Krzysztof Jerzy Gruszczyński
Hydraulic fracturing in Poland – unresolved issues
Warsaw 2014
1
Foreword
Shale gas represents in both the United States and European Union an important
direction in hydrocarbon exploration and production. Success in shale extraction and
production requires a basic understanding of the complex nature of heterogeneous reservoirs
as well as examining the key issues surrounding shale gas production in selected states, such
as environmental concerns and market implications for the EU.
The publication explores the existing regulatory and environmental frameworks for
shale gas, especially those in the EU, as well as frameworks being developed in the United
States with the objective of exploring the substantive law of shale gas development.
This monograph is the result of many months of researching
by author very
interesting and controversial topic of shale gas extraction and production supported by the
analysis of the case law of American and British courts in subject matter, providing a practical
and timely overview of the shale gas industry. Complex environmental, social and technical
issues must be navigated by state agencies for the development of safe and sustainable
hydraulic fracturing practices to unlock the full potential of this unconventional resource.
The main goal of the monograph is to provide readers with basic data related to the
operation of the development and production of unconventional sources of energy on a global
scale, particularly in Poland, EU and the United States. The content was especially designed
to simultaneously blend general education and business analysis with technical data that
familiarize readers with shale gas industry and processes. Chapters cover key issues such as
the regulation and litigation of hydraulic fracturing, including water use and disposal, natural
gas pricing trends and operational issues, the problems of further development of shale gas
strategy in EU member states.
The study, which examines the issues around hydraulic fracturing in a practical and
user-friendly manner is designed for students of law, economics, international relations,
journalism and political science, as well as for general audience people interested in issues of
the contemporary shale boom. This paper, intended not only for students, but also for general
audience seeking to gain a fundamental understanding of emerging issues in shale gas boom
and introduces the readers to the fundamentals of shale gas and seeks the answer how to
determine which reservoirs from economical point of view are viable.
2
The readers are given an introductory data helpful in further analyzing, comparing,
and contrasting worldwide shale plays and will be able to identify emerging areas in the EU,
major plays, and to properly understand the technologies that are implemented, associated
with many risks involved which can threaten the environment. During the so called "fracking"
process, millions of gallons of water, sand, and chemicals are pumped under high pressure
into the well to break apart the rock, release the gas, and force it out of the rock and into the
well to the surface where it‘s captured. But this procedure may be associated with air, water
and soil pollution, which can result in cracking litigation, which frequently occur in the
United Kingdom and United States. EU member states can only carefully analyze the content
of judicial decision and may draw the right conclusions
On the polish publishing market, there is negligible compared with Western countries
number of publications on this difficult issue of shale gas, and the author hope that presented
publication will help the readers expand their knowledge in this field. In this work were used
primarily materials from the U.S., EU, English, Polish and German sources covering the
period 2000 - 2014. Therefore the publication provides different slants on a wide range of
subjects, offers a glimpse of the complex commercial, environmental and legal implications
of shale gas developments and aims to facilitate the study of the subject, and inform the
readers of many of the potential issues, conflicts, and processes involved in the development
of unconventional shale oil and gas resources.
3
Table of contents
Acronyms
Summary
Introduction
I Selected problems related to shale gas extraction and production
Environmental concerns
Liquefied Natural Gas LNG
II Assessment of shale gas resources worldwide
Assessment of shale gas resources and legislation in China
Assessment of shale gas resources in the United States
Assessment of shale gas resources in the European Union
Assessment of shale gas resources and legislation in Federation of Russia
Assessment of shale gas resources and legislation in Ukraine
III Analysis of the key regulatory frameworks for U.S. shale gas development including focused
discussion on key shale producing states such as California and Pennsylvania and other
states.
Regulation of shale gas on state level
Regulation of shale gas in state of California
IV Fracturing litigation in the United States and United Kingdom
Fracturing litigation in the United States
Fracturing litigation in the United Kingdom
V Shale gas cost of production
VI Assessment of shale gas resources and legislation in the European Union
Assessment of shale gas resources and legislation in Denmark
Assessment of shale gas resources and legislation in France
Assessment of shale gas resources and legislation in Germany
Assessment of shale gas resources and legislation in Lithuania
VII Assessment of Poland shale gas resources and its future
VIII EU regulatory framework for shale gas exploitation and production
Conclusions
Annexes
Shale Gas mini dictionary
Selected European legal documents
Suggested readings
4
ACRONYMS
BAT Best Applicable Technique
CBD Convention on Biological Diversity
ECODIT Author (company): preparer of Ukraine FAA119 Biodiversity Analysis
EEE Expert Ecological Examination
EIA Environmental Impact Assessment
EPA Environmental Protection Agency
EC European Commission
EP European Parliament
EU European Union
GSGI Global Shale Gas Initiative (US Department of State, now UGTEP
HARC Houston Advanced Research Center
IOCs International Oil Companies
IOCs International Oil Companies
LEA Law on Environmental Audits
LNG Cryogenically liquefied natural gas
MAC Maximum Allowable Concentration
MCM Thousand cubic meters of gas
mmbtu Millions of British Thermal Units
MOF the Ministry of Finance of China
NGO Non-governmental Organization
NORM Naturally occurring radioactive materials
OVNS Environmental assessment
PA Protected Area
PEA Programmatic Environmental Assessment
PSA Production Sharing Agreement, sometimes referred to as a PSC (production
sharing contract)
REACH Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals.
ROP Rate of production
SDWA Safe Drinking Water Act
SEE State Ecological Expertise
SGIFU State Geological Information Find
SI International System of Units Tonne Metric ton (2204 lb.)
UGTEP Unconventional Gas Technical Engagement Program (new name for GSGI)
UIC Underground Injection Control
U.S. United States
USAID United States Agency for International Development
USDW Underground Source of Drinking Water
5
Hydraulic fracturing in Poland – unresolved issues
Summary
The economic significance of shale gas in Poland cannot be underestimated. In 2010
Poland was considered among the most promising of European countries for replicating the
American shale gas boom. A study undertaken in 2011 by the United States Energy
Information Administration placed Poland first among European countries in terms of
technically recoverable reserves. Later reports downgraded the estimate of recoverable gas.
In the EU member states were increasing reliance on imports from outside the EU, especially
from Federation of Russia. For instance France currently imports gas from Algeria, the
Netherlands, Russia and Norway, the UK from Norway and the Netherlands and LNG from
Qatar. In addition, geopolitical factors may make shale gas in the EU more expensive to
produce, and there are also infrastructure challenges. Other challenges include fracking
litigation both in the United States and UK with the potential aftermath for European courts.
In the United States, landowners often stand to benefit financially from drilling on their
property—if they own the underground resources, they may receive a bonus or royalties upon
leasing to an oil company in order to develop the resources. On the other hand, among the
many obstacles in further development of shale gas might be the possible impacts of hydraulic
fracturing on the environment and on human health.
Key words
shale gas extractions and regulation, European Commission, gas prices, federal regulation in
the USA, environmental, risk, hydraulic fracking litigation in the USA & UK.
6
―America and Europe have done extraordinary things together before. And I believe we can forge an
economic alliance as strong as our diplomatic and security alliances—which, of course, have been the most
powerful in history. And, by doing that, we can also strengthen the multilateral trading system. So this
Transatlantic Trade and Investment Partnership is going to be a priority of mine and my administration.‖
U.S. President Barack Obama, on the Transatlantic Trade and Investment Partnership, Lough Erne,
Northern Ireland, June 17, 2013
This paper provides an analysis of the legal, policy, and environmental challenges
associated with the development of shale gas in the EU and the USA in the aftermath of
Crimean crisis, and describes the prospect of exploration of hydrocarbons in Poland.1 At the
present European shale gas, including Poland is expected to be at least twice as expensive to
extract as in the US due to deeper geological layers, tougher regulations and a less
competitive and more oligopolistic oil and gas service sector.
The paper also explains the importance of shale extraction for public environmental
rights and environmental protection and assesses the energy sector and economic impacts of
the shale gas in the EU along with the potential for the member states to successfully replicate
the US expertise. In addition, the paper discusses American and European laws, fracking
litigation in both USA and UK, along with regulations that affect EU member states, which
have developed a different legal environment concerning shale gas. We tried to assemble
samples of legislative, jurisprudential and institutional developments in a well-chosen array of
legislative frameworks of bothe the U.S. and the EU and EU Member States related to shale
gas extraction and production
It must be stated that the present European regulation concerning hydraulic fracturing,
which is the core element in shale gas and tight oil extraction, has a number of problems
because gaps the threshold for environmental impact assessments to be carried out on
hydraulic fracturing activities in hydrocarbon extraction is set far above any potential
industrial activities of this kind in the EU.
In the final remarks it is observed that the future of shale gas in Europe will depend
on its production costs, and thus it remains uncertain and surely more seismic testing, well
sinks and further economic analysis are required to forecast whether Europe's shale plays will
be as productive as those in the US.
1
Unfortunately we cannot present the results of planned very interesting and important Unconventional Gas & Oil Summit, which will take
place on 2 - 4 June 2014, London, UK. This event is one of the leading international conferences exploring the latest trends in
unconventional gas and oil.
7
Introduction
It will be helpful to define the subject matter of our investigation. Conventional gas
reservoirs are created when natural gas migrates toward the Earth's surface from an organicrich source formation into highly permeable reservoir rock, where it is trapped in sedimentary
rocks formed by the solidification of mud deposits in ancient tidal flats and deep water basins
and belongs to the category of unconventional natural gases, which also includes coal-bed
methane, gas from tight sandstones („tight gas‟) and methane hydrates.2 Gas-producing shales
are predominantly composed of consolidated clay-sized particles with a high organic content.
High subsurface pressures and temperatures convert the organic matter to oil and gas, which
may migrate to conventional petroleum traps and also remains within the shale. However, the
clay content severely limits gas and fluid flow within the shales Shale gas is considered an
unconventional source as the gas is contained in difficult-to-produce reservoirs, which require
special completion, stimulation and/or production techniques to achieve economic
production.3 We shale noted that shale formations and other tight plays can also produce
crude oil, lease condensates, and a variety of liquids processed from wet natural gas.
Recent technological advancements have spurred a rapid, commercial-scale extraction
of unconventional fossil fuels in the United States (hereinafter called as U.S.) and there is
no commercial-scale exploitation in the European Union (hereinafter called as EU). The most
important techniques deployed in unleashing potential of shale gas and coal bed methane are
horizontal drilling and hydraulic fracturing (fracking) –, which have been used in combination
for just a decade, and should not be confused with well stimulation techniques used for the
extraction of conventional fossil fuels due to the combination of these two techniques and the
scale of intervention involved.4 Hydraulic fracturing is a common practice in oil and natural
gas development—90 percent of oil and gas wells in the U.S. undergo fracturing to stimulate
production. It has been used since the 1940s in more than 1 million wells in the United States.
In hydraulic fracturing, a fluid comprised of more than 99 percent water and sand and less
2
Natural gas seeping from rocks was first reported in 1669 in Ontario County, New York, by the French explorer, Mr de La Salle , and a
French missionary, Mr de Galinee. Shallow shale gas formations were also first exploited in New York, with the first commercial natural gas
well drilled in Fredonia in 1821 by William Hart, a local gunsmith. By the 1880s, natural gas was widely used in the State of New York for
lighting and heat and to supply energy for the drilling of oil wells.
3
See more at http://www.energy.alberta.ca/NaturalGas/944.asp
4
Any type of fossil fuel and minerals extraction involves potential risks for human health and the environment; whereas it is essential that
the precautionary principles are applied to any future decisions about the development of fossil fuel resources in Europe, taking into account
potential impacts from all stages of the exploration and exploitation process
8
than 1 percent chemical additives is pumped down the well at a high pressure for a short
period of time, usually hours. This creates a network of cracks in the rock that allows trapped
natural gas to flow to the well. The sand helps keep the fractures open and gas flowing5
Shale gas has become potentially important new sources of supply in Europe6 and
substitution of coal and oil with gas in the short to medium term could help to reduce GHG
emissions depending on their Lifecycle, but it must be stressed that by 2035, shale gas is
estimated to be meeting no more than between 3-10% of EU gas demand.7 Europe‘s energy
service industry and rig counts are much smaller; its geology – and land access – are less
accommodating; public acceptance is less of a given; urban density is far higher; and
environmental regulations are more stringent
5
See more at http://www.chevron.com/deliveringenergy/naturalgas/shalegas/howweoperate/
In 2012, the EU imported 34% of its natural gas from Russia, according to the Congressional Research Service. Germany, the largest gas
consumer, obtained 40% of its gas from Russia, while other nations, such as Finland, Sweden, and the Baltic states relied on Russia for 100%
of its gas imports
7
Even under the most optimistic scenarios for shale gas exploitation, the EU would remain a significant importer of gas and oil and EU
prices would continue to depend on high international prices http://www.euractiv.com/specialreport-industrial-renaiss/Europe-abandonsshale-gas-revolution-news-533546
6
9
I Selected problems related to shale gas extraction and production
Short explanation that the primary method of natural gas extraction from
unconventional sources involves the combination of two production technologies—hydraulic
fracturing and horizontal drilling.
Figure 1. Extraction of shale gas
Source : http://www.bbc.co.uk/news/uk-wales-14352989
Although these two technologies have been around for decades, the combination of the
two, coupled with technological advances in equipment and cost reductions, was the key to
unlocking the vast reserves of shale gas in North America. Hydraulic fracturing involves the
high-pressure injection of fluids into a natural gas formation to create fissures in the rock.
This process allows the natural gas to move freely from the rock pores so it can be pumped to
the surface. Horizontal drilling has been instrumental in increasing production volumes from
all forms of natural gas and oil wells and is used extensively in shale gas production.
Horizontal drilling involves drilling a vertical well to the desired depth and then drilling
laterally to access a larger portion of the reservoir. Once the targeted area is reached,
hydraulic fracturing is then used to help produce the gas reservoir.
10
Environmental concerns
During shale gas development the potential impacts tha may have on the environment include
1. Contamination of underground sources of drinking water and surface waters resulting
from spills, faulty well construction, or by other means;
2. Stress on surface water and ground water supplies from the withdrawal of large
volumes of water used in drilling and hydraulic fracturing (discussed in Section B
below);
3. Adverse impacts from discharges into surface waters or from disposal into
underground injection wells; and
4. Air pollution resulting from the release of volatile organic compounds, hazardous air
pollutants, and greenhouse gases8
The new regulation Fracturing Responsibility and Awareness of Chemicals Act to
define hydraulic fracturing as a federally regulated activity under the Safe Drinking Water Act
was introduced to both houses of the 111th United States Congress on June 9, 2009. The
FRAC Act would amend the SDWA definition of ―underground injection‖ to expressly
include ―the underground injection of fluids or propping agents‖ used for hydraulic fracturing
in oil and gas operation and production activities. The bill also would require the companies
to disclose what chemicals and other substances they add to the fluids to help crack open the
rock and keep the fissures open. Government agencies would be required to verify the
information submitted and release it to the public, with the exception of proprietary chemical
formulas.9 The United States launched the GSGI in April 2010 as part of an effort to promote
global energy security and climate security around the world and aims on sharing information
about the ―umbrella of laws and regulations‖ that exist in the United States.10
Hydraulic fracturing is a water intensive technology that raised many issues related to
the environmental protection of U.S. water supplies.
See generally ENVTL. PROT. AGENCY, NATIURAL GAS EXTRACTION – HYDRAULIC FRACTURING,
www.epa.gov/hydraulicfracturing/
9
This bill was assigned to a congressional committee on June 11, 2013, which will consider it before possibly sending it on to the House or
Senate as a whole.
10
David L. Goldwyn, Special Envoy for Int‘l Energy Affairs, U.S. Dep‘t of State, Briefing on the Global Shale Gas Initiative Conference
(Aug. 24, 2010), http://www.state.gov/s/ciea/rmk/146249.htm; see also David L. Goldwyn, Global Shale Gas Initiative: Balancing Energy,
Security, and Environmental Concerns, DIPNOTE (Sept. 3, 2010), http://blogs.state.gov/index.php/site
8
11
Figure 2. Overview of hydraulic fracturing
Source: http://www.basinelectric.com/Gasification/CO2/
The amount of water required to frack a well will vary from well to well. Factors
influencing the total volume of water used to frack a well include the depth, length and
number of horizontal segments fracked as well as the geological characteristics of the shale
play (depth, thickness, total porosity, maturity). in the US, an average of five million gallons
of water is used per well (approximately 18,927 m3), with the Haynesville and the Marcellus
Shale being the most water intensive (an average of 5.6 million gallons per well) and the
Bakken shale being the least water intensive (two million gallons per well).
12
Figure 3. American shale gas basins
Source: Business Insider
Given the sizeable water requirements of shale gas operations, a key challenge for
companies engaged in shale gas exploration and production is to secure a sufficient volume of
water (preferably fresh water, as brackish water is more likely to damage the equipment,
require a higher concentration of proppants and result in formation damage) for fracking and
drilling. Shale gas development is conducted in proximity to valuable surface water and
ground water and itself requires significant amounts of water. Companies have proven to be
innovative in their use, reuse and disposal of water. Still, the potential for drinking water
contamination is at the forefront of public concerns. Contamination has occurred primarily
through methane migration, poor wastewater management and chemical spills. Yet practices
and processes to significantly reduce these risks are widely known and generally practiced in
the industry. Poor implementation of these practices and processes generally has been the
reason for contamination. Also, public apprehension over chemical additives to fracturing
fluids lies at the heart of the contamination issue. Using fracturing fluid that is void of
hazardous or toxic chemicals and fully disclosing all chemical additives could address much
of this concern. Some companies have been taking steps in this direction, although others
maintain current fracking fluid compositions are more efficient, less expensive and do not
13
pose a danger to the environment given concentration levels. Most companies are now
voluntarily posting data on some chemicals, although more chemicals could be disclosed.
State regulations increasingly are requiring public disclosure of chemicals.
Figure 4. Slickwater is mostly water, with a relatively consistent 0.5 to 2.0 percent comprised of additives.
Source: http://fracfocus.org/
Fracking involves the injection of chemicals and water under very high pressure to
fracture shale rock formations deep underground and so release the gas and oil they contain,
but there have been concerns the process can pollute water supplies and the soil. It must be
noted that during hydrofracking, corrosive salts, potentially carcinogenic chemicals and even
radioactive particles that exist in rock formations are mixed with already polluted water as it
is injected underground 915-2440 meters. Almost 25% of the water is ultimately pushed back
to the surface along with these chemicals. Benzene, radium, glycol ethers, petroleum
distillates and methane are some of the many harmful substances that have been identified in
hydrofracking water.11
11
Haluszczak, Lara A. R. (2013). Geochemical evaluation of flowback brine from Marcellus gas wells in Pennsylvania, USA. University
Park, PA: Pennsylvania State University .
14
Figure 5. Worlwide methane warning
Source, Modern Shale Gas Development in the United States: A Primer, U.S. Department of Energy
Shale reservoirs often have poor natural permeability for the transmission of oil or gas
to the well, and these reservoirs therefore require a technology that will increase their
permeability through some form of stimulation.
The process of hydraulic fracturing
(fracking) uses mainly water at very high pressure to create cracks or fractures in an
underground formation. This allows additional pathways for the flow of oil or gas to the
well. Small particles called proppants (typically silica sand) are mixed with the fracking
water and are carried along with the water into the newly created fractures. When the highpressure water is withdrawn, the proppants remain to prop open the fractures. In addition to
copious amounts of water, various chemicals are usually added to the hydraulic fracturing
water. The addition of friction reducers allows fracturing fluids and proppants to be pumped
to the target zone at a higher rate and reduced pressure than if water alone were used. Other
additives include biocides to prevent microorganism growth and to reduce biofouling of the
fractures, oxygen scavengers and other stabilizers to prevent corrosion of metal pipes, and
acids that are used to remove drilling mud damage within the near-wellbore area
Despite of all scientific expertise, and although much of the fracking technology used
to extract the gas from shale rock is well established, there are still a large number of
unknowns surrounding fracking, including the potential effects on health. early findings
suggest this form of extraction might increase health risks compared to conventional oil and
gas wells. When considering the viability of fracking, it will be important for health impact
assessments to include the long term implications of waste disposal, fugitive methane
emissions escaping from the ground or the well, and other implications for human health – not
15
just analyses of the environmental and public health risks during active development.12 With a
technically challenging and global industry it's vitally important that data and expertise is
readily shared. Fugitive Methane emissions from hydraulic fracturing processes can have a
huge impact on the greenhouse gas balance. Existing assessments give a range of 18 to 23 g
CO2- equivalent per MJ from the development and production of unconventional natural gas.
The emissions due to methane intrusion of aquifers are not yet assessed. However, project
specific emissions might vary up to a factor of ten, depending on the methane production of
the well. Depending on several factors, greenhouse gas emissions of shale gas relative to its
energy content are as low as those of conventional gas transported over long distances or as
high as those of hard coal over the entire life cycle from extraction to combustion.
Especially natural gas workers who are employed in a drilling process known as
fracking may be at risk of developing silicosis, lung cancer, or other illnesses. Individuals
who live near fracking sites may also be at risk due to the hazardous dust that is created at
these drilling sites as a result of silica sand that can become airborne. As the silica sand that is
used in the fracking process is passed from machine to machine, it can become airborne,
increasing the risk that it may be inhaled by workers. Inhaling airborne silica sand can cause
silicosis, a respiratory disease which causes scarring due to the presence of silica particles in
the lungs. Symptoms of silicosis include shortness of breath, fatigue, loss of appetite, chest
pain, coughing, and respiratory failure, which may eventually lead to death. Other diseases
that have been linked to silica exposure include lung cancer, bronchitis, chronic obstructive
pulmonary disorder (COPD), tuberculosis, scleroderma, and renal disease. Although the
health hazards of inhaling silica sand are well-known, the Occupational Safety and Health
Administration (OSHA) and the National Institute for Occupational Safety and Health
(NIOSH) say that fracking workers are frequently not provided with respiratory equipment
and other safety gear that is strong enough to protect them from the health hazards of
breathing in silica. Because of the high levels of silica dust to which they are exposed on the
job, some fracking workers have been diagnosed with silicosis in as little as five years after
being exposed—significantly faster than the 20 years it usually takes before symptoms appear
Workers or other individuals who have been exposed to silica dust created during the fracking
process may be eligible to file a lawsuit and seek compensation for their injuries. Fracking
lawsuits that have already been filed allege that workers have not been provided with
adequate safety equipment to protect them from the health effects of silica sand exposure in
12
The USA has one of the best environmental regulations like the US Clean Water Act and the Resource, Conservation and Recovery Act
16
the workplace. 13 Making a full assessment of potential risks to health has been difficult in the
US because drilling operators are not required to disclose which chemicals are used, whereas
the UK Government has accepted the recommendations of the Royal Society and Royal
Academy of Engineering Working Group on shale gas extraction by requiring companies to
disclosure the chemicals they use.
There are several unresolved issues related to the shale gas boom, where one is
especially urgent drilling rigs and fracture stimulation equipment availability is limited.
