with natural gas, the continued adoption of gas for power generation has had an important side-effect: it helped bring carbon dioxide emissions in 2012 to their lowest levels in 20 years, since burning natural gas releases approximately half as much CO2 as coal. For this reason, natural gas has often been touted as a “bridge fuel” to a less carbon-intensive economy.

Environmental risks

Despite these apparent economic and environmental benefits, the shale gas boom has encountered significant opposition. The rush of heavy trucks, drilling equipment, and thousands of workers into rural Pennsylvania, Texas, and elsewhere has disturbed neighboring communities and overwhelmed local infrastructure. But the most damaging charge leveled at shale gas – and prominently portrayed in film, twice – is the potential for fracking to contaminate local groundwater supplies. The fracking process involves injecting millions of gallons of water underground at a time, only to re-emerge through the well afterwards as “flowback” mixed with chemical additives from the fracturing fluid and naturally occurring underground elements. Environmental Protection Agency (EPA) briefings indicate that the flowback water can contain known carcinogens and radioactive materials, and while flowback is treated at specialized facilities, the treatment plants may be unable to remove all contaminants from the wastewater, further increasing the risk that the contaminated water may be discharged into nearby rivers and streams. Though the gas shales are typically separated from groundwater supplies by thousands of feet of rock, wastewater and methane leaks from poorly-constructed or abandoned wells remain a very real risk to underground water sources. The EPA, for its part, has yet to release a report that fracking is definitively linked to cases of water contamination in drilling areas.

Leaks of “fugitive” methane, which may also arise from the flaring of excess gas during the extraction process, may offset the advantage of natural gas over coal in greenhouse gas emissions. Despite the lower carbon intensity of burning natural gas, methane is a much more potent greenhouse gas than CO2, and Robert Howarth of Cornell University drew much attention to this fact in a 2011 paper where he argued that shale gas development could have a greater greenhouse gas footprint than coal over a 20-year timespan. Other scholars have since challenged Howarth’s findings, and Michael Levi of the Council on Foreign Relations argued in a recent paper that the long-term impact of methane on climate change may be overstated.

Regulating the revolution

Though its environmental impact remains contentious, shale gas development has become an unavoidable part of the American energy landscape. The extent of whatever impact it may have will be determined by how regulations surrounding shale development are crafted.

Those regulations, in turn, will be determined by how well the Obama administration balances environmental concerns against the shorter-term interests of the energy industry. The Bureau of Land Management is set to propose the first federal regulations governing hydraulic fracturing in March, but the release comes after the original proposed regulations were abruptly scrapped due to pressure from both industry and environmental groups. The federal-level regulations would impose new standards on drilling, well construction, and wastewater management and disposal. However, they may also require drillers to fully disclose the chemical additives used during the fracking process, a measure championed by environmental groups and bitterly opposed by energy companies, who argue that the mixtures constitute proprietary information.

Hydraulic fracturing is currently regulated at the state level, and although fracking chemical disclosure requirements exist in 14 states, a 2012 report from the National Resources Defense Council found that none of these state regulations constituted a comprehensive disclosure of chemicals, with existing requirements either weakly enforced or riddled with loopholes. While the coming federal rules will only cover gas drilling on federally-owned lands, their adoption could set an important regulatory precedent for state authorities to follow, particularly if these rules contain full chemical disclosures.

Much is at stake in this regulatory debate. The rapid development of shale gas has contributed significant benefits to the economy and emissions-reduction, yet the extraction methods that enabled these benefits could pose serious risks to human health and the environment. Mitigation of these risks will rely on enacting a standardized, comprehensive set of regulations governing extraction procedures, while including mandates to disclose fracking chemicals would do much to reassure a wary public. By taking these steps, Washington could properly account for the non-commercial costs of shale gas production while ensuring safe and responsible development of this promising new resource.