The production of shale gas through the technique of hydraulic fracturing, or fracking, is revolutionizing the energy industry in the United States. It is a subject that we have talked about several times but it is one of such profound potential that it could literally change the country’s economic future. A continued and expanded boom in cheap natural gas could do wonders in restoring America’s competition in terms of manufacturing by lowering energy costs. Increased use of liquified or compressed natural gas in transport and long-haul freight would decrease the cost of shipping and would make it cleaner. Excess production could be liquified and exported to both Asia and Europe decreasing the United States’ trade deficit. Some optimistic prognosticators predict that the shale gas revolution could add anywhere between .5 and 1% to America’s annual GDP (See: Analysis: Shale energy boom dangles prospect of leap in economic growth; and Why American Natural Gas Will Change the World).
The problem, however, is that fracking has gotten a lot of bad press and a significant body of opinion has formed against the practice around the world. This is due to several major concerns about the technique: groundwater contamination, methane leakage and increased seismic activity. The companies drilling for gas have argued that many of the spectacular examples of groundwater contamination and methane leakage are the result of shoddy work done on sealing the wells. This is a result of inexperience on the part of some of the drillers or carelessness that will diminish as the industry matures. Others, however, fear that the long-term effects of fracking are unknown and that the possible consequences are too great to proceed without more information.
The tide of opinion has already swung against fracking in Europe – a phenomenon discussed last week on this site – and the American public is being fed a steady stream of stories in major newspapers calling the technique into question. Because of this, the International Energy Agency (IEA) released a comprehensive report this week which it called “Golden Rules for the Golden Age of Gas” (See the report here). The report states that “The technologies and know-how exist for unconventional gas to be produced in a way that satisfactorily meets these challenges, but a continuous drive from governments and industry to improve performance is required if public confidence is to be maintained or earned.” The “Golden Rules” proposed by the IEA to earn this public confidence include: “Measure, disclose and engage,” “watch where you drill,” “isolate wells and prevent leaks,” “treat water responsibly,” “eliminate venting, minimize flaring and other emissions,” “be ready to think big,” and “ensure a consistently high level of environmental performance.”
These suggestions each carry with them a host of more specific proposals which the IEA believe would add roughly 7% to the cost of fracking. But the argument of the IEA economists is that by taking these precautions, the industry will avoid the banning or closing off of areas to fracking, as well as limiting the amount of costly regulation required to keep the process safe. In fact, the report suggests that if these rules are adhered to, growth in unconventional gas could triple and reach 1.6 trillion cubic meters a year by 2035 and along the way make the United States one of the largest gas producers in the world. Failure to follow these “Golden Rules” could result in more areas closing themselves off to unconventional approaches meaning significantly less growth.
These “Golden Rules” will not satisfy all of fracking’s critics, and rightfully so. There is still much about fracking’s long-term impact that is unknown. But by acting in a more socially and environmentally responsible manner, the gas industry will pay a short-term penalty for a potentially enormous long-term gain.