Unconventional gas requires a high density of wells per land area, and as a result is produced
economically when an area has a sufficient quantity of land rigs and labor. As of 2011, the
state of Texas had more land rigs than all of Western Europe. Another problems include the
fact that drilling, production, and service costs are higher in Europe. In addition policy and
regulatory uncertainty associated with dense onshore drilling., and approval at the government
level can be challenging when the high density of wells per land area is an issue, which would
be the case in Europe. Another concerns raise the problem of landowner incentives – property
rights limit access. The US has a system for leasing land from individual owners, simplifying
land-access rights in the US. Lately access to midstream infrastructure is difficult. The US has
had an open-access pipeline system with traded markets that are highly liquid. Europe has had
a system of utility oligopolies, which may complicate the terms of marketing potential gas
deposits.
There are also other factors affecting the profitability of the shale gas activities in
Europe including Poland. The initial well costs will be very high (400% of average US cost)
due to the lack of availability o the drilling services in Poland. However, over the time,
drillings will become more intensive in Poland. The economy of scale and competitiveness of
th petroleum services would reduce the unit well costs significantly (down to 150% of
average US cost). Additional capital expenditures will need to be incurred during the
development and production period (e.g. surface facilities, separators, dehydrators, other
equipment). Operating costs were assumed at $1 per Mcf equivalent ($35,3 per Mm3). 14
13
14
See more at: http://www.hop-law.com/fracking-and-silicosis/#sthash.lDoXH3oU.dpuf
Shale Gas Taxation in Poland Report by an independent expert Dr Pedro van Meurs ―Suggestions for shale gas terms in Poland‖ June 2012
17
Liquefied Natural Gas LNG
Shale-derived natural gas can be exported from the States to Europe by means of
LNG tanker and this is may attract high levels of investment. Gas is typically shipped via
pipeline, but is impractical for reaching markets in Europe. LNG terminals super-chill gas to
its liquid form and load it under extreme pressure into specially designed tankers for shipment
overseas. Once at its destination, LNG must be re-gasified before it can be fed into pipelines
for local distribution.
Figure 6. LNG terminals in Europe
Source: Energy Tribune
In December 2013 the U.S. Department of Energy (hereinafter called as DEO)
approved EOS LNG LLC‘s and Barca LNG LLC‘s applications to export LNG from a
proposed floating liquefaction unit and storage tanker at the Port of Brownsville, Texas to
nations with a Free Trade Agreement (FTA) with the US. 15 EPA is also seeking lifecycle
environmental reviews of the currently pending LNG export proposals. In response to
proposals for LNG export terminals in Maryland and Oregon, EPA Regions III and X,
respectively, have sent letters to Federal Energy Regulatory Commission (―FERC‖) urging
review of the potential cumulative impacts of implementation of all of the pending export
proposals, as well as ―the extent to which implementation of the proposed project, combined
15
http://www.lnglawblog.com/2013/12/page/6/
18
with implementation of other similar facilities nationally, could increase the demand for
domestic natural gas extraction.‖
EPA does not have authority to require FERC to consider certain impacts as part of its
NEPA process—these letters merely represent the Agency‘s view on the appropriate scope of
an EIS for the proposed terminals. EPA‘s request for an expanded environmental review of
these projects mirrors previous comments submitted by the Sierra Club in connection with the
NEPA process for the Sabine Pass LNG export terminal in Louisiana.
Annual European LNG re-gasification capacity exceeds 185 bcm annually, and further
24 bcm per year is under construction, with a further 244 bcm/year proposed. This far exceeds
LNG imports of just a few years back, at nearly 70 bcm of imports in 2009.16 This does not
just mark new competition for Gazprom in volume terms. LNG availability, both in receiving
terminals and in available cargos is essentially a form of storage, which gives it a competitive
advantage over Russian gas. However, Europe meeting its energy demands via LNG is very
much dependent on trade routes, as it competes with Asia for LNG imports. Although reexports offer the US an opportunity to turn a profit by sending surplus LNG to higher-paying
markets in Asia or South America, shipping constraints have made Europe the next best
alternative. Additionally, Qatar is already shipping 12 million tons of LNG to the UK, 6
million tons to Italy, 3.2 million tons to France, and 4.8 million tons to Spain, as well as other
European countries.16The LNG share of international trade of total gas mix was 10% in 2010,
and is expected to grow to 15% by 2025. LNG exports are also supposed to more than double
from about 30 billion cubic feet per day in 2010 to over 70 billion cubic feet per day in
2030.22 This may even be an underestimate given technological advances such as Shell‘s
floating LNG – the world‘s largest floating offshore facility for gas extraction and LNG
processing. Essentially the FLNG will allow offshore gas fields to become accessible, and
will include both gas extraction, and on board liquefaction, which will shrink the gas by 600x,
allowing it to be shipped globally. The first facility is currently being built in South Korea,
and will be deployed first 200 km off shore in Australian waters. It appears this technology is
not exclusive to Shell, and other companies are also developing similar floating vessels. 17
16
17
‗LNG export destinations are being diversified, says QNB‘, Arab News, 03/25/2013, www.arabnews
23 Information from official Shell presentation, Harvard Kennedy School, 03/08/2013
19
II Assessment of shale gas resources worldwide
Energy Information Administration (hereinafter called as EIA) agency of the United
States Department of Energy (hereinafter called as DEO ) estimated for 2013 a total "wet
natural gas"18 resource of 2,431cubic feet (Tcf), including both shale and conventional gas.
Shale gas was estimated to be 27% of the total resource.19
Figure 7. Assessment of global share
Source: (US) Energy Information Administration
In an initial assessment of shale oil resources and an update of shale gas reserves,
shale deposits could add 345 billion barrels of oil to global reserves, increasing the total to
3,357 billion barrels according to the EIA predictions. 20 Shale gas added 7,299 trillion cubic
feet of natural gas, or 32 percent of the world total, according to the EIA report estimations.
The biggest resources can be found in China (1,115 trillion cubic feet) 21, followed by
Argentina (802 trillion cubic feet) and Algeria (707 trillion cubic feet) and the United States
ranks fourth with 665 trillion cubic feet.22
18
"Wet natural gas" is methane plus natural gas liquids, and is more valuable than dry gas
Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United
States". Analysis and projections. United States Energy Information Administration. 13 June 2013.
20
(US) Energy Information Administration (EIA) (2013a), ―Europe‘s Energy Security: Options and Challenges to Natural Gas Suppli es
Diversification‖, Washington, D.C.
21
In 2012, China consumed an estimated 10.2 mb/d, namely about 11.5% of the total world demand for oil. Between 1992 and 2012, the
Chinese oil consumption increased from roughly 2.6 mb/d to 10.2 mb/d, i.e. + 292% (EIA, 2014). The IEA estimates that the pace of China‘s
oil demand should grow by an average of 3.7% per year until 2020. Starting from that year, the Chinese appetite for oil should increase by
only 1.3% per year (IEA, 2013).
22
EIA, Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the
United States, June 2013, p. 10,
19
20
Figure 8. Map of basins with assessing shale oil and shale gas formations May 2013
Source: United States basins from the U.S. Energy Information Administration and United States Geological
Survey; other basins from ARI based on data from various published studies.
Assessment of shale gas resources and legislation in China
Already in 2010, the Chinese government began to explore shale gas production.
While there are no official statistics, it is estimated that China has over 1,275 trillion cubic
feet of shale gas deposits.23 China has seven major onshore shale basins (see map below).
Two basins —Sichuan and Tarim both well suited for commercial development and
containing marine shale with sufficiently high organic content and sufficiently low clay
content to make the quality of the natural gas (based on the organic matter) worth the
development costs.24
23
http://thinkprogress.org/climate/2011/10/24/350356/china-shale-gas/
The Chinese government thus far has only issued permits for the Sichuan basin, which is located much closer to China‘s urban and
industrial
demand
markets
and
therefore
offers
a
much
better
business
case
for
developers
http://thinkprogress.org/climate/2011/10/24/350356/china-shale-gas/
24
21
Figure 9. Shale gas deposits in China
Source: The Wall Street Journal
Shale gas could be China‘s largest onshore source of energy, and the country is
looking to develop this resource in order to decrease dependence on foreign natural gas
sources from Russian, regardless signing on May 25th 2014 a deal with Gazprom.25 China and
Russia signed natural gas supply deal worth US$400 billion, and under the agreement,
Russia's Gazprom will supply China National Petroleum Corporation China‘s largest oil
company, with 38 billion cubic meters of gas annually for 30 years, with implied price was
$350-$390 per 1,000 cubic meters of gas, beginning in 2018.26
According to the EIA China has 1,115 trillion cubic feet, or 36 trillion cubic meters, of
recoverable shale gas resources in two basins Tarim and Sichuan, located in northwestern and
southwestern China, respectively. 27 No meaningful exploration has begun in the Tarim Basin
due to its rough terrain and lack of water. The country plans to raise annual shale-gas output
to 6.5 billion cubic meters by 2015 and as much as 100 billion cubic meters by 2020, but it
could reach barely a 10th of its 2020 target.
China‘s latest five-year plan places great emphases on the exploration of nontraditional/alternative energy sources, such as coal seam, petroleum gas and oil sands. China‘s
target is to fulfill most of its energy needs from alternative sources by 2020. As part of this
strategy, China plans to enter into strategic partnerships with foreign companies in order to
help China acquire the skills and technologies needed to develop and exploit its shale gas
reserves. China‘s shale gas deposits are geographically different than those in the United
States, and so it is uncertain if U.S. methods of retrieving the gas can be duplicated. While
25
An intergovernmental deal, to be negotiated by the end of the year, would confirm that both countries would effectively subside the
contract through tax exemptions
26
The agreement could pave the way for even more gas export deals. Once developed, the east Siberian fields will supply not onl y the China
pipeline but also a planned liquefied natural gas plant in Vladivostok, which will export LNG to China as well as other Asian countries such
as Japan, Korea and Taiwan http://www.ft.com/cms/s/0/d9a8b800-e09a-11e3-9534-00144feabdc0.html#axzz32oZAXNt8
27
U. S. Energy Information Agency Technically Re coverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations
in
41
Countries
Outside
the
United
States,
June
2013;
see
more
at
http://online.wsj.com/news/articles/SB10001424127887323401904578156710038647662
22
water is relatively abundant in the Sichuan province, it is also needed to support agriculture in
the region, which supplies 7 percent of China‘s rice, wheat and grains. China‘s Ministry of
Resources has invited some major oil and gas companies to pitch for shale gas exploration
work, offering four licenses28 for exploration in western China. As shale gas production is in
its infancy, there is no regulatory framework in place in China. We should remember that
shale is a very-low-permeability reservoir rock that must be fractured to allow conduits for
gas to migrate to the production well bore. This is typically accomplished using multiple
horizontal wells drilled from a common well pad, with multiple slickwater hydraulic fracture
treatments in each (from as few as 5 to more than 20 fracture treatment stages per well).
Because of the very low permeability of shale, minimum well spacing of 40 to 80 acres37 or
less is required—much closer than well spacing for conventional gas drilling, which is
typically 160 acres or more.
China is pursuing joint ventures with foreign companies to help build up know-how in
shale gas exploration and extraction, and it appears likely that the Chinese government will
continue to promote and support shale gas development.29 The shale gas initiative with the
United States from 2009 led to multiple U.S.-China industry partnerships. Chevron, Shell,
BP, EOG Resources, Newfield Exploration, ConocoPhillips, Schlumberger, and Baker
Hughes and other foreign firms:
a) Royal Dutch Shell has taken the lead among major IOCs, signing China's first shale
gas PSC for the Fushun-Yongchuan block in the Sichuan basin. It is planning to spend
US$ 1 billion per year to develop shale gas resources in the country;
b) other prominent IOCs involved
ConocoPhillips and Eni.
in China
include ExxonMobil,
Chevron,
ConocoPhillips and Eni have entered into JSAs with
PetroChina and its parent company CNPC as part of overseas farm-in deals. These can
be converted into PSCs if commercial discoveries are made during exploration.
As shale gas has been identified by the Chinese authorities as a new type of mineral
resource, it is subject to a separate legal regime from conventional oil and gas. To date, a clear
regulatory framework and detailed regulations for shale gas are lacking. However, Chinese
authorities have started to build on the existing regulatory system by issuing some regulations
and policy statements in relation to shale resources. China‘s shale gas sector is regulated
mainly by four major governmental authorities, namely, the MLR, the NDRC, the National
Energy Administration (NEA) and the Ministry of Finance (MOF). MLR is responsible for
28
Licenses authorise a certain entity with the exclusive right of exploration and/or exploitation of hydrocarbons in a specific geographical
area for a defined time.
29
China Begins to Tap Its Shale Gas, Despite Daunting Technological, Environmental Hurdles, New York Times, October 14, 2011.
23
the general administration of mineral issues, from organizing the researching and planning of
potential shale gas production blocks to the registration and issuance of exploration and
prospecting licenses. NDRC is involved in designing the pricing system for oil and natural gas
and is expected to introduce reforms in the pricing mechanism for shale gas in the near future.
MOF is responsible for providing fiscal support to the shale gas players in the prospecting
phase.
The current legal framework is based on the Notice Regarding the Strengthening of
Shale Gas Exploration, Prospecting, Supervision and Administration (the Notice) circulated
by MLR following China‘s 12th Five-Year Plan for Shale Gas. The Notice serves as a
guideline to both private enterprises and local governmental administrative authorities
engaged in shale gas activities. In the Notice, MLR emphasized the strategic importance of
shale gas as a clean energy source and urges better regulation for the market to ensure its
healthy and sound development in the long run. MLR is responsible for the administration and
registration of shale gas exploration and prospecting rights. The exploration rights will mainly
be conferred by public bidding and licensing. All parties are encouraged to participate in
exploration activities as long as they are independent entities with sufficient funding and hold,
or partner with the holders of, licenses for exploration of oil, gas, or any other kinds of gas
minerals. Foreign enterprises with shale gas mining and exploration technology are especially
encouraged to create joint ventures to invest and actively participate in the industry to
promote further growth.30
On 26 October 2012, the Ministry of Land and Resources ("MOLAR") issued a Notice
Regarding the Strengthening of Shale Gas Exploration, Prospecting, Supervision and
Administration,31 which has been effective for five years and spells out in broad terms the
requirements and guidance of MOLAR for establishing and granting shale gas exploration
rights and exploitation rights, as well as for the exploration and exploitation activities of the
right holders. In particular, the Notice gives existing holders of conventional oil and gas,
mining rights three months from the date of its issuance to apply to MOLAR for amendment
of their mining rights, to include shale gas deposits located in the blocks covered by such
mining rights. It further provides that failure to apply for such amendment may result in
MOLAR granting mining rights over such shale gas deposits to new applicants. The Notice
also requires an exploration right applicant to provide MOLAR with an undertaking as to its
investment amount, work commitments, work progress, relinquishment, liability for breach
Shale gas handbook A quick-reference guide for companies involved in the exploitation of unconventional gas resources, Rose Fulbright –
November 2013, p. 50
31
See more at http://www.lehmanlaw.com/resource-centre/faqs/energy-and-resources-law/energy-and-natural-resources.html
30
24
and similar matters. This requirement applies both to amendments of existing licenses (to add
shale gas) and grants of new licensees through bidding rounds. On 30 October 2013, the
National Energy Administration ("NEA"), which is part of the National Development and
Reform Commission (―NDRC‖) and regulates the energy sector, issued a Shale Gas Industry
Policy (―Policy‖). The Policy contains, among other things, general principles on industry
regulation and policies on industry technologies, markets, transportation, energy conservation,
environmental protection and fiscal support. For example, the Policy encourages diversified
investors (including private companies) to invest in shale gas exploration and development
and requires market pricing of shale gas "ex-works". The Policy also encourages Chinese
companies engaged in shale gas exploration or development to co-operate with "foreign
entities with advanced shale gas technologies" in order to bring to China their shale gas
exploration and development technologies as well as their production and management
expertise.
It should be reminded that U.S. President Barack Obama and Chinese General
Secretary Hu Jintao recognized the importance of shale gas development to their nations by
agreeing to the U.S.-China Shale Gas Resource Initiative in November 2009 which fosters
cooperation between these two nations by providing U.S. assistance to assess, develop, and
promote investment in China‘s shale gas reserves and to help develop operational best
practices and effective environmental safeguards in China. 32
32
http://www.americanprogress.org/issues/green/report/2011/10/21/10407/making-fracking-safe-in-the-east-and-west/
25
Figure 10. comparison of shale gas production in China and the U.S.
Source: United States EIA
26
Assessment of shale gas resources in the United States
Application of fracturing techniques to stimulate oil and natural gas production began
to grow in the 1950s, although experimentation dates back to the 19th century. The
application of horizontal drilling to oil production began in the early 1980s, by which time the
advent of improved downhole drilling motors and the invention of other necessary supporting
equipment, materials, and technologies, particularly downhole telemetry equipment (i.e.,
measurement-while drilling) brought some applications within the realm of commercial
viability. The proliferation of drilling activity in the Lower 48 shale formations has increased
dry shale gas production in the United States from 0.3 trillion cubic feet in 2000 to 9.6 trillion
cubic feet in 2012, or to 40 percent of U.S. dry natural gas production. Dry shale gas reserves
increased to 94.4 trillion cubic feet by year-end 2010, when they equaled 31 percent of total
natural gas reserves. 33
In 2000 shale gas provided only 1% of U.S. natural gas production; by 2010 it was
over 20% and unconventional gas production grew at a rate of 48% between 2006-2010.34 By
2035 the U. S. will produce 342 billion cubic meters of shale gas or 47% of its total gas
production as opposed to 16% in 2009.35
Figure 11. US gas supply 1990-2035 (trillion cubic feet / year)
Source US Department of Energy, Annual Energy Outlook 2011 – Early Release Overview, US DOE – EIA
33
U. S. Energy Information Agency Technically Re coverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations
in 41 Countries Outside the United States, June 2013
34
N AT O P a r l i a m e n t a r y A s s e m b l y , T h e ECONOMIC AND STRATEGIC IMPLICATIONS OF THE UNCONVENTIONAL OIL
AND GAS REVOLUTION, 11 MARCH 2013
35
US natural gas production will increase by an estimated 44% in the next 25 years, and the majority of this will be due to exp loitation of
shale plays. World Pipelines Volume 14 number 3 2014
27
Four of the largest gas resources include: 36
a) 114 trillion cubic feet (25 percent) in the Marcellus Shale, more than a mile beneath
portions of Pennsylvania, New York, Ohio and West Virginia. Range Resources began
producing the first gas from the Marcellus shale in 2005.
b) 75 tcf (17 percent) in the Haynesville Shale, more than two miles below the surface of
northwestern Louisiana, southwestern Arkansas and eastern Texas. Chesapeake
Energy and Encana were among the first to begin drilling in this play in the mid2000s.
c) 43 tcf (10 percent) in the Barnett Shale, about one and a half miles under north Texas,
including the Dallas/Fort Worth area. Mitchell Energy (now Devon Energy) first
paired large-scale horizontal drilling with fracking here in 1995, and the play took off
in 2003.
d) 32 tcf (7 percent) in the Fayetteville Shale, which varies in depth from 1,500 feet to
6,500 feet under north central Arkansas. Southwestern Energy pioneered development
of this shale in 2003.
36
The U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2012 Early Release Overview, which estimated
482 trillion cubic feet (tcf) of unproved technically recoverable onshore shale gas resources in the lower 48 states. In a Ju ly 2011 analysis
(modified by the 2012 outlook), the EIA focused on dis-covered shale plays totaling 454 tcf.
28
Assessment of shale gas resources in the European Union
European countries together account for roughly 10% of the total global shale gas
reserves. The petro-physical properties of these deposits, however, differ substantially and
each poses unique drilling and collection challenges. It is not yet known how much of these
reserves are economically recoverable. Europe has besides another energy sources, estimated
shale gas reserves of 639 trillion cubic feet (18.1×1012 m3) compared with America's
862 trillion cubic feet (24.4×1012 m3), but its geology is more complicated and the oil and gas
more expensive to extract, with a well likely to cost as much as three-and-a-half times more
than one in the United States.
Figure 12 shale gas in European countries - estimates
Source: U.S EIA 2013
Different levels of exploration are underway in Austria, Germany, Hungary, Ireland,
Poland37, Sweden, the UK and Ukraine. Poland, , France and Ukraine appear to have large
potential deposits but France has imposed a moratorium on exploration. Ukraine has an
37
The Polish government has awarded a number of exploration concessions to over 30 companies covering a territory of 35 thousan d square
miles or a third of the country. Polish officials had initially hoped to begin commercial exploitation by 2014 and to achieve some degree of
gas self-sufficiency by 2035
29
estimated 42 trillion cubic feet (tcf) of technically recoverable shale gas reserves, according to
the U.S. Energy Information Administration (EIA), ranking its deposits as the fourth largest in
Europe behind Poland (187 tcf), France (180 tcf) and Norway (83 tcf).
Very recently ambassadors from Hungary, Poland, Slovakia and the Czech Republic
support Boehner‘s call for increased LNG exports. A similar letter was expected to be sent to
Senate Majority Leader Harry Reid. Those four Central European nations, known as the
Visegrad Group, are urging the United States to boost natural gas exports to Europe as a
hedge against the possibility that Russia could cut off its supply of gas to Ukraine. The
ambassadors warn that the unrest in Ukraine has brought back Cold War memories and that
energy security threatens the region's residents on a daily basis and pointed out that gas-to-gas
competition in this part of Europe is a vital aspect of national security and a key U.S. interest
in the region
But Europe has had a relatively mild winter in 2014( January and February), therefore,
gas supplies are at or above normal levels, and even if the U.S. did approve more export
licenses, it would take until the end of 2015 for gas to be delivered.
In 2010, the EU relied on imports for about 63.5% of its gas consumption. At present
contracted gas supply is not enough to meet increasing European demand. New import
arrangements are needed for 2015 onwards.
30
Figure 13. Sources of gas supplies in EU
Source: Eurogas
31
It is obvious that Russia‘s importance in world energy markets is a key factor deterring
the EU members states from responding more vigorously to the annexation of Crimea. The
annexation of Crimea by Russia has encouraged the Poland and UK as well as the EU and
many of its member states, to search for ways to reduce dependence on imports from
Russia's OAO Gazprom, the main supplier of gas to EU.38
Assessment of shale gas resources and legislation in Federation of Russia
According to the U.S. Geological Survey, the West Siberian Basin is the world's
largest oil and natural gas repository with oil-equivalent reserves estimated to be 360 billion
barrels. 39 The basin is responsible for about 70 percent of Russia's oil production and has
allowed the country to match and occasionally out-produce Saudi Arabia Until last year, oil
companies were able to retain only about $22 out of every $110 of the Urals-grade crude they
produced in Russia. The rest went to the state in the form of export duties and mineral
extraction taxes. In June 2013, the EIA estimated U.S. technically recoverable shale oil at
between 48 and 58 billion barrels. But American shale oil resources rank second on the
planet. Russia ranks first with reserves estimated to be 75 billion barrels, nearly half again
more than those in the States.
