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Fracking impeded by regulatory framework – report

13th March 2012

New investor guide assesses risks and rewards of shale gas development

Shale pipeline
Fracking held back by regulatory barriers

The natural gas industry is technologically capable of tapping vast shale gas resources in the US, but it is unclear if all companies can successfully manage the complex array of environmental and social risks that could impede profitable extraction, says a new report by the Sustainable Investments Institute (Si2).

Discovering Shale Gas: an investor guide to hydraulic fracturing, found few technological challenges prevent industry mitigating the environmental impacts of shale gas development. For example, basic techniques to prevent pollution are similar to those already in place for conventional onshore natural gas development and the growth of recycling technologies and new ‘green’ fracturing fluid products are already on the market.

However, it is currently unclear if the industry currently has the will, short-term economic incentives or regulatory oversight to avoid environmental and social impacts that could lead to continued controversy and additional restrictions on drilling, according to the report.

For example, many communities with untapped shale reserves are unfamiliar with petrochemical development and have no regulatory framework in place to protect community interests. Thousands of shale gas wells may be drilled within a few years in some states but if contamination problems occur at only a small percentage, numerous communities could be negatively affected, says the report.

“Some areas, such as the New York City watershed, may be simply off-limits, while others require more stringent methodologies than currently mandated by law. Everything, from selection of drill pad sites to choice of chemicals to when trucks are scheduled, needs to be considered. That is a huge managerial challenge, so regulators, investors, community groups and environmentalists are correct to distinguish amongst the companies engaging in hydraulic fracturing so as to judge managerial quality,” he said Jon Lukomnik, IRRC institute executive director. 

Although technological hurdles are few and far between, companies need to address problems such as handling economies of scale, said the report. Fracking a horizontal shale well requires one to eight million gallons of water and thousands more gallons of chemicals than a conventional vertical gas well. Companies need to examine how to handle these volumes if the technology’s full potential is to be realised, it said.

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