All hydrocarbon reserves while in the soil belong to the Russian state. Once extracted,
the reserves generally belong to the license holders. Russia does not have specific regulations
for unconventional hydrocarbons. Their exploration, production and protection is governed by
the general rules established by the Subsoil Law of 21 February 1992 and by the Federal Law
on Production Sharing Agreements of 30 December 1995 which are applicable to all
hydrocarbons. Exploration licenses may be granted for a term of up to five years for onshore
fields (or seven years in certain specific regions of Russia) or for up to 10 years for offshore
deposits. Exploration licenses are generally extendable subject to certain conditions. An
extension may be granted for any period required for the completion of the work but, in
practice, it is usually granted for an additional five year period. There are no restrictions with
respect to the number of extensions Development and production licenses may be granted for
38
In March 2014, David Cameron said that energy independence and the production of shale gas should top Europe's political agen da and
suggested the shale gas reserves in South-eastern Europe, Poland and the UK could be a means to decrease dependence on Russia.
39
In February 2014 Russian energy giant Gazprom Neft signed an agreement with U.S. oil services firm Schlumberger to explore shale
resources in western Siberia. As part of its technology-sharing agreement, Schlumberger is shipping equipment and drilling crews from shale
drilling sites in the U.S. to Russia
32
the term required to complete development of the deposit but, in practice, they are usually
granted for a 20 year period. They are generally extendable subject to certain conditions. An
extension may be granted for any period required for the completion of the work. There are no
restrictions on the number of extensions. Combined licenses (exploration and production) are
usually granted for a 25 year period and are also generally extendable subject to certain
conditions. 40
Figure 14. Administrative structure of gas and oil in Russia
Source: Economist
Shale developers in Russia face obstacles not only from government red tape but also
from the harsh Arctic climate, but the prospects for success at tapping Duma eased rules for
shale producers, reasoning that the cost of producing oil is far higher from shale than from
conventional wells. A law enacted in July eliminated the mineral taxes on oil produced from
Bazhenov and three other major shale fields for the next 15 years, giving a powerful incentive
for development.41 Russia‘s shale are better than anywhere else in the world outside the U.S.
Russia also has an extensive infrastructure of pipelines and oil processing facilities that serve
40
Shale Gas, an International Guide2014 Baker & McKenzie (1st edition: 23 January 2014,
See more Ulmishek, G.F., 2003. ―Petroluem Geology and Resources of the West Siberian Basin, Russia.‖ U.S. Geological Survey Bulletin
2201-G, U.S. Geological Survey, Reston, Virginia.
41
33
the oil fields in western Siberia that lie on top of the Bazhenov formation and are the main
source of Russia‘s oil production.
We shall not forget that even Russia entered shale exploration market with a joint
venture between Shell and Gazprom Neft to drill in Western Siberia. In January 2014, a joint
venture between Royal Dutch Shell and the Russian natural gas giant Gazprom began drilling
the first of five horizontal wells into the Bazhenov shale. The $300 million pilot program,
which will take two years to complete, will also use multi-stage fracking techniques.
In December, Russia‘s OAO Rosneft, the world‘s largest publicly traded oil company
that was at first skeptical about shale development, signed an agreement with Norwegian
counterpart Statoil to explore the Domanik shale formation in the Samara region, near
Russia‘s southwestern border with Kazakhstan. The companies said the tax breaks provided a
green light for the deal. The Bazhenov formation could be the world‘s largest deposit of shale
oil. For the total Bazhenov shale prospective in the West Siberian Basin, and it is estimated a
risked shale oil in place of 1,234 billion barrels, with 74.6 billion barrels as the risked,
technically recoverable shale oil resource. The assesmtent of a risked shale gas in place of
1,920 trillion cubic feet with 285 trillion cubic feet as the risked, technically recoverable shale
gas resource.42 Another sources gives estimatation of the amount of shale oil trapped in the
Bazhenov formation in western Siberia alone range up to 2 trillion barrels, of which 22 billion
to 360 billion barrels is recoverable today using hydraulic fracturing and horizontal drilling
technologies developed by U.S. producers.43
42
43
June 2013 report, EIA
Read more: http://www.washingtontimes.com/news/2014/feb/18/siberian-shale-find-fuels-russias-fracking-future/#ixzz32TOMSSyB
34
Figure
15.
West
Siberian
Basin,
Prospective
Areas
for
Shale
Gas
and
Shale
Oil
Source: ARI, 2013
35
It covers 570 million acres, which is the size of Texas and the Gulf of Mexico
combined. It could possibly be 80 times as big as the huge Bakken shale in North Dakota,
USA. No other geologic formation is considered to have been the source rock for so much oil
and natural gas as has the Bazhenov. Today, Russia accounts for about 16 percent of world oil
exports, which, in turn, account for nearly one-half the country's income.
Bazhenov already has significant oil pipeline infrastructure running across it, due to its
proximity to other oilfields.
There are a number of companies that have begun exploration in the Bazhenov region
of the West Siberian basin, including:
¥ Lukoil, Rosneft, Gazprom Neft and ExxonMobil in a joint venture with Rosneft; and
¥ Royal Dutch Shell in a joint venture with Gazprom.
In addition, Rosneft and Statoil have recently signed a joint venture agreement to
exploit shale oil in the Domanik shale formation in the Samara region. The joint venture will
spend three years on a pilot program assessing the potential for commercial production,
planning to drill at least six exploration wells in the region before 2021.
Russia is a key supplier of natural gas not only for Ukraine 44 but also for Poland,
which at present cannot get by without energy from Russia without developed production of
shale gas.
44
Ukraine is heavily dependent on Russian natural gas, and previous disputes between Ukraine and Russia have led to gas supply cuts.
Russian state gas company Gazprom has increased the pressure on Ukraine's new government, which now owes $1.89 billion for Russian
natural gas, by warning that if Ukraine doesn't pay off its debt, there could be a repeat of 2009, when Russia cut off suppli es to Europe
because of a pricing dispute with Ukraine.
36
Figure 16. Shale basins in Poland
Source: OGJ.com
In the case the U.S. or Europe will try to respond to recent events by imposing
further economic sanctions, one possible response would be a partial embargo by Russia on
sales of energy to those countries, including Poland that would be most vulnerable to such a
disruption.45 . The White House has argued that Russia's dependence on gas revenues makes it
unlikely that the country will cut off supplies to Europe despite the ongoing crisis in the
Ukrainian region of Crimea, where the Russian military still conducts military operations
disregarding international law.
45
Recently as of April 10 th 2014 President Vladimir Putin sent to 18 European leaders, as provided in English by the Kremlin warning that
Russia could cut natural gas supplies to Ukraine if the country fails to pay its gas bills on time and warned there could be a reduction in
onward deliveries to Europe. It was sent to the leaders of Germany, France, Italy, Austria, Hungary, the Czech Republic, Poland, Slovakia,
Slovenia, Croatia, Serbia, Bosnia, Bulgaria, Romania, Macedonia, Greece, Turkey and Moldova
37
Kremlin-controlled Rosneft Rosneft46 and partners Exxon Mobil and BP prepared a
campaign of drilling and fracking across Siberia, determined to find gas to send not to Europe,
but to China. In December 2012, Exxon Mobil signed an agreement with the Russian oil
company Rosneft to start a $300 million pilot program, which will last through 2015. Rosneft
will be the senior partner with a 51 percent share of the proceeds from commercial
production. State-operated Rosneft will gain valuable horizontal drilling expertise, which it
will apply to other tight shale oil reservoirs in Siberia as well as off-shore in its Arctic
territorial waters. Rosneft has also reached an agreement with Statoil, Norway's national oil
company, to pursue ventures similar to that with Exxon Mobil. In addition Rosneft and Exxon
Mobil in 2013 have announced plans to begin drilling the Bazhenov Shale, after completion
of their geologic study. Gazprom Neft and Shell, as part of their West Siberia JV, proposed to
start drilling the Bazhenov Shale in early 2014 near the Salym oil field, which has a history of
Bazhenov Shale oil production. Lukoil has announced plans to test the Bazhenov reservoir in
two area of West Siberia. 47
46
47
Rosneft Oil Company, 2011. Annual Report.
See more at http://www.lukoil.com/
38
Figure 17. Potential shale gas deposits in Russia
Source: Gazprom
Needless to mention is the seizure by Russia of Crimea, which includes a takeover
Ukraine's offshore gasfields48. The March 2014 seizure of Crimea extended Russian‘s
maritime boundaries in the Black Sea to include offshore oil and gas resources. The dispute
over the boundary between Russia and Ukraine through the Kerch Strait and Sea
of Azov remains unresolved despite a December 2003 framework agreement and
ongoing expert-level discussions; Moldova and Ukraine operate joint customs
posts to monitor transit o f people and commodit ies through Moldova's break away Transnistria Region, which remains under the auspices of an Organizat ion
48
Guidelines set forth by the 1982 Law of the Sea Treaty. The agreement lets coastal states claim what are known as exclusive economic
zones that can extend up to 230 statute miles from their shores. Inside these zones, states can explore, exploit and manage deep natural
resources, living and nonliving.
39
for
Securit y and
Cooperation
in Europe -mandated
peacekeeping
mission
comprised of Moldovan, Transnistrian, Russian, and Ukrainian troops. 49
Assessment of shale gas resources and legislation in Ukraine
The most promising are two large shale gas deposits, one (the Lubin basin) in the
Ukrainian speaking west, which extends from Western Ukraine into Poland, and another (the
Dniper-Donets basin) in the Russian speaking east. The eastern one has nearly 76 trillion
cubic feet (Tcf) of potentially recoverable gas, the western basin shared by Moldova and
Poland another 72.5 (Tcf).50 These deposits are therefore sizeable and close to existing
pipelines making both production for domestic consumption and export possible. If Ukraine
could attract investment to develop these fields then it could measurably improve its energy
and economic independence from Russia.51
Figure 18. Assessment of fossil fuel in Ukraine
Nations divide up the world‘s potentially lucrative waters according to guidelines set by the 1982 Law of the Sea Treaty. The agreement
lets coastal states claim what are known as exclusive economic zones that can extend up to 200 nautical miles (or 230 statute miles) from
their shores. Inside these zones, states can explore, exploit, conserve and manage deep natural resources, living and nonlivi ng.
https://www.cia.gov/library/publications/the-world-factbook/fields/print_2070.html
50
See more at http://openeuropeblog.blogspot.com/2014/03/could-ukrainian-shale-gas-break.html
51
Russia‘s state-owned Gazprom, controlling nearly one-fifth of the world‘s gas reserves, supplies more than half of Ukraine‘s gas annually,
and about 30 percent of Europe‘s. It has often used this as political and economic leverage over Kiev and Brussels, cutting gas supplies
repeatedly over the past decade (in the winters of 2005-2006, 2007-2008, and again in 2008-2009), leading to energy shortages not only in
Ukraine, but Western European countries as well.
49
40
Shale gas is not yet commercially produced in Ukraine, although drilling has
commenced in one of the earliest operations, led by Polish company Kulczyk Oil Ventures in
a license area it acquired in June 2010. Ukraine's government has signed two deals for shale
exploration:
¥ one with Royal Dutch Shell in January 2013; and
¥ one with Chevron in November 2013.
An oil and gas development must comply with the Law on Oil and Gas. Pursuant to
that law, an entity interested in developing a resource must first go through a tender process to
receive a special permit to develop the resource. The holder of the successful tender would
have to negotiate a lease that would define additional conditions for the development. The
local government would also have to approve the exact siting of the wells and associated
facilities. The proposed oil and gas operation would go through an environmental analysis
process and have to comply with all relevant environmental laws (including laws on air
protection, water protection, waste management, species protections, and natural lands). The
complexity of these procedures and the need to navigate many different layers and organs of
government created a situation whereby approvals had become extremely difficult to obtain,
discouraging the inflow of investment and technology in the oil and gas sector. In an attempt
to streamline some of this complexity the Parliament of Ukraine passed a Law on Production
Sharing Agreements. This law explicitly provides for exemption from ordinary environmental
and natural resources laws, reduces the role of local governmental units, centralizes signing
authority in one ministry and provides for internal specification of tax, arbitration and other
provisions; circumventing some of the more tortuous elements of the older Oil and Gas Law.
52
Changes were introduced in November 2013 to the legislation regarding the distribution of revenues
received by Ukraine under PSAs, which require that 10% of Ukraine's profit be split Under Ukrainian
legislation, a special permit holder must obtain a certificate, which authorizes the special permit holder
to use a defined subsurface area. Such certificate is called "a mining allotment act". The mining
allotment act is issued following the grant of the special permit and due approval of the extraction
project. A special permit holder is not authorized to transfer the rights granted by the mining allotment
act (in full or in part) to a third party. Unlike most European countries, there has been limited public
opposition to shale gas projects (at least according to the local media). This means that one of the
biggest obstacles to shale gas development is noticeably absent in the country. However, there remains
significant uncertainty as to how subsoil licenses will be awarded for shale gas. At present, there is no
specific legislative framework for shale gas exploration and production in the Ukraine, which instead
52
UKRAINE SHALE GAS: VOLUME I: ENVIRONMENTAL AND REGULATORY ASSESSMENT, USAID 2012
41
falls within the scope of laws for conventional hydrocarbons, principally the Oil and Gas Act. To
sidestep legal uncertainties in relation to shale gas E&P, the government has proposed the use of
production sharing agreements (PSAs), which have historically been used alongside licenses. Even so,
shale gas reserves are part of the government‘s future development plans. On May 20 2011, the
president of Ukraine enacted a law amending the National Program for the Development of Minerals
to, among other changes, include shale gas reserves.2 On November
27,2013
the Ukrainian
government signed another production-sharing agreement with a consortium of investors led by Italian
energy company Eni to develop unconventional hydrocarbons in the Black Sea.
Figure 19. Shale gas in Eastern Europe
Source: ARI Inc.
At the time of Yanukovych‘s ouster in February 2014, Chevron and the Ukrainian
government had been negotiating an operating agreement for the shale development effort in
western Ukraine, and the negotiations went forward despite Yanukovych fleeing the country.
Royal Dutch Shell is also engaged in the country, having signed an agreement last in 2013
with the government of Yanukovych to explore a shale formation in eastern Ukraine,
hopefully the agreement will be confirmed by the new president Prokoszenko, elected on may
42
25 th 2014. In disputed between Ukraine and Russia territory of Crimea, numerous oil
companies including Chevron, Shell, ExxonMobil, Repsol and even Petrochina have shown
interest in developing its offshore energy assets. Because Crimea‘s onshore and offshore
fields
have great extraction potentials, these companies have greatly expanded their
exploration of the Black Sea off the Crimean peninsula. 53
It is clear that all of these oil and gas companies – backed by their governments,
including those of the Russian Federation and the United States – are deeply embroiled in the
Ukrainian crisis, with much invested and much at stake. But with their disproportionate
influence over Ukraine‘s future, it should be kept in mind that the number one responsibility
of any corporation is to increase profit margins for its shareholders, not necessarily to promote
the democracy or sovereignty of the countries they are operating in. This is particularly the
case for Chevron and Shell, both of which have been implicated in major human rights
violations in Nigeria. Chevron has been accused of recruiting and supplying Nigerian military
forces involved in massacres of environmental protesters in the oil-rich Niger Delta, and Shell
has faced charges of complicity in torture and other human rights abuses against the Ogoni
people of southern Nigeria. With this in mind, the Ukrainian people – whether in the east of
the country or the west – might want to rethink what is meant by ―energy independence,‖ and
whether the future they seek can truly be met by placing their hopes in the benevolence of
foreign oil and gas companies.
Recent events in Crimea have prompted thoughts of revisiting U.S. policy on exports
of natural gas to Europe e.g. Speaker of the House John Boehner called in March 2014 for
faster Energy Department approval of facilities to export liquefied natural gas (LNG) and
Senator Lisa Murkowski (R-AK) called for lifting the ban on U.S. crude oil exports. Both
senators have been urging the Obama administration to clear the way for more exports amid a
natural gas boom in the U.S. The Energy Department has only approved six export licenses in
recent years out of about two dozen pending.
One of Vladimir Putin‘s motivations for annexing Crimea was to ensure that state company Gazprom will control Crimean offshor e energy
assets as well as to ensur the continued use of Crimea as host to Russia‘s Black Sea Fleet.
53
43
Analysis of the key regulatory frameworks for the United States shale gas development
including focused discussion on key shale producing states such as Texas, Pennsylvania
and other states.
―We cannot keep going from shock to trance on the issue of energy security, rushing to propose action when gas
prices rise, then hitting the snooze button when they fall again. The United States of America cannot afford to bet
our long-term prosperity and security on a resource that will eventually run out. Not anymore. Not when the cost
to our economy, our country, and our planet is so high. Not when your generation needs us to get this right. It is
time to do what we can to secure our energy future.‖ President Obama, March 30, 2011
It is worth to examine how relaxing restrictions on U.S. exports of oil and natural gas
would make help in fulfilling national energy policy in Poland and Europe. Additionally we
will examine selected state and federal regulations on shale extraction and production, which
can provide for European lawmakers sui generis guidance in this subject
Figure 20. Gas flow into EU
Source: Economist
Exporting crude oil from the United States is currently forbidden under US law and
firms interested in exporting new supplies of shale oil are turning instead to refined oil
products. Firms extracting crude oil are investing in mini-refineries to export refined product
such as diesel, plastic or fertilizer.
44
The fracking law are undertaking on both state and national level in form of federal
regulations54.
FRACKING REGULATION TIMELINE
1996 - EPA concluded that the UIC did not apply to fracking.
1997 - The United States Court of Appeals for the Eleventh Circuit overturned this EPA
policy.
2003 - The EPA entered into a Memorandum of Agreement with the three largest providers of
hydraulic fracturing fluids.
2005 - Congress exempted hydraulic fracturing from the SDWA under the Energy Policy Act.
Safe Water Drinking Act of 1973 (SDWA)
2010 - The EPA began to reassess the effect of hydraulic fracturing on drinking water.
2011 - The SEC entered into dialogue and began ―asking‖ oil and gas companies to provide
detailed fracking information, including chemicals.
2013 - The U.S. Environmental Protection Agency issued ―significant new use rules‖ under
the Toxic Substances Control Act for 15 chemical substances.
In the USA two federal agencies are empowered to regulate exploitation of shale gas
Department of Energy and U.S. Environmental Protection Agency. 55 The latest the US House
of Representatives requested in 2010 that EPA conduct scientific research to examine the
relationship between hydraulic fracturing and drinking water resources (USHR, 2009). On
May 5, 2011, U.S. Energy Secretary Steven Chu charged the Secretary of Energy Advisory
Board (SEAB) Natural Gas Subcommittee to make recommendations to improve the safety
and environmental performance of natural gas hydraulic fracturing from shale formations. 56
The Secretary of Energy, in consultation with the EPA Administrator and Secretary of Interior
will task the Secretary of Energy Advisory Board (SEAB) with establishing a subcommittee
to examine fracking issues. The subcommittee will then support DOE, EPA and DOI, and its
membership will extend beyond SEAB members to include leaders from industry.
54
Hydraulic Fracturing (commonly referred to as "fracking") is the process of injecting at high pressure water and proppants (known as the
"frack fluid") down a wellbore. The pressure of the frack fluid on the target formation causes the target formation to fracture, whilst the
proppants in the frack fluid hold open the fractures. This fracturing of the target formation causes the permeability of the formation to be
artificially increased and allows the oil and gas to flow more freely back into the wellbore
55
Other U.S. government agencies involved in shale gas extraction include: the U.S. Department of Energy's Office of Fossil Energy
(DOE/FE); the U.S. Agency for International Development (USAID); the U.S. Department of Interior's U.S. Geological Survey (USGS);
U.S. Department of Interior's Bureau of Ocean Energy Management (BOEM); and the U.S. Department of Commerce's Commercial Law
Development Program (CLDP);
56
http://www.shalegas.energy.gov/
45
Figure 21. Shale extraction
Source‖ Public Service Europe
46
Secretary Chu extended the Subcommittee membership beyond SEAB members to
include the natural gas industry, states, and environmental experts. The Subcommittee is
supported by the Departments of Energy and Interior, and the U.S. Environmental Protection
Agency. President Obama directed in 2011 U.S. Energy Secretary Chu to form the Natural
Gas Subcommittee as part of the President‘s "Blueprint for a Secure Energy Future" - a
comprehensive plan to reduce America's oil dependence, save consumers money, and make
our country the leader in clean energy industries 57
Important role plays Department of State which initiated the Global Shale Gas
Initiative which assesses a country‘s potential for shale gas production and assists
governments in establishing the commercial arrangements and safety and environmental
regulations that permit the beneficial development of this resource. 58 The Energy Department
is leading an Unconventional Gas Census for the Asia Pacific at the request of APEC energy
ministers. These programs benefit both developing countries and the U.S. by moderating oil
demand growth in these rapidly growing economies and facilitating fuel-switching to cleaner
natural gas.
The Environmental Protection Agency and thirty-seven other countries, the European
Commission, the Asian Development Bank and the Inter-American Development Bank
launched the Global Methane Initiative to support methane emissions reduction projects and
technologies while expanding growth, promoting energy security, and improving the
environment and public health.59 With collaboration among developed countries, developing
countries, and countries with economies in transition—together with strong participation from
the private sector—the initiative focuses on advancing cost-effective, near-term methane
recovery and use projects. The Initiative focuses on five major methane sources for action:
agriculture, coal mines, landfills, oil and natural gas systems, and wastewater. In 2011, the
EPA began research under its Plan to Study the Potential Impacts of Hydraulic Fracturing on
Drinking Water Resources. The purpose of the study is to assess the potential impacts of
hydraulic fracturing on drinking water resources, if any, and to identify the driving factors
that may affect the severity and frequency of such impacts. Scientists are focusing primarily
on hydraulic fracturing of shale formations to extract natural gas, with some study of other
oil-and gas-producing formations, including tight sands, and coalbeds.
57
See more at http://energy.gov/fe/hydraulic-fracturing-technology
http://www.eia.gov/analysis/studies/worldshalegas/
59
http://www.agiweb.org/gap/legis111/cleanair_cont.html
58
47
Figure 22. Hydraulic fracturing of shale formations
Source: EPA
EPA released a ―progress report‖ on its multi-year study of the impacts of hydraulic
fracturing on drinking water. The progress report outlines the framework for the final study,
but reaches no conclusions. The report notes several instances where the Agency is scaling
back aspects of its study, including eliminating toxicological screening of fracturing
chemicals and excluding a case-study in the Haynesville Shale. The Agency is also agreeing
to share some responsibility for the study with DOE, which will now research fracturing fluid
reactions once injected underground. The Agency has also recently expressed greater interest
in including industry perspective on ―technical roundtables‖ to be held during the study
period. The final report is due out in 2014. Although the case studies for the report are
anticipated to include retrospective analysis of sites where drilling has already occurred, and
baseline studies at each stage of an ongoing drilling operation, EPA recently announced that
results from the baseline studies may not be available until after 2014. [Progress Report] 60
60
US Environmental Protection Agency Office of Research and Development Washington, DC, Study of the Potential Impacts of Hydraulic
Fracturing on Drinking Water Resources December 2012
48
Pavillion Wyoming Groundwater Study. EPA extended the period for public comment on the
Pavillion Wyoming groundwater report from January 15, 2013 to September 30, 2013. [Link]
EPA announced it was extending the public comment period to make available additional
technical information, including details on how the study was conducted, recent information
from Phase V sampling, and responses to issues raised by stakeholders. EPA also intends to
meet with key stakeholders during this period. On January 17, 2013, EPA also published a
notice seeking nominations for peer reviewers of the report. EPA was seeking
public
comment on the extension of its current national enforcement initiatives for FY 2011-2013—
which included addressing land-based natural gas extraction facilities, including corporatewide evaluations‖—for the FY 2014-2016 cycle. 61
US law requires that the Energy Department must determine that such exports are
consistent with the ―national interest‖ before it will issue an export license. U.S. law strictly
regulates the export of natural gas. According to the Natural Gas Act of 1938, anyone who
wants to export natural gas must first obtain a license from the Department of Energy (DOE).
If the recipient of the gas exports is a country with which the United States has signed a free
trade agreement (FTA), the license is granted without modification or delay. Another
transatlantic free trade agreement (FTA) would certainly speed up the process of exporting
gas to Europe. The Transatlantic Trade and Investment Partnership which is expected to be
signed in the end of 2014 is among the topics U.S. president Obama is set to discuss with
Herman Van Rompuy and José Manuel Barroso, the EU top officials during his trip to
Europe62, because encouraging the export of American natural gas to Europe is yet another
rationale for completing the trade talks by interested parties.63 One of the thorny issue is EU‘s
fuel quality directive (FQD) and related plans. The FQD would effectively ban oil sands from
Europe. It requires fuel suppliers in Europe to reduce the greenhouse gas emissions from road
fuels by 6% by 2020 relative to 2010. It opens the door to the EU assigning separate
emissions values to different types of fuel to calculate compliance with the FQD. The
Commission wants to assign a higher emission value to oil from oil sands and issued a
proposal to that effect back in 2011 which was subsequently blocked by member states in
Public Comment on EPA‘s National Enforcement Initiatives for Fiscal Years 2014–2016Federal Register /Vol. 78, No. 18 /Monday,
January 28, 2013 /Notices
62
During this lunch, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso pressed
Obama to step up U.S. gas exports, but he explained that the Europeans they needed to take politically difficult steps to dev elop their own
resources http://www.reuters.com/article/2014/03/26/us-usa-eu-summit-idUSBREA2P0W220140326
61
63
There are 28 gas export permits awaiting approval by the Department of Energy. Approvals typically take three or four months and even
without a trans-Atlantic trade pact in place, export approvals should be accelerated to help Eastern Europe secure non-Russian sources of
energy; see more http://www.nytimes.com/2014/03/24/business/international/us-official-lobbies-for-trans-atlantic-trade-pact.html?_r=0
49
2012.64 The Commission new proposal largely mirrors the original one, i.e. it foresees a
107gCO2/MJ emissions value for oil sands versus 87.5 g CO2/MJ for conventional crudes (a
23% difference). The oil business on both sides of the Atlantic has long argued that this is
artificial discrimination between what are essentially two versions of the same product, that it
threatens Europe‘s supply of oil products and that it could ultimately raise global greenhouse
gas emissions because oil sands would simply be shipped elsewhere (requiring more
transport).
If country is a non-FTA country, the DOE needs to determine whether such exports
are in line with ―public interest.‖ Several criteria are taken into account in this public interest
test, such as domestic need, adequacy of supply, the environment, geopolitics, and energy
security. While the permit process for exports to FTA countries does not require public notice
or comment, a notice of application must be published in the Federal Register for export
applications to non-FTA countries, and interested parties must be given opportunity to
comment on the application.
The United States faces a critical decision about whether to export natural gas
following the rapid expansion of domestic production in recent years. The Department of
Energy has already approved one export application and is currently considering eight others.
If these applications are approved and the companies export at full capacity, the United States
could soon be exporting more than 20 percent of current consumption. On 8 August 2013, the
Department of Energy authorized Lake Charles Exports (a joint venture between BG Group
and Energy Transfer Partners‘ Southern Union Co) to ship up to 2 billion cubic feet per day
over 20 years to countries that do not have a free trade agreement with the US. This allows for
exports to countries including China, Japan, India, Taiwan and Thailand. The Energy
Information Administration has estimated that exporting even less natural gas than what is
currently under consideration could raise domestic prices 24 to 54 percent65.
Very important legislation the Energy Policy Act of 2005 addresses various forms of
energy production e. g. use of water in fracturing, where the U.S. Congress inserted a
provision addressing the application of SDWA to hydraulic fracturing, by amending the
SDWA‘s definition of ―underground injection‖ to exclude ―the underground injection of
fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations
64
http://oilprice.com/Energy/Energy-General/How-an-EU-US-Free-Trade-Agreement-will-Affect-the-Energy-Sector.html
This would substantially increase energy bills for American consumers and could potentially have significant impacts on U.S.
manufacturing
65
50
related to oil, gas, or geothermal production activities.‖ This provision exempted hydraulic
fracturing from the UIC permit requirements unless the fluid being injected contains diesel
fuel.
Figure 23. Important water issues
Source: IEA
The Safe Water Drinking Act of 1973 ((hereafter called as SDWA) established the
Underground Injection Control (UIC) program prohibiting ―subsurface emplacement of fluids
by well injection‖ that endangers underground drinking water. Nonetheless, the EPA
concluded in 1996 that the UIC did not apply to fracking. In 1997, the United States Court of
Appeals for the Eleventh Circuit overturned this EPA policy in response to a petition by
Alabama citizens living near a coal bed methane operation.18 66 In 2003, the EPA entered into
a Memorandum of Agreement with the three largest providers of hydraulic fracturing fluids,
Legal Environmental Assistance Foundation v. EPA, 118 F.3d 146 (11th Cir. 1997) (―LEAF I‖) (holding that hydraulic fracturing
constitutes ―underground injection‖ under the SDWA) and Legal Environmental Assistance Foundation v. EPA, 276 F.3d 1253 (11th Cir.
2001) (―LEAF II‖) (holding that wells used for injection of fracking fluids must be regulated as Class II wells under UIC program).
66
51
with each provider agreeing to eliminate diesefuel in fracking fluids for coal bed methane
wells. Two years later, Congress exempted hydraulic fracturing from the SDWA under the
Energy Policy Act.19 In doing so, gas companies were relieved from any obligation to
disclose the chemicals used in the ―fracking‖ process. Regulatory authority over fracking
operations remained with the states. Initially, regulations specific to fracking were
uncommon. A bill addressing fracking since 2013 is pending in the United States Congress.67
The proposed act, originally introduced in 2008, includes provisions: (1) requiring companies
to reveal the chemicals in their fluids and (2) repealing the exemption to the Safe Drinking
Water Act noted above, while (3) maintaining certain protections for proprietary information.
In 2010, the EPA began to reassess the effect of hydraulic fracturing on drinking water. A
plan was submitted to an EPA ad hoc committee, the Science Advisory Board on February 7,
2011. And finally in May 2013, the EPA issued ―significant new use rules‖ under the Toxic
Substances Control Act for 15 chemical substances. This action requires persons who intend
to manufacture, import, or process any of these 15 chemicals for an activity that is designated
as a significant new use by this rule to notify EPA at least 90 days before commencing that
activity. The required notification will provide EPA with the opportunity to evaluate the
intended use and, if necessary, to prohibit or limit that activity before it occurs.68
The EPA, as mentioned before, is solely responsible for administering the Safe
Drinking Water Act SDWA- the primary federal law for protecting public water supplies
from harmful contaminants.69 The Obama administration announced its first steps on Friday
toward possibly tighter regulation of hydraulic fracturing, or fracking, seeking public input on
whether companies should be required to disclose the contents of fluids used in the oil and
natural gas drilling technique. The U.S. Environmental Protection Agency said it would
gather public comment for 90 days on whether to require chemical manufacturers to disclose
the contents of fluids they inject into shale seams to release trapped oil or gas 70
Fracking technology has sparked a boom in U.S. energy production, but critics worry
that it is polluting drinking water supplies. The environmental group Earthjustice petitioned
the EPA to consider the rules on fracking fluids. The group has asked the EPA to require
chemical manufacturers and processors to publish detailed information about the content of
fluids used in fracking. It also requested that those companies submit all health and safety
H.R.1921, entitled ―the Fracturing Responsibility and Awareness of Chemicals Act of 2013‖
See more at https://www.federalregister.gov/articles/2013/05/09/2013-11061/ significant-new-use-rules-on-certain-chemical substances
69
Enacted in 1974,232 and broadly amended in 1986 and 1996,233 the SDWA is administered through a variety of programs that regulate
contaminants in public water supplies, provide funding for infrastructure projects, protect underground sources of drinking water, and
promote the capacity of water systems to comply with SDWA regulations
70
See more at
http://articles.chicagotribune.com/2014-05-09/news/sns-rt-us-usa-fracking-epa-20140509_1_fracking-fluids-hydraulicfracturing-disclosure-rules
67
68
52
studies available on those fluid mixtures. EPA's reporting onus would be on manufacturers
and processors of fracking chemicals and would entail health and safety data on the chemicals
they make. In contrast, current voluntary and state-required disclosures are from well
operators and focus only on chemical identities. The Office of Chemical Safety and Pollution
Prevention of EPA wants to learn what is happening at the state level and what voluntary
mechanisms are available for reporting. The EPA said its notice may not result in formal
measures, and it would consider non-regulatory approaches.
The EPA denied parts of
Earthjustice's petition, including a request for companies to conduct toxicity tests on fracking
liquids. 71 The agency said in its initial response to the 2011 petition that it would take an
approach that would "minimize reporting burdens and costs" and try to avoid duplication.
Drillers say they are worried that greater disclosure may jeopardize commercially secret
formula for the fluids they use to coax the maximum oil or gas out of a given well. Still, the
industry has become more transparent in recent years in dealing with public health concerns
about fracking. Baker Hughes, one of the largest U.S. oil service companies, has had plans to
disclose all chemical ingredients contained in its fracking fluids, without giving specific
formulas.72
71
http://www.reuters.com/article/2014/05/09/us-usa-fracking-epa-idUSBREA480SM20140509
Baker Hughes one of the world's largest oilfield services companies operates in over 90 countries, providing the oil and gas industry with
products and services for drilling, formation evaluation, completion, production and reservoir consulting. Baker Hughes has its headquarters
in the America Tower in the American General Center in Neartown, Houston
72
53
Regulation of shale gas on state level
State governments, which have historically regulated the oil and gas industry and
continue to do so today, were in many cases caught by surprise by the speed and the scale of
the shale gas boom and are still trying to update and adapt their regulatory practices to
respond to the impacts that shale gas development is causing in communities in their states.
Hydraulic fracturing is now regulated by the states, with no significant federal oversight. state
standards for well integrity, wastewater management, disclosure of the content of fracking
fluid and other aspects of drilling vary considerably, and some states lag far behind others.
The same study reported that state enforcement capacity is generally lacking, and even states
experienced with oil and gas are struggling to keep up with the pace of drilling. Some big oiland gas-producing states require some disclosure about the mix of chemicals and fluids used
to frack thousands of wells across the country. As to the existing state regulations were not
adequate to protect water resources during the development of shale gas resources, and this
situation lead to fracturing litigation, which of course can happened also in European
countries. For instance drillers in Pennsylvania have been cited for 1435 violations since
2008, 952 of which may affect the environment. 73 Entities at the local, state, regional, and
federal levels all regulate aspects of the shale gas development process. Locally, certain
municipalities zone oil and gas development within the powers granted to them by states, tax
oil and gas operators, regulate road use, and control certain aspects of oil and gas production,
such as insurance and bonding, fencing of well sites and pits, prevention of water
contamination, chemical disclosure, and the timing of oil and gas drilling. Over 16 states
around the country have now adopted some form of fracturing fluid disclosure laws,
including, most recently, Utah, Indiana, Ohio and Louisiana. Similar proposals are under
consideration in California and Illinois. 74
In addition to disclosure rules, several states have updated their broader oil and gas
regulatory programs to include specific requirements related to fracturing operations.
Pennsylvania now provides for (i) imposition of a drilling impact fee for fracturing
operations; (ii) treatment of spent drilling fluids to the safe drinking water standard for Total
Dissolved Solids (TDS); (iii) specific well blow out prevention policies; and (iv) requirements
related to the drilling, casing, cementing, testing, monitoring and plugging of oil and gas
wells, as well as protection of water supplies. Ohio has recently adopted legislation requiring
73
Marcellus Shale, N.Y. Dept. of Envtl. Conservation, See more at http://www.dec.ny.gov/
74
Shale Gas – Environmental Law and Regulation, www.bakermckenzie.com 2012
54
water sampling near proposed well sites and minimum liability insurance coverage of $5
million for bodily injury and property damage caused by well operations in the state. Ohio has
also introduced new well construction rules that contain provisions on cemented well
completions specifically applicable to fracturing wells and a model permit for all operations
during the production phase of a new well. A new regulatory regime in New York may be
forthcoming in the near future as well.
As state rules continue to evolve, this remains an unpredictable regulatory
environment for industry. While these rules, for the most part, reflect practical, technical
guidelines consistent with emerging best practices in the industry related to disclosure, well
casing requirements and fluid and water management guidelines, each new state regime raises
unique issues. In addition to technical rule changes, environmental advocates are also pushing
for more accountability, for example, calling for increased bonding requirements at the state
level to ensure funds are available for well closure and reclamation.
Regulation of shale gas in state of California
It is noteworthy that on September 13 2013 California Governor Jerry Brown signed
Senator Fran Pavley‘s Senate Bill, which established the state‘s first legislation regulating
hydraulic fracturing and other well stimulation operations. Before passing the bill, the State
Assembly added language that arguably limits the application of CEQA requirements to oil
companies engaged in hydraulic fracturing or well stimulation treatments. The amendment
requires state regulators to conduct a statewide environmental impact report (EIR) by July 1,
2015, to provide the public with detailed information regarding any potential environmental
impacts of well stimulation treatments in the state. The EIR must address impacts from the
well stimulation activities defined in the law, including, but not limited to, hydraulic
fracturing and acidizing, that may occur at oil wells in the state existing prior to and after July
1, 2015. Instead of requiring an operator to submit an EIR for each proposed project, the
amended clause authorizes a state regulator to approve a proposed fracking or stimulation
project if he or she believes its potential impacts already have been investigated by the
statewide review. In such cases, ―no additional review or mitigation shall be required.‖ Some
are concerned that this provision will give the state unfettered discretion to exempt all
fracking projects in California from CEQA requirements. Oil companies counter that CEQA
does not apply to hydraulic fracturing and other well stimulation activities in the first place
55
California‘s law requires operator notification to those residing within 1,500 feet of a
wellhead at least thirty days before commencing operations, creates model criteria for
groundwater monitoring, and obligates operators to perform baseline and subsequent
groundwater testing upon request from nearby residents. Additionally, it requires operators
performing hydraulic fracturing and stimulation activities on land shared with a federal entity
to comply with state rules as well as applicable federal regulations, and establishes a new
crime and associated civil penalty, ranging from $10,000 and $25,000 per day per violation,
for certain violations. The law requires the California Department of Conservation‘s Division
of Oil, Gas, and Geothermal Resources to finalize and implement the new requirements by
January 1, 201575 Under the law, the Division, in consultation with other state and local
entities, must adopt rules and regulations on or before January 1, 2015, specific to hydraulic
fracturing and well stimulation, including, but not limited to, well and casing construction and
fluid disclosure requirements. In the interim, if the Division determines that a fracking
application meets all the basic requirements of the California Environmental Quality Act
(CEQA), it ―shall allow‖ the project to continue and ―no additional review or mitigation shall
be required.‖ The law does not place any time limits on the agency‘s review.
The new law also requires all fluid suppliers to provide operators certain information
regarding the well stimulation fluid used within 30 days following conclusion of the
treatment.
75
See more at http://www.velaw.com/resources/CaliforniaLawmakersPassFirst-EverFrackingLaw.aspx
56
Figure 24. drinking water aquifers
Source: IEA
Within 60 days of concluding the treatment, the operator must post on a public website
well stimulation fluid information and other information, such as whether the base fluid is
water suitable for irrigation or domestic purposes; the source, volume, and disposition of all
water used; the disposition of all well stimulation treatment fluids other than water; whether
any radiological components or tracers were injected into the well; the radioactivity of the
recovered well stimulation fluids; and the location of the portion of the well subject to the
well stimulation treatment and the extent of fracturing or other modification surrounding the
well induced by the treatment. The law requires the Division to develop a website for
operators to report specific well stimulation information by January 1, 2016. If operators post
the specific information to an alternate website, such as FracFocus.org, the Division must
57
obtain the data and make it available on its website. While the law allows suppliers to claim a
trade secret privilege for the chemical composition of additives used in a well stimulation
treatment, the supplier must nevertheless disclose the composition to the Division. The
supplier must indicate where trade secret information has been withheld and provide
substitute information, including the chemical constituents of the additive and Chemical
Abstract Service identification numbers, for public disclosure. A well granted confidential
status will not be required to disclose well stimulation treatment fluid information until the
confidential status of the well ceases. In any event, the Division may disclose the protected
trade secret information to an officer or employee of the Division, state, or local governments,
a health professional, or associated contractors if it determines that disclosure is necessary and
required to perform a contract or to protect public health and safety
The law applies to ―well stimulation treatments,‖ including hydraulic fracturing and
other well stimulation treatments, such as acid well stimulation, which some oil companies
consider the key to producing the estimated 15.5 billion barrels of recoverable petroleum in
the Monterey Shale underlying central California. The law defines ―acid well stimulation
treatment‖ (also known as acidizing) as ―a well stimulation treatment that uses, in whole or in
part, the application of one or more acids to the well or underground geologic formation‖ at
any pressure to release petroleum within the reservoir. Acidizing is already a common
practice frequently used by operators in California. Well stimulation treatments do not include
steam flooding, water flooding, or cyclic steaming and do not include routine well cleanout
work, routine well maintenance, routine removal of formation damage due to drilling, bottom
hole pressure. In addition The law requires the Secretary of the California Natural Resources
Agency to complete an independent scientific study on well stimulation treatments, including
hydraulic fracturing, by January 1, 2015.
The study will evaluate potential hazards and risks that well stimulation treatments
pose to natural resources and public, occupational, and environmental health and safety. The
study must consider, greenhouse gas emissions, air pollution, seismic impacts, noise
pollution, and groundwater and surface water contamination. Contamination of groundwater
directly through hydraulic fracturing and as a result of compromised cementing jobs in nearsurface casing. 76
76
David Hughes,Wiil natural gas fuel amercian in the 21 st Century, Post Carboe Institue 2011, p. 27
58
IV Fracturing litigation in the United States and United Kingdom
The fracturing litigation in the U.S. has some
impact the property and casualty
insurance industry, raising numerous coverage and liability issues. There is no doubt that
European legislation can only take advantage of the highly developed legal system for
environmental protection created at the federal and state level. We can not ignore the potential
impact of the state and federal case law which repeatedly had to deal with issues of shale gas.
Therefore, it is important to provide readers with basics of the necessary stages of litigation,
which knowledge serves better in understand the complex aspects of extraction and
production of shale gas. The most important stage in civil litigation is presentation of the
facts stated in this Memorandum and Order are taken from the Complaint and/or from public
records and undisputed facts set forth in the parties briefs. They should not be construed as
findings of this Court. In a motion to dismiss, the Court is obligated, for the purposes of that
motion, to accept as true the facts set forth by the non-moving party, in this case, the Plaintiff.
To the most likely sources of liability from fracking can be included violations of the
Clean Water Act, public nuisance claims arising from seismic activity caused by fracturing,
wrongful death claims arising from gas accumulation explosions in residences and businesses,
strict liability, negligence and recklessness claims arising from medical conditions caused by
fracking chemical runoff and natural gas leaks, sub-surface trespass claims, landownerlessors‘ liability for damage caused to neighboring properties and residents. 77 In the EU, most
state retains sub-soil exploitation rights78. However, the surface remains property of the
landowner what may result in the owner not willing to permit a company on to its land if he
is not being compensated by a financial incentive. Such permission requires an application to
be made to local courts to grant it, which can be long and costly for the fracking companies.
Therefore very often federal agencies and state governments initiate legel proceedings
e.g. EPA in December 2012 advised the DC Circuit Court of Appeals that it plans to
reconsider its new air rules for the oil and gas industry, including New Source Performance
Standards (―NSPS‖) and National Emission Standards for Hazardous Air Pollutants
77
http://www.insurancejournal.com/magazines/features/2014/01/27/317821.htm
78
Ownership of mineral rights (more properly "mineral interest") is an estate in real property - known as a mineral estate which is the right of
the owner to exploit, mine, and/or produce any or all of the minerals lying below the surface of the property. The mineral estate of the land
includes all organic and inorganic substances that form a part of the soil with the exceptions granted to sand, gravel, limestone, and
subsurface water—which are normally considered part of the surface estate
59
(―NESHAP‖) finalized last spring. 79 The rules are the subject of a slew of industry and
environmental group challenges currently before the Court, as well as a pending challenge
from seven states‘ Attorneys General. In a filing with the DC Circuit on January 16 2013 ,
EPA asked the court to stay the legal challenge to the rules from the American Petroleum
Institute, among others, while the Agency reconsiders the rules. Specifically, EPA stated that
it plans to initiate a new rulemaking addressing certain issues with the NSPS, which it would
finalize by March 29, 2013, and may follow this rulemaking with an additional rulemaking on
the NSPS that it would finalize by the end of the year. EPA also stated it plans to revise the
NESHAP and would seek to finalize its reconsideration action on this rule by March 31, 2015.
The Agency asked the court to split the challenges into two cases dealing with the NSPS and
NESHAP respectively, and to hold the cases in abeyance until EPA completed the relevant
reconsiderations.
The announcement followed notice late last year of an additional challenge to the
NSPS rules to be filed by seven states—New York, Connecticut, Delaware, Maryland, Rhode
Island, Vermont and Massachusetts. The states alleged that because EPA has determined that
GHG emissions, including methane, endanger human health and welfare, EPA is required to
make a determination as to the appropriateness of NSPS for methane emissions from oil and
gas operations under Section 111(b) of the CCA (in addition to the finalized NSPS for VOCs
and SO2). 80 Fugitive Methane emissions from hydraulic fracturing processes can have a huge
impact on the greenhouse gas balance.
79
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, and GINA McCARTHY, Administrator, United States
Environmental Protection Agency, United States Court of Appeals Tenth Circuit May 16 2014
80
Clean Air Act Notice of Intent to Sue for Failure to Determine Whether Standards of Performance Are Appropriate for Methane E missions
from Oil and Gas Operations, and to Establish Such Standards and Related Guidelines for New and Existing Sources
60
Figure 25. Hydraulic fracturing
Source: Goodyearlake.org
Existing assessments give a range of 18 to 23 g CO2- equivalent per MJ from the
development and production of unconventional natural gas. The emissions due to methane
intrusion of aquifers are not yet assessed. EPA announced its plans to narrowly implement the US
Court of Appeals for the 6th Circuit ruling in Summit Petroleum Courp. v. EPA. where the court
vacated an Environmental Protection Agency (EPA) determination that Summit Petroleum
Corporation‘s natural gas sweetening plant and sour gas production wells spread over forty-three
square miles constituted a single stationary source for CAA permitting purposes 81 The 6th Circuit in
this case reviewed an EPA determination that Summit Petroleum‘s natural gas operations near
Rosebush, Michigan—which include a natural gas sweetening plant, pipelines, wells and occasional
flares spread out over a 43-square mile area—should be permitted as a single, major source under Title
V. In reaching its decision, the court noted that historically the agency has ―rarely, if ever‖ considered
81
The United States Court of Appeals for the Sixth Circuit Nos. 09-4348;10-4572. Summit Petroleum Corp. v. United States EPA, 2012 see
also See Council Tree Investors, Inc. v. FCC, 739 F.3d 544, 553 n.7 (10th Cir. 2014) (―we need not decide in this case whether or not to
adopt the reopener doctrine‖); HRI, Inc. v. EPA, 198 F.3d 1224, 1238 n.8 (10th Cir. 2000)
61
physical proximity to be essential for aggregation. As such, the Summit decision will require a
significant change in agency policy in this area. This change is relevant across regulated industries, but
is particularly relevant to oil and gas operations, which environmental groups have recently suggested
should be subject to aggregation on a more regular basis.
The Summit decision invalidates a long-standing EPA interpretation of its own source
definition regulations. The agency has maintained that sources can be aggregated based on
their ―functional interrelationship,‖ even where the sources are not proximately adjacent. The
Sixth Circuit found that the adjacency requirement in EPA source definition regulations
requires sources to be physically near or next to one another in order to be aggregated. As
such, the ruling makes it more difficult for the agency to conclude that a network of oil and/or
gas operations, or any other industrial constellation of emission sources, can be treated as a
single source under the CAA in the absence of physical proximity between the relevant
emission units. 82 The permitting requirements for projects like compressor stations and
sweetening plants often determine whether such projects are feasible because of the timing
and cost associated with such requirements. Whether New Source Review (NSR) air
permitting requirements apply to a particular project sometimes depends on whether multiple
emissions sources must be combined or ―aggregated‖ and treated as a single source. The NSR
air permitting program under the CAA requires any major source or major modification 83 to
obtain a permit prior to beginning construction. 84 Obtaining a permit can be expensive and the
process from application submittal to permit issuance often takes years. Stringent controls
may be required and, if the project is located in a ―non-attainment area‖85for a relevant
pollutant, project emissions may have to be offset by emission reductions elsewhere.86
Further, the 1990 CAA Amendments created a national permit system that requires ―major
sources‖ of air pollution to obtain Title V operating permits that identify all of the air qualityrelated ―applicable requirements‖ that govern the source. [8] Title V permit holders must selfreport all deviations from the permit‘s applicable requirements and, on an annual basis, certify
continuous compliance with those requirements for which the permit holder has not reported a
deviation. Federal NSR regulations define a major stationary source as any building, structure,
facility or installation that emits or may emit a regulated NSR pollutant. The regulations
further define a ―building, structure, facility or installation‖ for source and emissions
82
See also case decdied by the Supreme Court‘s 2006 decision in Ra panos v. United States, 547 U.S. 715 (2006).; see more at
http://bakerxchange.com/cv/7cfd294bb136b7e9ac530198210640bd149d2b56
83
See 42 U.S.C. ¤ 7479(1) (2006). Major modifications are modifications at existing sources that cause a significant increase in net emissions
of the same pollutants. See 40 C.F.R. ¤ 51.165(a)(1)(v)(A) (2012).
84
See EPA, Basic Information, U.S. Envtl. Prot. Agency, http://www.epa.gov/nsr/info.html (last updated July 22, 2011).
85
See 42 U.S.C. ¤ 7407 (2006). Prevention of Significant Deterioration (PSD) permitting applies in attainment areas. See id. ¤¤ 7470–7479.
Nonattainment NSR occurs in nonattainment areas. See id. ¤¤ 7501–7514
86
42 U.S.C. ¤ 7503(a)(1)(A) (2006).
62
accounting purposes. EPA focuses on three factors found in the definition: (1) whether the
activities belong to the same industrial grouping; (2) whether the activities are located on one
or more contiguous or adjacent properties; and (3) whether the activities are under common
control. In applying these criteria, EPA, state, and local permitting authorities are guided by
the directive in Alabama Power Co. v. Costle 87 to apply the ―common sense notion of a
plant‖88
In this case the court rejected the Agency‘s position that air emission sources can be
grouped together as a single source for permitting purposes based on their ―functional
interrelationship,‖ where the sources are not proximately adjacent. Whether sources can be
aggregated based on their common function is a critical distinction for oil and gas operations,
which often include a variety of emission sources spread out for production and transmission
that may be considered functionally related, but are not immediately adjacent to one another.
The Summit court found that the adjacency requirement in EPA regulations requires sources
to be physically near or next to one another in order to be aggregated.3 In a December 21
memorandum, EPA announced that while it will no longer use the ―functional
interrelationship‖ test when assessing aggregation in permitting decisions in 6th Circuit states
(Michigan, Tennessee and Kentucky), as well as in Ohio, it will continue to use the test in all
other states.
On March 12, 2012, the first two Ohio cases involving alleged contamination via
fracking fluids were filed in the U.S. District Court for the Northern District of Ohio Eastern
Division. In Managan v. Landmark89 decided on March 11th 2013 and Boggs v. Landmar 90k,
two sets of landowner plaintiffs claim that the defendant gas exploration company discharged
fracking fluids onto their property, causing the plaintiffs to incur health injuries, emotional
distress, and other damages. In additional to compensatory damages, the plaintiffs were
seeking medical monitoring, and their causes of action include negligence, strict liability,
private nuisance, unjust enrichment, negligence per se, battery, intentional fraudulent
concealment, and negligent misrepresentation. Specifically plaintiffs have alleged that
Landmark engaged in hydraulic fracturing, using toxic substances, toxic fumes, carcinogens,
and otherwise ultra-hazardous materials and injecting those substances below the ground
87
Alabama Power Company v. Douglas M. Costle, as Administrator, Environmental Protection Agency, Sierra Club, Intervenors., 636 F.2d
323 (D.C. Cir. 1980; 9 ELR 20400. No. No. 78-1006, 606 F.2d 1068/13 ERC 1225/(D.C. Cir., 06/18/1979) see also Okla. Dep‘t of Envtl.
Quality v. EPA, 740 F.3d 185, 191 (D.C. Cir. 2014)
88
See 45 Fed. Reg. 52,676, 52,695 (Aug. 7, 1980) (codified at 40 C.F.R. pts. 51, 52, and 124).
89
Mangan et al v. LANDMARK 4, LLC, case number 1:12-cv-00613 March 11, 2013 Memorandum Opinion and Order denying 28
defendant's Motion to dismiss w/regard to count 2 and granted w/regard to count 6. Count 6 is dismissed. All other claims remain pending.
Judge Donald C. Nugent(C,KA); see another cases . See, Slack v. Fort Defia nce Const. & Supply, Inc., 2004 WL 2806310 at *3
(Ohio App. Dec. 7, 2004); see also Green v. Begley Co., 2008 WL 4449065 at *3 (S.D. Ohio Sept. 29, 2008).
90
Boggs v. Landmark 4, LLC, No. 12- cv- 614 (N.D. Ohio, filed Mar. 2012)
63
surface under extreme pressure, in the vicinity of private property and public or private water
sources during their drilling and production activities. These allegations are sufficient to state
a possible claim for strict liability. The Hirsch case cited by Defendants is factually
distinguishable, and its reasoning does not translate to the facts of this case. In Hirsch, the
Plaintiffs alleged strict liability for alleged contamination caused when a train derailed and
spilled toxic and hazardous chemicals onto the ground. There is no indication in that case that
the transport of the hazardous chemicals was itself alleged to be a strict liability event, or that
the chemicals could have caused damage if there had not been a derailment caused by
negligence. Further, the transport of hazardous materials by train is an event that is in no way
new or uncommon. In this case, the parties allege both that the drilling activities were
conducted negligently, and that fracking itself should be considered a strict liability activity.
Fracking is not as familiar an activity as rail transport and the Second Amended Complaint
included allegations that the process requires the injection of hazardous chemicals and
materials into the ground near water sources. The Second Amended Complaint alleged
sufficient facts and information to raise a question as to whether fracking, even in the absence
of negligence should be considered an abnormally dangerous activity. The Defendants
certainly have been provided with fair notice of what the claim is and the grounds upon which
it rests. Whether or not the facts will actually support liability under the theory of strict
liability is a question for a later date. In case Boggs the plaintiffs alleged that beginning in
September of 2008, Landmark, an oil and gas well operator, engaged in drilling and hydraulic
fracturing activities, and operated Allard Well Nos. 3-A and 4-A near Medina Township,
Ohio. The Plaintiffs alleged that the location of these wells is approximately 2,502 feet from
the Plaintiffs' property, home and water supply. Landmark used horizontal drilling and
hydraulic fracturing (otherwise known as "fracking") to extract natural gas from the Allard
Wells. 91 Fracking requires the discharge of fluids known as "fracking fluids" or "drilling mud"
into the ground under extreme pressure. (Id.) These fracking fluids are made up of a number
of chemicals, which the Plaintiffs allege include carcinogenic and toxic chemicals such as
barium, maganese and strontium. Plaintiffs claim that these chemicals were discharged into
the ground or into the waters near Plaintiffs' home and water well due to Defendant's
negligent planning, training, and supervision of staff, employees, and/or agents.
92
Plaintiffs
further claim that the Defendant failed to disclose to the Plaintiffs and to public authorities
and/or agencies, material facts concerning the nature, extent, magnitude, and effects of the
91
92
ibidem
ibidem
64
contaminants emitted, released, stored, handled, processed, transported, and/or disposed of in
and around the facility and surrounding environment, specifically with regard to their effects
on Plaintiffs and their property. 93 Plaintiffs also alleged in their Complaint that Landmark
"intentionally concealed and failed to disclose to Plaintiffs and public authorities and/or
agencies, material facts concerning the nature, extent, magnitude, and effects of the exposure
of Plaintiffs and/or their property to contaminants emitted, released, stored, handled,
processed, transported, and/or disposed of in and around the facility and surrounding
environment.". Court founded that this is not sufficient to satisfy the particularity
requirements of Fed. R. Civ. Pro. 9(b) as interpreted by the Sixth Circuit. Plaintiffs alleged no
duty to disclose information to them; cannot recover for any misrepresentations that may have
made to a third party (i.e. public authorities and/or agencies); do not allege what material facts
should have been disclosed exactly; or that the failure to disclose was intentionally meant to
deceive the Plaintiffs. Further they did not alleged any facts that would support their
conclusory claim that they suffered damage stemming from the concealment of such facts, as
opposed to the existence of the alleged contamination. The failure to warn of potential
contamination or exposure to dangerous chemicals, without more, is not actionable as
fraudulent concealment.94 Plaintiffs Complaint fails to allege with particularity the required
elements for a claim of intentional fraudulent concealment, and must be dismissed.
Lawsuits related to fracking activities are currently being litigated across the United
States, including in New York, Pennsylvania, Texas, Colorado, and West Virginia. The
majority of these suits have been filed against energy companies on behalf of individual
property owners, primarily for property damage and personal injury resulting from water, soil,
or air contamination. Since the first complaints were filed in 1997, there have been more than
40 lawsuits filed in state and federal courts alleging some level of harm to person, property or
the environment caused by fracking or related activities The majority of fracking lawsuits
filed to date have been filed based on common law theories of liability. and the plaintiffs are
filing an increasing number of actions alleging contamination from the energy companies' oil
and gas exploration activities in, Fayetteville, Bakken and Barnett Shale and the Marcellus .
The US Geological Survey estimated that the entire Marcellus Shale in the
Appalachian basin contains approximately 80 trillion cubic feet of gas, together with
approximately 3 billion barrels of natural gas liquids (USGS 2012a NPR).
93
94
ibidem
See ccase Coffey v. Foamex, 2 F.3d 157, 161 (6th Cir. 1993)
65
Further gas reserves may be available in the east of the State (USGS 2012b NPR),
Within Garrett County and the western portion of Allegany County, the Marcellus is between
5,000 and 9,000 feet deep and between 150 to 200 feet thick (Maryland Geological Survey,
undated). In the Marcellus Shale, the major company extracting shale gas is Chevron which
holds 917,000 total acres (3,712 sq km). During 2013, 70 development wells were drilled,
mostly funded by a 75 percent drilling carry. The company had seven drilling rigs in
operation at year-end. Development is proceeding at a measured pace, focused on improving
execution capability and reservoir understanding.95
However, in the eastern part of the Appalachian Plateau Physiographic Province the
Marcellus Shale outcrops at the surface. As this coincides with the boundary of the zone of
potential exploration, this means that, in the area approaching the western boundary of the
exploration zone, the depth to the Marcellus shale will be significantly less than 5000 feet,
Formations. lawsuits are expanding beyond groundwater contamination to include
claims of air pollution, patent infringement, employee exposure to hazardous chemicals,
earthquakes and even criminal liability. Plaintiffs are also suing entities outside the
traditional oil and gas companies with claims against waste treatment plants and compressor
stations involved in the disposal and transmission of fracking fluid and natural gas obtained
from the well sites
The predominant claim by plaintiffs has been that, as a result of fracking of natural gas
wells located near plaintiffs' property, plaintiffs have suffered medical issues and their
property, including groundwater wells, has become contaminated due to the release of
contaminants to the land, water and air during the fracking process. Common-law theories of
liability that have been asserted include: (1) public nuisance; (2) private nuisance; (3)
trespass; (4) negligence; (5) negligence per se; (6) strict liability for abnormally dangerous
activities; (7) fraud; (8) indemnification; and (9) contribution 96
One of the most interesting cases was the U.S. Court of Appeals for the 11th Circuit
ruling in 1997 that the hydraulic fracturing of coal beds for methane production constituted
underground injection that must be regulated. 97
95
Chevron 2013 Supplement to the Annual Repor, s. 15
http://www.blankrome.com/index.cfm?contentID=37&itemID=2860
97
Legal Envtl. Assistance Found. v. Envtl. Prot. Agency, 118 F.3d 1467, 1477 (11th Cir. 1997). 118 F.3d 1467: Legal Environmental
Assistance Foundation, Inc., Petitioner, v. United States Environmental Protection Agency, Respondent
96
66
The issue presented in this petition for review was whether the United States
Environmental Protection Agency ("EPA") is legally required to regulate hydraulic fracturing,
a production enhancement technique used by the oil and gas industry, under the underground
injection control ("UIC") programs established pursuant to Part C of the Safe Drinking Water
Act
98
determined that hydraulic fracturing does not fall within the statutory or regulatory
definition of "underground injection." Because we find EPA's interpretation inconsistent with
the language of the statute, we grant the petition for review and remand for further
proceedings. The court conclude that hydraulic fracturing activities constitute "underground
injection" under Part C of the SDWA. EPA's contrary interpretation cannot be squared with
the plain language of the statute and thus must fall. Broad as EPA's discretion in formulating
regulatory policy within the framework of the SDWA may be, it must bow to the specific
directives of Congress.99 Because the judges founded that EPA's interpretation of its
regulations is inconsistent with the statute, they granted the petition for review and remanded
for further proceedings consistent with this opinion
With companies eager to capitalize on the vast natural gas supply in the Marcellus
Shale in Pennsylvania and New York, it comes as no surprise that energy companies
exploring for natural gas are facing numerous lawsuits. Residents of Susquehanna County,
Pennsylvania, claim a poor casing job by Southwestern Energy and its affiliates allowed
fracking fluid to migrate into their groundwater supply. In February, the residents' claims of
strict liability for an ultrahazardous activity survived the defendants' motion to dismiss.
However, the U.S. District Court for the Middle District of Pennsylvania cautioned the
residents that Pennsylvania case law may create difficulties for their claims later on in the
case. The case of Fiorentino v. Cabot Oil and Gas Corp 100 arised out of the allegations in
Dimock, Pennsylvania that drilling for Marcellus Shale gas by the defendant, Cabot Oil &
Gas Corp., caused property damage and personal injuries to residents. As has been
highlighted both in a documentary movie and on 60 Minutes, drinking water supplies have
been alleged to contain methane, natural gas and other toxins and allegedly have been
released onto plaintiff‘s land. Plaintiffs brought suit seeking an injunction prohibiting future
natural gas operations, seeking compensatory and punitive damages, the cost of future health
monitoring, attorneys‘ fees and other unspecified relief. 101
("SDWA"), 42 U.S.C. ¤¤ 300h to 300h-8. EPA
See casess Chevron, 467 U.S. at 843, 104 S.Ct. at 2781; LaBonte, --- U.S. at ----, 117 S.Ct. at 1677
100
Fiorentino v. Cabot Oil and Gas Corp. No. 09-cv-2284; 750 F.Supp. 2d. 506 (M.D. Pa. Nov. 15, 2010). (August 17, 2011).
101
Fiorentino v. Cabot Oil & Gas Corp., No. 09-CV-2284, 2010 WL 4595524 (M.D. Pa., Nov. 15, 2010),
98
99
67
The plaintiffs‘ complaint alleged the following claims against the defendant: 1)
Hazardous Sites Cleanup Act, 2) negligence; 3) private nuisance; 4) strict liability; 5) breach
of contract; 6) fraudulent misrepresentation; 7) medical monitoring trust funds; and 8) gross
negligence. The defendant filed a motion to dismiss the claims brought pursuant to HSCA,
strict liability, medical monitoring and gross negligence. The defendant also filed a motion to
strike a number of allegations largely related to the claims they were seeking to dismiss, as
well as negligence per se and attorneys‘ fees. The ruling by Judge John E. Jones, related only
to the motion to dismiss these claims and the motion to strike. For the most part, in his ruling,
the Judge sided with the plaintiffs. Defendants argued that the plaintiffs were required to file a
written notice 60-days prior to commencing an action under HSCA. Such notices are required
by provisions contained in HSCA. The court ruled that since the HSCA claim was brought
under Sections 507 and 702 for response costs, no 60-day notice was required. Such a notice
would be required, however, ―in citizen suits for property damage and actual or potential
bodily injury.‖ 102
The court noted that strict labiality does not apply in Pennsylvania in actions involving
underground storage of petroleum products and operation of petroleum pipelines. The court
ruled however, that ―Pennsylvania courts have yet to address whether the conduct at issue sub
judice, gas-well drilling, is an abnormally dangerous activity that is subject to strict liability
under Pennsylvania law.‖ The court felt it would be improvident to ―extend the reasoning to
drilling activities without more thorough consideration.‖ Thus the court denied the motion to
dismiss and suggested that the defendants could reassert the issue in a motion for summary
judgment after the record had been more fully developed.
The plaintiffs had also made a claim for medical monitoring expenses, to which the
defendant filed a motion to dismiss 103. The court held that while the plaintiffs may not have
set out their claim in the precise manner endorsed by the Pennsylvania Supreme Court, the
District Court held that, viewed as a whole, the complaint had sufficiently stated a plausible
common law claim for medical monitoring to allow discovery to proceed. The court did
dismiss the plaintiffs‘ claim for gross negligence without any objection by the plaintiffs other
than they were not abandoning their claim for punitive damages. The court refused to strike
the allegations relating to attorneys‘ fees at this time, preferring to wait to see if there were
circumstances where such an award would be appropriate. Finally, the court held that the
Op. Cit. The court followed Judge Caldwell‘s ruling in Two Rivers Terminal, L.P. v. Chevron, USA, 96 F.Supp.2d 426 (M.D. Pa. 2000).
In denying the motion, the court quoted from the Pennsylvania Supreme Court‘s ruling in Redland Soccer Club, Inc. v. Dept. of the Army,
696 A.2d 137 (Pa. 1997), to lay out the criteria for a claim for medical monitoring
102
103
68
claim for negligence per se, which would establish two of the four required elements of a
negligence claim (duty and breach), was appropriate to this case 104
The February 2011 case of Berish v. Southwestern Energy Production Co. 105, also
from the US District Court for the Middle District of Pennsylvania, applied the ruling in
Fiorentino. Plaintiffs are all residents of Susquehanna County, Pennsylvania. SEPCO is a
Texas corporation conducting drilling activities for the purpose of oil and gas exploration and
production throughout Pennsylvania, including Susquehanna County. The majority of the
Plaintiffs‘ properties are less than twothousand feet from SEPCO‘s Price #1 Well. Starting in
April 2008, SEPCO was engaged in drilling and extraction activities at Price #1 Well.
SEPCO‘s drilling activities include hydraulic fracturing and horizontal drilling. Hydraulic
fracturing requires the discharge of significant volumes of hydraulic fracturing fluids into the
ground under extreme pressure in order to dislodge and discharge underground gas. The
composition of the fracturing fluid, or ―fracking fluid,‖ includes hazardous chemicals that are
toxic and carcinogenic. Other hazardous chemicals, including diesel fuel and lubricating
materials, are also used in the operation. As a result of Price #1 Well‘s insufficient casing,
pollutants and other industrial waste, including the fracking fluid and other hazardous
chemicals such as barium and strontium, were discharged into the ground and contaminated
the water supply used by the Plaintiffs. This contamination has not only exposed Plaintiffs to
hazardous materials and created the possibility of causing present and future health problems,
but it has also lowered the value of Plaintiffs‘ properties. 106 In their Complaint, which was
initially filed in the Court of Common Pleas of Susquehanna County, Plaintiffs brought
claims for violation of the Hazardous Sites Cleanup Act (Count I); Negligence (Count II);
Private Nuisance (Count III); Strict Liability (Count IV); Trespass (Count V); and to set up a
Medical Monitoring Trust Fund (Count VI). Plaintiffs seek compensatory and punitive
damages, the costs of future health monitoring, and preliminary and permanent injunctions
barring Defendants from engaging in the activitiesset forth in the Complaint. Once they
removed the case, SEPCO filed a Motion to Dismiss part of Count I, all of Count IV, and the
demand for damages for emotional distress except as to Plaintiff C.S.
Distinct from Fiorentino, the plaintiffs in Berish did not sign leases with the drilling
company defendant, Southwestern Energy (a Texas company). Rather, the defendant engaged
in fracking activities at a site located in close proximity to the plaintiffs' properties. The
104
Op. cit.
Berish v. Southwestern Energy Production Co. No. 3:10-cv-1981; 2011 WL 382420 (M.D. Pa. Feb. 3, 2011). THE UNITED STATES
DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
106
Op. cit. p. 3
105
69
plaintiffs alleged that discharged fracking fluids contaminated their properties and contributed
to physical illnesses. Similar procedural issues were present in Berish and Fiorentino. In
Berish, the defendant again filed a motion to dismiss under FRCP 12(b)(6), alleging that the
plaintiffs' claim that fracking is an "abnormally dangerous" activity did not contain sufficient
factual allegations to sustain the claim. However, the Berish court found a number of
Pennsylvania cases with facts analogous to the instant suit have determined that the activities
involved there were not abnormally dangerous . However, since the determination of whether
or not an activity is abnormally dangerous is fact-intensive, courts often wait until discovery
is complete before making this determination. making this determination.107
The Berish court also reiterated the holding in Fiorentino that the applicable test in
Pennsylvania for determining whether an activity is "abnormally dangerous" can be found in
the Restatement (Second) of Torts. The last noted activity in Berish was the amendment of the
plaintiffs' complaint in May 2012. Tucker v. Southwestern Energy Co.
108
A case in the early
stages of litigation, Tucker v. Southwestern Energy Co. encompasses civil procedure issues
similar to Fiorentino and Berish. Filed in the US District Court for the Eastern District of
Arkansas, Northern Division, Tucker concerns natural gas extraction from the Fayetteville
Shale. The judge in Tucker, citing concerns about the factually-intensive nature of
determining whether fracking is an "ultra-hazardous" activity and should therefore held to a
strict liability standard, cited Fiorentino and Berish in his opinion. Refusing to dismiss the
plaintiffs' claim outright, the Tucker court instead requested that the plaintiffs amend their
complaint, and scheduled the matter to move forward to summary judgment stage. As of June
2012, this case was still pending. Anschutz Exploration Co. v. Town of Dryden. 109 In the New
York trial court decision of Anschutz Exploration Co. v. Town of Dryden, the town of Dryden,
located within the Marcellus Shale region, passed zoning regulations banning fracking
activity within town limits. 110
In this case the court waqs asked to determine whether a local municipality may use its
power to regulate land use to prohibit exploration for, and production of, oil and natural
453*453 gas. The controversy arises from the proposed use of high-volume hydraulic
fracturing (hydrofracking) to obtain natural gas from the Marcellus black shale formation
which underlies the southern portion of New York State. The Town of Dryden is located in
107
See more at http://jurist.org/feature/2013/07/fracking-litigation.php
Tucker v. Southwestern Energy Co., 11-. CV-0044 (E.D. Ark, filed May 2011); see also cases Fiorentino v. Cabot Oil & Gas Corp., 750
F. Supp. 2d 506, 511-12 (M.D. Pa. 2010), and Berish v. Southwestern Energy Production Co., 763 F. Supp. 2d 702, 705 (M.D. Pa. 2011).
109
Anschutz Exploration Corp. v. Town of Dryden, 2012 N.Y. Slip Op. 22037 (Sup Ct, Tompkins Co. Feb. 21, 2012).
110
ANSCHUTZ
EXPLORATION
CORPORATION,
Petitioner/Plaintiff,
v. TOWN OF DRYDEN et al., Respondents/Defendants35 Misc.3d 450 (2012) 940 N.Y.S.2d 4582012 NY Slip Op 22037
108
70
the Marcellus shale region In effect to prohibit hydrofracking, the Dryden Zoning Ordinance
was amended on August 2, 2011 to ban all activities related to the exploration for, and
production or storage of, natural gas and petroleum (the zoning amendment).
Petitioner/plaintiff (Anschutz) owns gas leases covering approximately 22,200 acres in the
Town— representing over one third of its total area—that were obtained prior to enactment of
the zoning amendment and has invested approximately $5.1 million in activities within the
Town It commenced this hybrid CPLR article 78 proceeding/declaratory judgment action
against the Town of Dryden and the Town of Dryden Town Board (collectively the Town) on
September 16, 2011 seeking invalidation of the zoning amendment on the basis that it is
preempted by the Oil, Gas and Solution Mining Law (ECL art 23 [herein OGSML]). The
Town timely answered and moved for dismissal of the article 78 proceeding and for summary
judgment declaring the zoning amendment valid.
The plaintiff, a natural gas company with mineral and gas leasing rights to
approximately 22,200 acres within town limits, objected to the implementation of the fracking
ban after the leases had been obtained and drilling infrastructure had been built. The natural
gas company sued the town, seeking rescission of the zoning regulation, arguing that the state
permits it had obtained superseded the town's zoning ordinance. Ultimately, the court ruled
that the town could not seek to invalidate an otherwise lawful permit. The Town's motion for
summary judgment was granted, and it was adjudged and declared that the zoning
amendment—as herein modified by severing and striking section 2104 (5)—is not preempted
by the OGSML. However, the court did not bar all potential remedies in the case: 111
The Zoning Amendment provides that "[n]o permit issued by any local, state or federal
agency, commission or board for a use which would violate the prohibitions of this section or
of this Ordinance shall be deemed valid within the Town" (Dryden Zoning Ordinance, Section
2104. While the Town may regulate the use of land within its borders — even to the extent of
banning operations related to production of oil or gas — it has no authority to invalidate a
permit lawfully issued by another governmental entity. Rather, enforcement of the provisions
of its Zoning Ordinance relating to the use of land is restricted to those remedies authorized
by Town Law ¤ 268 and Municipal Home Rule Law ¤ 10(4)(a), (b).112
111
112
http://libraryguides.law.pace.edu/content.php?pid=227170&sid=2082504
http://law.justia.com/cases/new-york/other-courts/2012/2012-ny-slip-op-22037.html
71
In Kamuck v. Shell Energy Holdings GP, LLC,
113
plaintiff Edward Kamuck lived on
property in the Marcellus Shale region. All of his neighbors signed an amended mineral rights
lease with the defendants, oil and gas drilling companies Shell Energy and Shell Western
Exploration and Production (SWEPI), extending mineral rights to natural gas extraction,
including methods such as fracking. Kamuck was the only resident who declined to sign this
extended lease, and in fact allowed the prior mineral rights lease, which was more limited in
scope, to lapse. He then filed suit in the US District Court for the Middle District of
Pennsylvania against Shell Energy Holdings and several related entities, alleging several
claims in tort and contract.114
The court in Kamuck granted the defendants' motion for dismissal of all contract
claims, as the plaintiff did not have any contracts with the named defendants. They also
granted the motion to dismiss Kamuck's "anticipatory trespass" claim, ruling that an actual
trespass had to take place 115: The judges did found no Pennsylvania cases which permit
recovery on an anticipatory trespass theory of liability. Moreover, when we endeavor to assess
whether the Pennsylvania courts might embrace such a claim, we are struck by the fact that,
while Pennsylvania recognizes the tort of trespass, it is well-settled that: "Trespass is a strict
liability tort, 'both exceptionally simple and exceptionally rigorous.'" 116 However, the court
denied the defendants' motion to dismiss on the plaintiff's negligence and "ultra hazardous"
(strict liability) claims. Referencing Fiorentino, Berish and Tucker, the Kamuck court refused
to dismiss an "ultra-hazardous activity" claim before discovery
In Dimock case, Pennsylvania, Cabot Oil & Gas and Atlas Energy settled a lawsuit
from more than a dozen families, claiming the companies' fracking operations polluted their
wells. Chesapeake Energy is defending two lawsuits in Bradford County, claiming that the
company's natural gas drilling has led to groundwater contamination. Atlas Energy is being
sued in Washington County after a wastewater impoundment pond used in the fracking
process caught fire.
113
EDWARDE. KAMUCK, Plaintiff, v. SHELL ENERGY HOLDINGS GP, LLC, SHELL ENERGY HOLDINGS LP, LLC, and SWEPI,
LP (d/b/a SHELL WESTERN EXPLORATION AND PRODUCTION, LP), Defendants LLC, No. 4:11-CV-1425 (M.D. Pa. filed. Aug. 3,
2011).
114
On April 26, 2012, the parties consented to proceed before the undersigned (Doc. 38.), and the district court referred the ca se to this Court
on April 27, 2012. (Doc. 40.) Defendants answered the complaint on May 10, 2012 (Doc. 42.), and the Court entered a standard case
management order on May 11, 2012, setting forth a number of pre-trial, discovery, and trial dates that would govern this action. (Doc. 43.)
115
Op. cit. Kamuck v. Shell Energy Holdings GP, LLC, No. 4:11-CV-1425 (M.D. Pa. filed. Aug. 3, 2011).
116
Op. cit. Kamuck v. Shell Energy Holdings GP, LLC, No. 4:11-CV-1425 (M.D. Pa. filed. Aug. 3, 2011).
72
Fracturing litigation in the United Kingdom
The issue of consent from any landowners under whose land there will be horizontal
drilling. was in June 2010 subject of The Supreme Court‘s deliberation, which in case STAR
ENERGY WEALD BASIN LTD V BOCARDO SA 117on 28 July 2010 dismissed the appeal
brought by Mohammed Al-Fayed‘s company, Bocardo SA, against a decision to award only
nominal damages for trespass against an oil company that drilled without permission
underneath Al-Fayed‘s estate in Surrey. The issues for the Supreme Court to decide were: (1)
whether the drilling of wells in the sub-strata below Bocardo‘s land could constitute an
actionable trespass, and if so (2) what the correct measure of damages should be. On the first
issue, Lords Hope, Walker, Brown, Collins and Clarke unanimously agreed with the Court of
Appeal and the High Court that Star Energy‘s actions did consitute an unlawful trespass.
Lord Hope (giving the judgment of the Court on this first issue) conducted a detailed and
entertaining analysis of exactly how far up and, as in this case, how far down a landowner‘s
rights can extend. The law in most common law jurisdictions is derived from the Roman
principle cuius est solum, eius est usque ad coelum et ad inferus – the landowner owns
everything up to the sky and down to the centre of the earth. 118 Whilst Lord Hope considered
that principle is still a useful starting point, it is an ―imperfect guide‖ in the modern world,
since (for example) it now only applies to airspace up to a height which may interfere with the
ordinary enjoyment of the land And if property rights continued down as far as the core of the
earth, landowners would all have a ―lot of neighbours―. 119 Clearly, the line needs to be drawn
somewhere, and their Lordships drew it as follows: ―the owner of the surface is the owner of
the strata beneath it, including the minerals that are to be found there, unless there has been
an alienation of them by a conveyance, at common law or by statute to someone else―, going
down as far as ―the point at which physical features such as pressure and temperature render
the concept of the strata belonging to anybody so absurd as to be not worth arguing about―.
This was plenty deep enough in their Lordships‘ eys to include the substrata 1,300 foot below
the Oxted Estate, which accordingly belonged to Bocardo 120
117
Case 2010] UKSC 35, United Kingdom Supreme Court, Lord Hope, Deputy President, Lord Walker, Lord Brown, Lord Collins, Lord
Clarke, http://www.i-law.com/ilaw/doc/view.htm?id=251452
118
Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479
Op. cit. Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479
120
See more at http://ukscblog.com/case-comment-star-energy-weald-basin-ltd-or-respondents-v-bocardo-ltd-appellant/
119
73
The Court of Appeal had reduced the damages awarded by Mr Justice Peter Smith at
first instance from £620,000 to £1,000, and Mr Al-Fayed was hoping this would be
overturned, despite the fact that the drilling had not caused any actual damage to his property.
By a 3-2 majority, the Supreme Court upheld the Court of Appeal‘s award and confirmed that
compensation for landowners who suffer trespass from oil exploration should be evaluated
in the same way as in cases of compulsory land purchase (in other words, by applying a very
limited statutory measure of damages). Bocardo‘s appeal on quantum was dismissed, and the
Court of Appeal‘s determination that the compulsory purchase value of an access right
through the substrata was £1,000 was upheld (with Lord Brown adding his view that this was
―positively generous‖ in the circumstances). In fact, this was a close run thing: Lords Hope
and Clarke were not persuaded by the analysis of the majority on quantum, and felt that the
geographical location of the apex of the Palmer‘s Wood field beneath Bocardo‘s land did
provide a key value which should be taken into account. However, this may be of scant
consolation to Mr Al-Fayed, who despite the millions of barrels of oil underneath his feet and
four years of litigation before the English Courts, was left with a somewhat pyrrhic victory on
his hands: £1,000, and more legal bills to pay.
The facts of this interesting and unusual case are shortly set below
The respondent, Star Energy Weald Basin, was an oil exploration company which had
been drilling in the Palmers Wood Oil Field, whose north-east part extended under the land of
the appellant, Bocardo. No license had been sought for this drilling, possibly because it was
generally thought not necessary to seek special licenses for diagonal drilling under adjacent
land. Bocardo initiated an action for trespass. The first question was whether the diagonal
drilling of the three wells under Bocardo's land was an actionable trespass. This question in
turn raised three issues: whether Bocardo's title to the land extended down to the strata below
the surface through which the three wells and their casing and tubing passed; whether
possession or a right of possession was a pre-condition for bringing a claim for trespass and if
so whether Bocardo had or was entitled to possession of the subsurface strata through which
these facilities passed; and whether the respondents had a right under the 1934 or 1998 Acts
to drill and use the three wells and their casing and tubing to extract petroleum from beneath
Bocardo's land which gave them a defence to a claim in trespass. The second question was as
to the correct measure of damages, should there be an actionable trespass.
74
The 2012 English Supreme Court decision involving Mohammed Al Fayed and his
damages claim for a percentage of the profits generated by the extraction of oil from under his
Surrey estate without his knowledge or permission established that any claim by a landowner
for the payment of a share of production profits by an exploration & production company will
be nominal, based only on the loss to the landowner of the so called "amenity value" of his
land. Calculation of that (small) amount of money is based on the principle (as was the case
with Mr Al Fayed where oil was extracted from under his land by diagonal drilling) that no
permission has been obtained from the landowner resulting in a civil damages claim for
trespass because an owner of land owns not only the surface, but also all the rights to extract
minerals beneath underneath it.121
121
http://www.lexisweb.com/Search.aspx?Query=+%23Litigation+%23Litigation&modifier=Source%3Adomain%3Awww.ffw.com
75
V Shale gas cost of production
Natural gas production in the United States reached a historical high in November
2011, when producers withdrew an average of 82.7 billion cubic feet per day, 18 percent
higher than five years earlier. This expansion in domestic natural gas supplies has led to a
reduction in domestic prices. Even while consumption of natural gas has been increasing, the
average wellhead price has stayed below $5 per million cubic feet (Mcf) for more than two
years. Shale gas now accounts for more than a third of total U.S. gas resources. The Energy
Information Administration (EIA) estimates that shale gas will provide 49 percent of total
U.S. natural gas supply by 2035, up from 23 percent in 2010.11 Net imports now represent 10
percent of total U.S. consumption, the lowest proportion since 1993, and this share is
expected to continue to shrink.122
Since 2008 domestic gas price―Henry Hub‖
per million British Thermal Units
(mmbtu) has fallen 62% to below US$2/MMBtu in March 2012, before recovering to
$4.3/MMBtu in 2013.
Figure 26. Gas prices on the world markets
Source: BP Statistical Review 2013
It seems that gas prices could surge as a result of a demand (or possibly less likely)
supply shock. It is entirely possible that prices of hub-linked gas surpass oil-indexed prices in
122
Energy Information Administration, Annual Energy Outlook 2012, available at http://www.eia.doe.gov/oiaf/aeo/
76
periods of high demand (e.g. during a cold snap). Storage sites could help address this.
However, such facilities are capital-intensive and costly; therefore, their large-scale
deployment should not be expected for years to come and carry a significant price tag. The
immediate effect of this is in reducing the dependence on foreign natural gas imports, which
has experienced a dramatic decline. According to the World Energy Outlook (2013) of the
International Energy Agency (IEA) 123, European industrial consumers paid on average more
than twice as much for electricity than their competitors in the United States and gas prices in
the US are one-quarter of those in Europe, but , the price of imported gas varies throughout
the EU member states. Particularly energy-intensive sectors (steel, aluminum, chemicals, pulp
and paper to name just a few) as well as those which use natural gas as feedstock such as the
fertilizer, chemical, and plastics industries have noticeably benefited from low gas prices. 124
Unlike the oil market, natural gas prices are not determined on a global market.
Figure 27. Natural gas prices in US Dollars
Source: Al Fine Energy
123
124
International Energy Agency (IEA) (2013), ―World Energy Outlook 2013‖, Paris.
EIA, Henry Hub Gulf Coast Natural Gas Spot Price, See more at http://www.eia.gov/dnav/ng/hist/rngwhhdm.htm 21 October 2013
77
Natural gas prices in Europe and Asia are 3 to 7 times higher than in the United States.
This provides the American economy with a competitive advantage in the manufacture of
energy-intensive goods.. Natural gas cannot currently be moved cheaply in volumes great
enough to efficiently link low-cost producing regions with high-demand regions. With
massive deployment of expensive infrastructure—international natural gas pipelines, special
cryogenic LNG tankers, liquefaction equipment—regional natural prices would converge to a
global price in the same way that global oil prices have emerged.
In 2008 US and European gas prices were roughly the same, but already in 2011 gas
prices in Europe were roughly five times greater than in the United States, which have fallen
roughly two thirds since 2008. 125 Gas prices in Europe in 2012 were roughly five times
greater than in the United States, which have fallen roughly two thirds since 2008. For natural
gas to be cost-competitive, it will need to be priced something under US$8.50 per mBTU
(US¢30/cm). Today the pricing hovers close to US$4 per mBTU (US¢14/cm) In 2008 US and
European gas prices were roughly the same. Japan‘s gas prices in 2012 were an astounding 8
times higher than US prices and the Fukushima tragedy will reduce the share of nuclear in
that country‘s energy mix In 2012 Gazprom renegotiated supply contracts with a number of
European customers after receiving complaints that customers were paying too much for gas
under long-term, oil-linked contracts, which were significantly above spot gas market levels.
These price cuts in some cases approached 10% of previously agreed prices. France's GDF
Suez, Wingas of Germany, the Slovakian gas company SPP, ENI in Italy and Botas in Turkey
were among the clients that managed to negotiate price adjustments (Platts). In 2012 these
concessions totaled $ 2.7 billion and Gazprom is setting aside $ 4.7 billion for negotiated
reductions in 2013.
125
European Commission (2013), ―Quarterly Report on European Gas Markets, second quarter 2013‖, Brussels.
78
Figure 28. Price of shale gas in Europe
Production costs for shale gas in the UK could be up to twice the costs in the US for
2013 and production could not bring the prices down, but would have the positive impact of
counterbalancing the UK Continental Shelf production declines.
126
The US shale boom has
widened the gap between energy costs in that country and those in Europe, giving the US a
competitive advantage in attracting industry. The costs of shale gas extraction in Lancashire
are likely to be between $7.10 and $12.20 per MMBtu, compared to figures of $5-6 per
MMBtu for large US fields such as Marcellus and Barnett in the US.127 The effects of shale
gas exploration on gas and electricity bills are expected to be limited. Prices are estimated to
remain on European levels rather than approach US benchmarks. The UK will also remain
dependant on imports. Even under the most favourable case for shale gas production, with
production reaching 4.5 bn cubic feet per day in the mid-2020s, and low demand driven by a
power sector emissions target of 50gCO2/kWh, the UK will not be self-sufficient in gas.
128
One major cost driver in Europe are the high drilling costs to be expected owing to the depth
of the boreholes that have to be sunk. Whereas these costs come in at between 7 and 17
euros/megawatt hour (MWh) in the U.S., the cost spread anticipated for Germany lies
between 11 and 44 euros/MWh, with the lower end of this scale only being achieved well
down the line. By comparison, the average price point of Germany's gas exchange over the
whole of 2011 was 22.7 euros/MWh, rising to 24.3 euros/MWh in 2012. At present, shale gas
126
report by Bloomberg New Energy Finance 2013
Evidence submitted by BNEF to the House of Lords Economic Affairs Committee 2013
128
http://www.naturalgaseurope.com/shale-production-costs-uk-double-us
127
79
production in Europe has not yet achieved profitability and the shale gas business is a longterm, capital-intensive and therefore high-risk project.129 For natural gas to be costcompetitive, it will need to be priced something under US$8.50 per mBTU (US¢30/cm). 130
In the United States, natural gas prices are projected to fall to US$4.63 per thousand
cubic feet by 2015. By one estimate, however, the spot gas price of shale gas should amount
to US$7.50–8 per thousand cubic feet to recover the full cost extraction.131. Extraction
projects require huge amounts of capital. The limited availability of infrastructure is expected
to push costs even higher. Further, shale gas reserves tend to decline faster than conventional
gas wells. As a result, producers may have to resort to making profit in a shorter period,
leading to more price risks concentrated in the early months of production than for
conventional gas. Shale gas tends to cost more to produce than gas from conventional wells,
because of the expense of the massive hydraulic fracturing treatments required to produce
shale gas, and of horizontal drilling. Hydraulic fracturing in tight gas formations typically
needs several hundred thousand litres of water per well for each fracturing process mixed with
proppants and chemicals while hydraulic fracturing in shale gas formations consumes several
million litres of water per well.
Estimates of shale gas extraction costs in North America range from US$4- 8/Mcf.
The actual drilling costs will be pushed higher as environmental regulations are established.
Costs related to water reclamation and chemical cleanup will add to production costs which
could drive prices between US$6-8/Mcf.
129
See more at: http://www.atkearney.ro/news-media/news-releases/news-release/-/asset_publisher/00OIL7Jc67KL/content/new-a-t%C2%A0kearney-study-on-shale-gas-production-in-europe#sthash.2X77e7K4.dpuf
130
http://www.naturalgaseurope.com/shale-production-costs-uk-double-us
131
Ben Dell, Bernstein Research, quoted in ―The True Cost of Shale Gas Extraction‖, Financial Times, March 7, 2010.
80
Figure 29. Production cost curve
Source: Manhattan Institute
Presently the pricing hovers close to US$4 per mBTU (US¢14/cm) prices of oilindexed gas would fall in the years to come if oil prices fall. Unlike gas, oil is a global
commodity. Oil production in North America is surging but Canada is determined to explore
its tar sands deposits. The Energy Information Administration (EIA) forecasts that by 2016,
oil production in the US will have risen to 9.6 million barrels per day (mb/d, reaching almost
the highest level in 50 years (EIA, 2013b). Moreover, some OPEC member states (namely
Iraq, Iran, Libya and Algeria) are also intending to boost their production levels in 2014.
Hence, if the growth rate of Chinese demand for oil slows down5 and if the social and
political unrest in the Middle East and North Africa were to calm down in the months to
come, the oil market could regain its lost stability. These factors may result in excessive oil
supplies, possibly leading to price adjustments of oil and oil-related products.
In 2012 Gazprom renegotiated supply contracts with a number of European customers
after receiving complaints that customers were paying too much for gas under long-term, oillinked contracts, which were significantly above spot gas market levels. These price cuts in
some cases approached 10% of previously agreed prices. France's GDF Suez, Wingas of
Germany, the Slovakian gas company SPP, ENI in Italy and Botas in Turkey were among the
clients that managed to negotiate price adjustments (Platts). In 2012 these concessions totaled
$ 2.7 billion and Gazprom is setting aside $ 4.7 billion for negotiated reductions in 2013.
81
In the United States, natural gas prices are projected to fall to US$4.63 per thousand
cubic feet by 2015. By one estimate, however, the spot gas price of shale gas should amount
to US$7.50–8 per thousand cubic feet to recover the full cost extraction (Ben Dell, Bernstein
Research) 132.
Extraction projects require big amounts of financial resources. Shale gas exploration
and extraction may possibly result in costly complex and cross-cutting interactions with the
surrounding environment, in particular owing to the hydraulic fracturing method employed,
the composition of the fracturing liquid, the depth and construction of the wells and the area
of surface land affected;
The limited availability of infrastructure is expected to push costs even higher.
Further, shale gas reserves tend to decline faster than conventional gas wells. As a result,
producers may have to resort to making profit in a shorter period, leading to more price risks
concentrated in the early months of production than for conventional gas. Some wells are
profitable at $2.65 per thousand cubic feet, others need $8.10…the median is $4.85, 133
Shale gas tends to cost more to produce than gas from conventional wells, because of
the expense of the massive hydraulic fracturing treatments required to produce shale gas, and
of horizontal drilling. Hydraulic fracturing in tight gas formations typically needs several
hundred thousand litres of water per well for each fracturing process mixed with proppants
and chemicals while hydraulic fracturing in shale gas formations consumes several million
litres of water per well.
Estimates of shale gas extraction costs in North America range from US$4- 8/Mcf.
The actual drilling costs will be pushed higher as environmental regulations are established.
Costs related to water reclamation and chemical cleanup will add to production costs which
could drive prices between US$6-8/Mcf.
Present
regulations introduced by the U.S. Environmental Protection Agency 134
require drillers to adhere to more environmentally friendly practices what in turn will drive
production costs higher; as new regulations are established, the margin between shale gas and
traditional basin exploitation costs will likely narrow over time.
The shale gas business is a long-term, capital-intensive and therefore high-risk project.
One major cost driver in Poland are the high drilling costs to be expected owing to the depth
Ben Dell, Bernstein Research, quoted in ―The True Cost of Shale Gas Extraction‖, Financial Times, March 7, 2010.
http://cleantechnica.com/2014/04/25/natural-gas-new-york-marcellus-shale-costs-get-gas-worth/
134
the Energy Policy Act of 2005 [EPA 2005]. In Section 322 of the Energy Policy Act of 2005 hydraulic fracturing was exempted from
majorEPA regulations. The Expedited LNG for American Allies Act of 2013, for example, would allow exports to other NATO members,
Japan, and other non-FTA countries specifically identified by the administration.26 The American Natural Gas Security and Consumer
Protection Act and the Keep American Natural Gas Here Act,
132
133
82
of the boreholes that have to be sunk.135 Whereas these costs come in at between 7 and 17
euros/megawatt hour (MWh) in the U.S., the cost spread anticipated for Germany lies
between 11 and 44 euros/MWh, with the lower end of this scale only being achieved well
down the line. By comparison, the average price point of Germany's gas exchange over the
whole of 2011 was 22.7 euros/MWh, rising to 24.3 euros/MWh in 2012. 136
It shall be noted that at present, shale gas production in Poland has not yet achieved
profitability.
Figure 30. Comparison of shale gas resource estimates for USA and Poland (recoverable using state-of-the-art technology)
Source: EIA – U.S. Energy Information Administration; ARI – Advanced Resources International Inc. USA.
In Poland
the price of shale gas extraction will be determined by accessibility,
environmental regulation and proximity to natural gas infrastructure. In shale basins that are
isolated, of course, the costs will be higher due to the need for processing stations and
pipelines to markets. It is expected that due to shale gas production, already from 2020, the
national average gas price in Poland will drop by 60 USD for 1000 m3 and will amount to 360
USD. Along with the further development of this sector in Poland, already after 2031,1000 m3
of gas may cost us only 260 USD, namely drop by almost 40 percent as compared to today's
135
See more at The report of the Center for Social and Economic Research Scientific Foundation (CASE), entitled "Economic potential of
the production of shale gas in Poland in the years 2012-2025"
136
New A.T. Kearney Study on Shale Gas Production in Europe, May 2013 See more at http://www.atkearney.ro/news-media/newsreleases/news-release/-/asset_publisher/00OIL7Jc67KL/content/new-a-t-%C2%A0kearney-study-on-shale-gas-production-in-europe
83
price137 By comparison the cost of extracting offshore shale gas in the UK were estimated to
be more than $200 per barrel of oil equivalent (UK North Sea oil prices were about $120 per
barrel in April 2012). However, no cost figures were made public for onshore shale gas. 138
137
the report of the Center for Social and Economic Research Scientific Foundation (CASE), entitled "Economic potential of the production
of shale gas in Poland in the years 2012-2025"
138
Gloyston, Henning and Johnstone, Christopher (17 April 2012) Exclusive - UK has vast shale gas reserves, Reuters Edition UK, 17 April
2012
84
VI Assessment of shale gas resources and legislation in the European Union
Art. 194 of the Lisbon Treaty from 2009139 provides for energy as a shared
competence and affirms that each Member State has ―the right to determine the conditions for
exploiting its energy sources, its choice between different energy sources and the general
structure of its energy supply‖
140
Article 194(1) TFEU establishes the objectives and scope
of action for the EU to: ensure the functioning of the internal energy market; ensure security
of energy supply; promote energy efficiency and energy saving; promote the development of
new and renewable forms of energy; and promote the interconnection of energy networks.
Any measure based on this Article must also comply with the principles in Article 194(1)
TFEU: the establishment and functioning of the internal market; the preservation and
improvement of the environment; and acting in a spirit of solidarity between Member
States.141 The legal basis for the EU institutions to pursue the given objectives is found in
Article 194(2)(1) TFEU, which confers the necessary competence to adopt legal acts and sets
out the applicable legislative procedure.142. Concerning the nature of this competence, Article
4(2)(j) TFEU establishes shared competences in the field of energy, thus rendering the EU
competence exclusive once it has been exercised and to the extent of its exercise. However, a
right for the Member States similar to the one found in Article 193 TFEU to adopt more
stringent national protective measures does not exist in the field of energy. 143 Article
194(2)(2) TFEU144 might block the EU competence in the field of energy, as it restricts the
EU power when the Member States‘ right to determine the conditions for exploiting their
energy resources, the choice between different energy sources and the general structure of
their energy supply are affected. The impact of this provision and its scope of application are
139
The EURATOM Treaty is still in force and promotes the use of nuclear energy, but neither the existing treaties nor the new Lisbon
Treaty can force countries to accept nuclear power plants in their territories. Previously, there was no general chapter in the EU treaties on
energy, but Art. 3 u TEC in the Nice Treaty quoted energy as one of the fields in which the Union could act to achieve its objectives, the
European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measur es necessary to
achieve the objectives in paragraph 1. Such measures shall be adopted after consultation of the Economic and Social Committee and the
Committee of the Regions. Such measures shall not affect a Member State's right to determine the conditions for exploiting it s energy
resources, its choice between different energy sources and the general structure of its energy supply, without prejudice to Article 192(2)(c).
140
EU law promotes integrated planning of distributed renewable energy: the Energy Efficiency Directive (2012/27/EC) the Third Gas
Directive (2009/73/EC)
141
Of course EU Member States may easily use of the provisions on enhanced co-operation (see Article 20 TEU) while addressing energy
and/or environmental issues
142
. Measures under Article 194(2)(1) TFEU can be adopted using all instruments mentioned in Article 288 TFEU as well as all non-binding
instruments, following the ordinary legislative procedure
143
See also Ruffert, EGV/EUV, 4. Auflage 2011, C. H. Beck, AEUV Art. 194 para 25.
144
Art. 194(2) and (3) TFEU states that measures in the field of energy taxation and member states‘ rights in deciding on the conditions for
exploiting their energy resources, choices amongst different energy sources and the general structure of their energy supply are subject to
unanimity. In addition, member states retain the right to conduct their bilateral (energy) relations with non-EU countries as they see fit,
although these relations are subject to general obligations of sincere cooperation and competition rules apply, for example, to the import and
transit of energy.
85
subject to a comprehensive discussion in literature and practice. 145 The lack of a special
decision-making procedure has led some to the conclusion that the clause serves as an
absolute limit of EU competence and as an indication of exclusive competence of the Member
States in the areas mentioned. Article 194 of the TFEU goes further and requires that any
measure based on the energy legal basis will not only have to take into account environmental
considerations but will also have to preserve and improve the environment. Energy policy
must now work towards the need to preserve and improve the environment even if this is
not an objective of the energy policy. The general rule for the adoption of EU measures on
energy is the ordinary legislative procedure, ex co-decision, and would require joint adoption
by the European Parliament and the Council after consultation with the Economic and Social
Committee and the Committee of the Regions.
The Energy 2020 strategy for competitive, sustainable and secure energy proposed by
the European Commission underlines that the external dimension of EU energy policy must
be consistent and mutually reinforcing with other external activities of the EU (e.g. trade,
climate change and biodiversity, and the CFSP). In matters of energy security, the strategy
states that EU policy will pay particular attention to safety and security of oil, natural gas
pipelines and related production and transport infrastructure by combining energy policy and
CFSP instruments.146
Due to political, historical and geographical differences between the Member States
they have different energy supply policy, and adopted different positions on shale gas. Several
governments in EU i. a.
North Rhine Westphalia in Germany, Fribourg and Vaud in
Switzerland, as well as a number of US states (North Carolina, New York, New Jersey, and
Vermont and more than 100 local governments) and other countries around the world (South
Africa, Quebec in Canada, New South Wales in Australia) currently have a ban or
moratorium in place on the use of hydraulic fracturing for the extraction of oil and gas from
shale or other ‗tight‗ rock formations;
145
First, disagreement exists on the meaning and impact of Article 194(2)(2) TFEU. In contrast to Article 192(2)(c) TFEU, Articl e 194(2)(2)
TFEU does not provide a special decision-making procedure with unanimity voting in the Council to allow the EU nevertheless to legislate
on those issues concerned; see more at Jan Frederik Braun EU Energy Policy under
the Treaty of Lisbon Rules
Between a new policy and business as usual, EPIN Working Paper No. 31 / February 2011
146
See Council of the European Union (2009). The members of the Energy Council are the high
representative flanked by the commissioners for energy, science and research plus the presidency of the Council of the European Union.
86
Figure: 31. Shale gas reserves in European Union
Source; Economist
While Poland is very
enthusiastic with the prospect for shale gas, seen as an
opportunity for independence from Russia gas supplies, but Bulgaria, Czech Republic and to
France‘s continues reluctance even to allow exploration, despite potentially significant shale
gas reserves.
87
Figure: 32 Imports of Russian gas by European countries.
Source: Reuters – Gas infrastructure
The Czech Republic, Romania and Germany, are currently considering a moratorium
on the exploration and extraction of oil and gas from shale or other ‗tight‗ rock formations; In
addition European countries also lack skilled resources and the infrastructure, creating
questions over the long-term economic viability of shale gas ventures.147 Extraction of shale
gas has risks which can
be contained through pre-emptive measures including proper
147
The Environmental Liability Directive does not oblige operators to take out adequate insurance considering the high costs associated with
accidents in the extractive industries;
88
planning, testing, use of new and best available technologies, best industry practices and
continuous data collection, monitoring and reporting conducted within a robust regulatory
framework. Before starting necessary operations, it should be required measuring for baseline
levels of naturally occurring methane and chemicals in groundwater in aquifers and current air
quality levels at potential drilling sites
Figure: 33. Shale gas exploration in European countries.
Source:
S
Source: IEA
Members of the EU are divided in their approach to hydraulic fracturing or fracking,
the controversial method of extracting hydrocarbons, which is a method used by drilling
engineers to stimulate or improve fluid flow from rocks in the subsurface. In brief, the
technique involves pumping a water-rich fluid into a borehole until the fluid pressure at depth
causes the rock to fracture. The pumped fluid contains small particles known as proppant
(often quartz-rich sand) which serve to prop open the fractures. After the rock has been
fractured, the pressure in the well is dropped and the water, containing released natural gas,
flows back to the well head at the surface. The boreholes themselves are often deviated away
89
from the vertical, into sub-horizontal orientations, to ensure better and more efficient
coverage of the targeted shale gas reservoir. The fracking fluid also contains chemical
additives such as acid (to help initiate fractures), corrosion and scale inhibitors (to protect the
borehole lining) and gelling agents (to alter the fluid viscosity1). 148
In EU, sizable quantities of shale gas and other unconventional fuel supplies have been
reported in the United Kingdom, the Netherlands, Germany, France, Scandinavia and
Norway. 149 Exploration activity is occurring, primarily through joint ventures to share risk
and know-how. But due to a wide range of economic, environmental and regulatory obstacles,
the prospect of large-scale shale gas production remains doubtful., A number of UE Member
States
are
in
the
process
of
granting
or
have
granted
concessions
and/or
prospection/exploration licenses over the past three years: Denmark, Germany, Hungary,
Netherlands, Poland, Portugal, Romania, Spain, Sweden and the United Kingdom7. However,
not all license holders have started concrete prospection or exploration activities. Currently,
such activities (at prospection or exploration stages) have taken place or are ongoing in
Denmark, Germany, Poland, Romania, Sweden and the UK. As yet, there is no commercial
production of shale gas in Europe, although a few pilot production tests have already been
conducted, for instance in Poland. Production could start in 2015-17 in certain Member States
(e.g. Poland, UK). 150
148
Terms of Reference for EPA/DCENR/NIEA Research Program related to the Environmental Impacts of Unconventional Gas Exploration
& Extraction (UGEE), Northern Ireland Environmental Agency 2013
149
Many of these reserves are located in Europe‘s three major regional shale plays. One of the oldest and most sought after bein g the Lower
Paleozoic play, stretching from Eastern Denmark into southern Sweden and to the north and east of Poland, while the second major play runs
from the Cheshire Basin in northwest England across the Anglo-Dutch Basin as well as Northwest German Basin and the third regional play
similarly extending from southern England to the Netherlands, northern Germany and Switzerland. There are also numerous local plays such
as the Vienna and France basins.
150
European Commission, Executive Summary in the Impact assessment, Brussels 22 2014
90
Figure 34. Approaches of EU members states towards extraction of shale gas
91
Assessment of shale gas resources and legislation in Denmark
Denmark has extensive experience producing oil and gas in the North Sea. However
its offshore production is declining and renewable energies will not be sufficient to meet the
country's future energy needs. In response, Denmark is exploring for onshore oil and gas,
including shale gas. Recent studies by the International Energy Agency (IEA) indicate that
Denmark is one of the European countries with significant shale gas potential.
Figure 35. shale gas in Denmark
In 2010, the Danish Ministry of Climate and Energy awarded Total two exploration
licenses as operator, in partnership with the Danish North Sea Fund. Located in the
Norddjylland and Nordsjaelland regions, the cover a total surface area of 5,261 square
kilometers. An exploration well is scheduled to be drilled on one of the licenses in 2014.
Exploration began in 2010 and will continue until 2016. The work conducted during this
period will determine whether or not gas is present and, if so, whether it is technically and
economically feasible to develop. During this process, Total has pledged to take into account
environmental and social aspects, consistent with national and local concerns.
92
Assessment of shale gas resources and legislation in France
France reportedly has the second largest shale reserves in Europe after Poland. The
estimated 180 trillion cubic feet could fuel gas consumption in France for twelve years
assuming recovery of only 10% of these reserves. Currently, natural gas consumption
accounts for roughly 15% of the annual energy consumption in France. Almost all of that
natural gas is imported (roughly 98.5%). France‘s shale reserves are reportedly located in
several regions including the Southwest, the Paris Basin and in certain west central regions.
According to the Senate‘s fact finding during a recent legislative session, hydraulic fracturing
has been used roughly fifteen times in France without a single claim of damages to the
environment.151
Figure 36. Shale gas resources in France
Source: Natural gas in Europe
The estimated 180 trillion cubic feet could fuel gas consumption in France for twelve
years assuming recovery of only 10% of these reserves. Currently, natural gas consumption
accounts for roughly 15% of the annual energy consumption in France. Almost all of that
natural gas is imported (roughly 98.5%). France‘s shale reserves are reportedly located in
several regions including the Southwest, the Paris Basin and in certain west central regions.
151
See more at http://fracking.velaw.com/shale-development-in-france/
93
Figure 37. gas basins in France
Source: Natural gas in Europe
According to the Senate‘s fact finding during a recent legislative session, hydraulic
fracturing has been used roughly fifteen times in France without a single claim of damages to
the environment.
Under the French mining legislation, there is a kind of two-step authorization procedure. the
authorization procedure for obtaining a production concession foresees public participation. A
public inquiry is required in accordance with the Environmental Code.152 France is the only
Member States whose mining legislation refers to a public inquiry to be conducted. The
inquiry itself is foreseen and described by the Environmental Code (section on environmental
impact assessment). This inquiry needs to take place during the tender procedure for obtaining
an exploitation concession, during the production concession procedure properly speaking and
during the procedure to obtain an AOTM (production). However, no inquiry is compulsory
for obtaining an exploration authorization or a DOTM (exploration/prospection).
An independent commissioner-investigator conducts the inquiry, thereby possibly
assisted by one or more experts. Fifteen days before the start of the inquiry, its modalities are
announced through different channels. If the results of the inquiry lead to serious doubts on
the legality of the granting decision, it can lead to suspension of that decision. Such public
152
Article 132-3 of the new Mining Code iuncto article L 123-4 of the Environmental Code.
94
inquiry is not required in the procedure leading to the grant of an exploration authorization.
The fact that there is no public consultation does not mean that the public is not informed at
all. Abstracts of the Ministerial Decrees granting the exploration authorization are indeed
published in the French Official Journal as well as in the local paper. Abstracts of these are
moreover subject to visual display (―affichage‖) by the concerned Prefects and the concerned
mayors are informed of it based on their relationship with the Prefects.
Both mining legislations clearly distinguish between the mining authorizations as a
necessary legal title and their realization by means of operational activities for which an
independent permission is required. Article L 122-1 of the New Mining Code lays down that
any holder of an exploration authorization is entitled to conduct all necessary prospection
activities (regardless of consent by the ground owner). Article 552 of the Civil Code, laying
down that ownership of the ground involves what is above and below ground, is not
applicable to mineral deposits that may be contained there. These are distinct from the ground
ownership and owned by the State. Launch of exploration or production operations requires a
separate permit under the mining legislation. In France, an entity willing to conduct
hydrocarbon exploration activities needs to obtain an exploration authorization. launch of
prospection/exploration mining activities requires a « Déclaration d‘Ouverture de Travaux
Miniers » (―DOTM‖), whereas launch of production activities requires an Autorisation
d‘Ouverture de Travaux Miniers.
The procedure to obtain a DOTM is relatively straightforward in comparison to the
procedure to obtain an AOTM. The application file to be submitted to the concerned Prefect
needs to contain:
(i) financial guarantees; (ii) an exposé on the considered exploration methods; (iii) a
document on health and security; (iii) a document indicating the impact on water resources;
(iv) a danger analysis; and (v) an environmental impact statement. Furthermore, the
consultation procedure only requires the public to be informed by means of visual display
(―affichage‖). The Prefect has two months to lay down, by arrêté, specific provisions in case
the foreseen works can have a negative impact on safety, health, environment and private and
public buildings. Before these provisions become final, the authorised operator has got fifteen
days to make remarks.
The procedure to obtain an AOTM requires a more extended application file. Apart from the
information required to obtain a DOTM e.g. a note on the conditions for closing mining
activities and cost estimation of the permitted activities needs to be attached to the
application. Furthermore, the file is transmitted to several bodies for advice,82 among which
95
the concerned (local) administrative services, the concerned mayors as well as the president of
the local water commission. The AOTM application is subject to a public inquiry in the
framework of the required E.I.A.
As is the case with the DOTM, the Prefect can make known to the authorized company
certain prescription relating to i.a. control of work and installations, impact on water and
environment, conditions under which analyses and studies have to be made public. The
authorized company has fifteen days to make remarks or to object. If the Prefect remains
silent for more than 12 months, the AOTM application is considered to be rejected.
If the entity wants to start hydrocarbons production, it requires a production
authorization (―concession‖). . In accordance with Article 3 of the Hydrocarbons Directive153,
the French mining legislation provides for tender procedures. In France, the procedure as laid
down by the mining legislation53 is an application of the quasi-tender procedure mentioned
under Article 3, ¤2 (b) of the Hydrocarbons Directive. The applicant initiates a tender
procedure by submitting a first application to the competent Minister. After the concerned
Prefect has made sure the application file is complete, the competent minister publishes the
notice inviting other applications in the Official Journal of the EU and the Official Journal of
the French Republic. Competing applications also are submitted to the competent Minister.
The quasi-tender procedures for obtaining an exploration/prospection permit on the one hand
and a concession on the other hand are similar. However, the tender notice with the view of
granting a concession is subject to a public inquiry.
In France only three ―permis d’exploration‖ (or ―exploration authorizations‖ for the
purpose of this report) were granted in March 2010. Schuepbach Energy LLC, in association
with GDF Suez, was granted the Villeneuve-de-Berg exploration authorization and the Nant
exploration authorization. Total Gas Shale Europe and Total Exploration and Production
France were granted, jointly and severally, the Montélimar exploration authorization. Devon
Energie Montélimar SAS contemplated obtaining such an authorization for the same site but
withdrew eventually.
In 2010, the French Ministry of Ecology awarded Total the Montélimar license for a
five-year period. It was one of three subsurface exploration licenses granted in France to
prospect for shale gas. The Montélimar license covers an area of 4,327 square kilometers
extending southward from below Valence to the region around Montpellier, in southeastern
France. On October 13, 2011, against a backdrop of growing controversy over shale gas
153
Authorizations procedures in the light of the Hydrocarbons Directive
(ii) France: quasi-tender procedure (Article 3, §2 (b))
96
development, the government announced that the Montélimar license has been revoked despite the fact that the work program submitted to the authorities complied with the
applicable legislation and excluded hydraulic fracturing. On December 12, 2011, the company
filed an appeal to the Paris Administrative Court in order to clarify the situation, given that
the corporation had complied with the Act of July 13, 2011 which was used as the basis for
the license being revoked.
In France, shale gas activity was suspended in July 2011, with a ban on the exploration
and exploitation of hydrocarbons by hydraulic fracturing and the cancellation of exploration
permits154 which had been granted. the Act n° 2011-835 on the prohibition of exploration and
exploitation of liquid hydrocarbons mines by means of hydraulic fracturing and on the
cancellation of exploration permits granted for projects using this technique was adopted (the
―Prohibition Act‖).155 The Ministry of Ecology abrogated three permits preventing companies
from exploring shale gas reserves. Although Total has reportedly filed an appeal of the
withdrawal of its exploratory drilling permit, the prospects for developing shale gas in France
seem remote until the law in question is amended or repealed or an alternative to fracking is
developed to produce shale gas reserves.
Since July 13, 2011, French law (n° 2011-235) has banned use of the hydraulic
fracturing method, except for purposes of scientific research. The exploration licenses granted
before the adoption of the law were functionally repealed because the licensee uses or plans to
use a banned method. Each company should have provided a report, within two months from
the publication of the law, to indicate their exploration methods. An ―arrêté‖, dated October
12, 2011, listed the repealed licenses. Violation of the law is punishable by one year in prison
and a fine of €75,000.
The French parliament recently reopened studies on alternative
methods of unconventional gas prospection within the Parliamentary Office of scientific and
technological choices.
Under French law, the license for exploration is called ―permis exclusif de recherche‖ (also
referred to as ―permis d’exploration‖).
155
Journal Officiel 162, 14 July 2011. The Prohibition Act: (i) Forbids all exploration and exploitation of hydrocarbons for which hydraulic
fracturing of rocks is required (article 1); (ii) Creates a National Commission18 whose task is to assess environmental risk related to
hydraulic fracturing19 and alternative techniques, who is due to issue a public advice on the topic20 (article 2); (iii) Requires all owners of
exploration permits to specify to the granting authority, i.e. to the DGEC, the used or considered techniques for exploring hydrocarbons.
Should such techniques entail hydraulic fracturing the granted permits will be abrogated (article 3).
154
97
Figure: 38. Shale gas resources in France
Source: Fracking velaw
It has since been confirmed that this decision will apply throughout President
Hollande‘s 5 year term in office. Despite politicians, experts and industry continuing to debate
the merits of shale gas and a number of pro-shale reports (including reports produced by the
French Parliamentary Office for Scientific and Technological Choices and the Academy of
Sciences), France is no further forward in promoting its shale gas potential. 156 At the
beginning of October 2013 the French Constitutional Court rejected a challenge to the
exploration ban imposed in 2011. The Court noted that in the current state of scientific
knowledge, the ban was not disproportionate. France banning the method. Energy companies
have been banned since 2011 from exploiting shale gas in France over fears of environmental
156
Since the basin covers a large area including Paris and the vine rich area close to Champagne, opposition rose despite the fa ct that the
basin has already been developed with conventional oil wells for about 50 years.
98
risks from the potential air and water pollution involved in fracking. France would maintain
its ban on the exploration for shale gas throughout his five-year term.
Presently French Minister for Industrial Renewal Arnaud Montebourg, a member of
President Francois Hollande's Socialist Party, called in February 2014 on the president to
reconsider his opposition to hydraulic fracturing due to what he calls the emergence of
environmentally safer methods to extract natural gas trapped in shale rock. Despite Hollande's
public reiteration in July 2013 of opposition, on environmental grounds, to any exploitation of
shale gas during his tenure, Montebourg has renewed his efforts to push for a change in policy
-- touting a potential of a type of fracking that uses fluoropropane, rather than a mix of water
and chemical additives, to break apart underground rock formations 157 A report published by
the French weekly Le Canard Enchaine indicated Montebourg is backing a proposal to allow
local governments to decide whether they want to allow fracking by employing
fluoropropane, a non-flammable liquid used as a propellant in inhalers and fire extinguishers,
as an alternative to the banned techniques.158
157
Read more: http://www.upi.com/Business_News/Energy-Resources/2014/02/03/French-minister-supports-allowing-clean-shale-gasfracking/UPI-25851391403720/#ixzz31VStVaqp
158
Read more: http://www.upi.com/Business_News/Energy-Resources/2014/02/03/French-minister-supports-allowing-clean-shale-gasfracking/UPI-25851391403720/#ixzz31VTOyZIW
99
Assessment of shale gas resources and legislation in the United Kingdom
Natural gas from conventional sources currently plays a major role in the UK‘s energy
system. Roughly one-third of the gas used in the UK is for electricity generation – this
accounted for 41% of electricity generation in 2011 (though the 2012 figure is likely to be
lower because of low coal prices relative to gas). Another third is for domestic use such as
heating and cooking, and the remaining one-third of gas demand is from industry, energy
industry, public buildings and commerce. UK gas production more than halved between 2000
and 2011, and imports rose significantly, so that the UK is now a net importer of gas. More
than half of the gas imported comes via a pipeline from Norway, but a growing share – 46%
of imports in 2011 – is in the form of Liquefied Natural Gas (LNG) imported by tankers,
mainly from Qatar..159
The UK has technically recoverable shale gas reserves estimated at 26 trillion cubic
feet ("tcf") and technically recoverable shale oil around 0.7 billion barrels. Although these
reserves are significantly less than those of other major oil and gas producing nations that also
have significant unconventional hydrocarbon resources, such as Algeria (707 tcf), Australia
(437 tcf), and Argentina (802 tcf) 160 . Argentina boasts the third-largest shale gas reserves in
the world behind the US and China, with much of it located in the western province of
Neuquén. Deposits in Argentina are projected to be so big that development will be very
important to the country‘s economy. Although some shale gas wells have already been
developed, Argentine producers will need to conduct more drilling and hydraulic fracturing to
develop its shale gas reserves. In a 2011 survey of oil and gas executives conducted by
KPMG in Argentina, most respondents said they expect shale gas production to occur within
three to five years.4 As in other parts of the world, most shale gas projects in Argentina are
being undertaken as joint ventures, including large global energy entities.
Argentine
politicians appear to support shale gas development. Given Argentina‘s current reliance on
expensive natural gas imports from Bolivia and Qatar, Argentina is putting a priority on
developing its own sources. In fact, all shale gas projects that come on line will be included in
Argentina‘s Gas Plus framework – a government initiative that allows better selling prices for
new offers of this fluid.
159
Unconventional, unnecessary and unwanted Why fracking for shale gas is a gamble the UK does not need to take, Friends of Earth
Society May 2013
160
Energy Information Administration ("EIA") June 2013 report on shale gas resources
100
Until recently, investment into the South American country‘s shale gas reserves was
underwhelming, largely due to the constant government intervention in industry and
restrictive currency controls. Nationalisation in 2012 of the majority stake in the Argentine oil
firm YPF held by Spain‘s Repsol did little to enhance Argentina‘s shale revolution reputation
amongst international investors either, with many analysts predicting a partial withdrawal of
local-based foreign operators across other sectors.161
Developing a shale gas industry in the UK has the potential to inject £33bn worth of
investment into the economy and create over 64,000 new jobs. However, the lack of a clear
framework standardizing and simplifying the approach towards shale gas exploration is
making it difficult for investors and developers to see where they fit in. On 27 June 2013, the
British Geological Survey (―BSG‖) report1 identified a larger volume of potentially
exploitable shale gas within the north of England than previously thought, with as much as
1,300 trillion cubic feet at the Bowland site in Lancashire, In Lancashire, Cuadrilla has drilled
four wells in the Fylde and test-fracked one, triggering earthquakes. It has announced that it is
looking for more drilling sites in Lancashire9. Cuadrilla hs also announced plans to drill a
shale oil exploration well in Sussex, but not to frack at this stage. In February 2014, Cuadrilla
announced at its Roseacre Wood and Preston New Road sites (both in Lacashire) its intention
to apply for planning permission to drill, hydraulically fracture and test the flow of gas from
four new exploration wells. While Cuadrilla has pulled out of its Banks shale gas site in
March 2014, it is now applying to the county council for an extension to its current planning
permission at Becconsall well, near Banks. Cuadrilla's chief executive, Francis Egan, stated
on 1 April 2014 that, should the Ukraine crisis worsen dramatically, and should Britain
declare a state of national emergency thereby removing all constraints on shale developments,
it would take two to four years to get up to appreciable production rates. 162 On 2 April 2014,
IGas announced that it has found shale gas at Barton Moss (Eccles). It will take up to 6
months to analyze the samples.
161
162
See more at http://offshore.clydeco.com/exploration-and-production/argentinas-shale-revolution/
See more at http://www.naturalgaseurope.com/baker-mckenzie-report-shale-gas-uk
101
Figure 39. Shale gas basins in England
Source: Baker & McKenzie 2014
Coastal Oil & Gas has planning permission for exploratory drilling near Sandwich in
Kent and in the Vale of Glamorgan in south Wales. Some of the companies with licenses
have started to make positive noises about the prospects in their area, including Egdon
Resources in the East Midlands and IGas in Salford. In Northern Ireland, Tamboran
Resources is interested in drilling in Fermanagh. Production at the Blackpool aquifer was
voluntarily suspended due to concerns that the operation was causing seismic activity, but this
claims has not been proven.
163
Cuadrilla, the company drilling in Lancashire, has estimated
the resources in its license area at around 5,660bcm, or around 56 years‘ worth of current UK
163
See more at https://www.gov.uk/government/publications/bowland-shale-gas-study
102
gas consumption. Cuadrilla‘s CEO, Francis Egan, has said that they can supply a quarter of
UK gas demand from its license area alone3. DECC has estimated that this area could
produce around 133bcm. 164The Government is expected to publish new BGS figures in the
near future and there has been widespread speculation that the new estimates could be
substantially higher4.
In a move to increase investment in shale gas, the UK government has created a
package of incentives for both the public and investors, which includes a new shale gas tax
regime which features an 'onshore pad allowance', reducing the headline tax rate from 62% to
30% for a portion of profits, along with a promise that councils can keep 100% of the local
taxes, known as business rates, that they collect from shale gas sites – double the current 50%
figure.
165
the UK government has proposed reforms to the planning regime for onshore gas
exploration. This would include the removal of the current requirement to notify landowners
of planning applications where only underground operations will take place under their land.
The UK government is also considering reforming trespassing laws to enable shale gas
operators to drill legally without obtaining the consent of the landowner Currently under UK
law, licensees must obtain consent from the landowner for vertical drilling and the consent
from any landowners under whose land there will be horizontal drilling. Failure to do so will
amount to trespass.
The UK Government lifted its ban on hydraulic fracturing activities in the UK, which
had been in place since test wells drilled in north-west England were linked with a series of
small earthquakes in mid-2011. The Government decided to lift the ban after considering
three independent expert assessments on the safety of hydraulic fracturing in the country.
These reports concluded that hydraulic fracturing could cause future earthquakes, but the
maximum size of any tremors would be extremely unlikely to cause damage provided certain
controls are in place.
As a consequence of the expert assessments, a number of additional conditions to
mitigate the risks of seismic activity caused by hydraulic fracturing have been introduced in
addition to the existing permitting requirements, including approval and oversight
requirements involving local planning authorities, the national environment regulator and the
Daily
Telegraph
5th
April
2013
‗Shale
gas
‗could
heat
all
homes
for
100
years‘‘
http://www.telegraph.co.uk/earth/environment/9975652/Shale-gas-could-heat-all-homes-for-100-years.html
165
This is in addition to community benefits agreed with the industry of £100,000 per well fracked and a further 1 % of revenues if shale gas
is discovered.
164
103
Health and Safety Executive. In developing these new conditions, the Government appears to
have relied not only on its own experts but also on more extensive research and experience in
the United States. Hydraulic fracturing operators will now have to conduct a prior review of
seismic information and analyze known geological faults in the area before they can begin
their activities.
Figure 40. Geological traps - The unique feature of unconventional gas is its geological location: it is found in
highly compact reservoirs, source rock and coal seams
Source: RESOURCES FOR THE FUTURE, TOTAL October 2013
They must share their findings with the Department of Energy and Climate Change
(―DECC‖) in a ―fracking plan,‖ which must be approved before consent is given for the
hydraulic fracturing to proceed. Continuous seismic monitoring must now be maintained
before, during and after hydraulic fracturing operations with a ―traffic-light‖ system assigned
to different levels of seismic activity to alert operators quickly if anything unusual occurs.
Hydraulic fracturing 14 SG-ELR February 2013 must be suspended if a red-light tremor is
caused above a specified limit (e.g., magnitude 0.5 on the Richter scale for the location in
Lancashire where hydraulic fracturing-related earthquakes were previously recorded). DECC
104
has also stated that the actual process of hydraulic fracturing must be undertaken on a more
cautious, step-by-step basis: the absolute minimum amount of liquid should be injected at a
time to create a fracture of sufficient size to allow gas to be extracted. Before a subsequent
amount of liquid can be injected, a ―flow-back‖ period must elapse to allow pressure to rebalance in the subsurface, and the resulting data analyzed with 24 hours of seismic monitoring
for abnormal activity after every fracture. In general, these controls are consistent with the
UK‘s risk-based approach to environmental regulation, where the potential level of risk
resulting from the activity is evaluated and controlled through a system of conditions placed
on the activity via consents and permits.
At the moment, the level of hydraulic fracturing activity in the UK is minimal: the
Government stated in December 2012 that there were currently no outstanding applications
for permits—and it remains to be seen what impact these new conditions will have on the
embryonic hydraulic fracturing industry in the UK. 166 The UK Gas Generation Strategy
released in December points to shale gas resources being developed more slowly in the UK
than in the US. According to the report, if exploration is successful, early production is likely
to be seen in the second half of this decade, but any substantial contribution to the UK‘s gas
supply is unlikely until further into the 2020s.167 The exploration and exploitation of
unconventional hydrocarbon resources is regulated by the Petroleum Act 1998, under which
rights to all mineral resources are vested in the Crown and companies must obtain a
Petroleum Exploration and Development Licenses from the Secretary of State of Energy and
Climate Change in order to search, bore for and get petroleum or natural gas. The Secretary of
State and DECC are responsible for regulating and developing the oil and gas industry in the
UK. However, licensees must also obtain consent from the landowner for vertical drilling and
the consent from any landowners under whose land there will be horizontal drilling.
The exploration term under a PEDL is 11 years, comprised of 6 years exploration and
5 years appraisal. 168 The relinquishment requirement is 50% at the end of the 6 year
exploration period. The exploitation term is 20 years, which can be extended if production is
continuing. Most PEDLs follow a standard format of three phases: exploration, appraisal and
production. However, DECC has advised that it is flexible and could adapt new licenses to
suit special scenarios.
166
http://www.publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/172/17211.htm
Department of Energy Climate Change, Gas Generation Strategy, Presented to Parliament by the Secretary of State for Energy and
Climate Change by Command of Her Majesty, December 2012
168
http://www.naturalgaseurope.com/baker-mckenzie-report-shale-gas-uk
167
105
For standard PEDLs, by combining the exploration and appraisal phases, the
exploration term can, in effect, be a maximum of 11 years, consisting of:
¥ a six year "Initial Term" for exploration; and
¥ a five year "Second Term" for appraisal.
A PEDL expires automatically at the end of each term, unless the licensee has sufficiently
progressed (i.e. completed the work program related to such term) to warrant a chance to
move into the next term. Under a PEDL the licensee must surrender 50% of the originally
licensed area at the end of the Initial Term. The third phase of a PEDL is the production
phase, which is granted for 20 years. The Secretary of State can extend the term if production
is continuing. DECC also recognises that it is not desirable for production to cease simply
because the term of the license has expired, and therefore has a policy of extending licenses
where the relevant criteria are met. There is no limit to the size of an exploitation concession
in the UK. A PEDL licensed area is established using a system of blocks identified by the
joining of lines with designated co-ordinates. These blocks are set out in a schedule to the
PEDL.
106
Figure 41. Administrative structure in England
Source Onshore oil and gas exploration in the UK: regulation and best practice. Department for Energy and
Climate Change, December 2013
The UK regime does not impose a compulsory state participation. There is no national oil
corporation in the UK and oil and gas developments are carried out through international oil
corporations . The government derives revenues from taxes on such developments. In May
2011, a UK parliamentary committee has said it found no evidence that fracking poses a
direct risk to underground water aquifers, provided the drilling well is constructed properly.169
The committee concluded that, on balance, a moratorium in the UK is not justified or
necessary at present. The committee also concluded that, based on estimates of the UK‘s
onshore shale gas resources, there will not be a ―shale gas revolution‖ in the UK based on
domestic resources alone – nevertheless, developing shale gas reserves could make the
country more self-sufficient by reducing its reliance on imported natural gas. Since the lifting
in 2012 of a moratorium on hydraulic fracturing the Environment Agency has not received or
approved any applications for the necessary permits. The Environment Agency in England
has previously published a statement to streamline and simplify the process of issuing licenses
169
http://www.parliament.uk/business/committees/committees-a-z/commons-select/energy-and-climate-change-committee/news/new-reportshale-gas/
107
for exploratory activity for shale gas. This would ensure that shale gas permits are issued
within the standard 13 week period by September 2013, and by February 2014 issued within
1-2 weeks by developing standard rules. the non-statutory 13 week determination timescale
for environmental permits does not apply where a site is defined as ‗high public interest‘. The
consultation document warns that the Environment Agency may take 4-6 months to determine
a permit where there is much public interest and that a second public consultation may be
required.170 Energy Secretary Ed Davey announced in December 2012 that fracking can
resume in principle (though companies will still need planning permission and environmental
permits).171
Since December 2012 the Government has continued to demonstrate its support for
shale gas. In June 2013 the UK Government announced that the 14th onshore licensing round
would be launched in 2014 (this is the competitive process by which the UK allocates permits
to explore for and extract petroleum).
The UK government is currently consulting on new fiscal incentives for onshore shale
gas exploration and production in the UK which will be enacted in 2014. The reforms will
reduce the head-line rate of UK tax on a proportion of shale gas profits from certain onshore
sites in the UK to as low as 30%, from the current level of 62% on UK oil and gas profits
generally. The government's policy is to support the early development of onshore oil and gas
projects in the UK, which are economic but not commercially viable at the 62% tax rate. The
government's proposals are intended to drive early investment in UK shale gas exploration
and development by supporting the sector in its early stages when the government recognises
that costs are likely to be higher and the risks of unsuccessful exploration are greater.
Onshore shale gas production profits fall within the UK's existing "ring-fence"
corporation tax regime and are subject to UK corporation tax at the rate of 30%. Certain
restrictions "ring-fence" such profits from losses arising from other activities and restrict the
deductibility of finance costs incurred on other non-ring fenced activities. Shale gas profits
are subject to the UK corporation tax supplementary charge at the rate of 32%, based on the
adjusted ring-fenced corporation tax profits, but excluding finance costs generally. This
results in an effective head-line UK tax rate of 62%.
170
171
See more at https://consult.environment-agency.gov.uk/portal/ho/climate/oil/gas?pointId=2582509
https://www.gov.uk/government/speeches/written-ministerial-statement-by-edward-davey-exploration-for-shale-gas
108
The UK government proposals focus on the introduction of a new "onshore
allowance" which will apply to onshore shale gas drillingand extraction sites, and which will
apply to both conventional and unconventional hydrocarbons:
¥ the allowance will exempt a portion of oil and gas profits from the supplementary
charge by reference to broadly 75% of capital expenditure on the exploration, appraisal,
development and production of onshore oil and gas, including the acquisition of onshore oil
and gas rights; and
¥ the allowance will not apply where production from the site is either expected to
exceed seven million tonnes, or where production from the site actually exceeds that
threshold.
The government also proposes to extend the ring fence expenditure supplement for
shale gas projects from six to ten accounting periods. This will enhance the value of certain
unused UK tax allowances and losses, recognizing the longer payback period for shale gas
projects. This will be extend to all onshore unconventional hydrocarbon projects in the
UK7172.
On 19 July 2013, the UK government unveiled draft tax breaks for shale gas
investment. The new tax ‗pad allowance‘ will mean that tax payable on income from shale
production will be a fraction of traditional oil and gas taxation, creating a tax rate of 30% as
opposed to the current 62% taxation for oil and gas companies.
173
The amount of production
income exempt from the supplementary charge would be a proportion of cumulative capital
expenditure incurred on a shale gas pad.
In the 2013 Budget, the Chancellor announced consultations on new tax breaks for the
shale gas industry and on ‗community benefits‘ – measures to encourage communities to
accept fracking. These could include lower energy bills and, according to one leading industry
figure, additional police officers or school teachers174the Government confirmed that they
were consulting on the extent of the incentives to be offered to those involved in the
exploitation of shale gas. In the Spending Round 2013 presented before Parliament on 26 June
2013, was explained that the Government‘s intention to make the tax and planning changes
172
For
more
information
see:
http://www.bakermckenzie.com/files/Uploads/Documents/Global%20EMI/al_uk_proposednewtaxshalegas_jul13.pdf
8
For more informa tion see:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/265988/Onshore_UK_oil_and_gas_exploration
173
The UK Onshore Operators Group (UKOOG) (the representative body for UK onshore oil and gas companies including exploration,
production and storage) has also published industry guidelines covering best practise for shale well operations in the UK. The Department for
Energy and Climate Change (DECC), the Health and Safety Executive (HSE), the Environment Agency (EA) and the Scottish Environment
Protection Agency (SEPA) provided input into these guidelines. The guidelines also provide a template for the public disclosure of hydraulic
fracturing fluid composition.
174
See also DCLG (2012)‘ Nationally significant infrastructure planning: extending the regime to business and commercial project s‘
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/15333/extending_the_regime_to_business.pdf Annex A
109
which will put Britain at the forefront of exploiting shale gasWe will provide our country with
the energy of the future at a price we can afford‖. The Environment Agency has previously
published a statement to streamline and simplify the process of issuing licenses for
exploratory activity for shale gas. This would ensure that shale gas permits are issued within
the standard 13 week period by September 2013, and by February 2014 issued within 1-2
weeks by developing standard rules. 175 On 19 July 2013, the Department for Local
Communities and Local Government published guidance to local councils taking planning
decisions on how applications for shale gas developments should proceed through the
planning system.5 It sets out the procedures in which applications should be made and that
planning permission that is required for each of the three phases; exploration, appraisal and
production.
It also sets out a list of planning matters called ‗material considerations‘ to be taken
into account when a decision is made on a planning application. A list of ‗principal issues‘
included noise association, air quality, landscape character, land stability/subsidence, ecology
and site restoration and aftercare.
Issues such as loss of property value, loss of view and opposition to the principal of
development activity shall not be considered when a planning decision is taken. 176 On 19 July
2013, the UK government unveiled draft tax breaks for shale gas investment. The new tax
‗pad allowance‘ will mean that tax payable on income from shale production will be a fraction
of traditional oil and gas taxation, creating a tax rate of 30% as opposed to the current 62%
taxation for oil and gas companies. It will operate in a similar fashion to existing field
allowances, exempting aproportion of production income from the supplementary charge. The
amount of production income exempt from the supplementary charge would be a proportion
of cumulative capital expenditure incurred on a shale gas pad.
The draft bill was subject a three month consultation which completed on 13
September 2013. The Treasury confirmed that these tax benefits would not just be a
temporary measure and that it hopes the changes will have worldwide impact. Mr Osborne in
the Treasury statement made in commented ‗We want to create the right conditions for
industry to explore and unlock that potential in a way that allows communities to share in the
benefits,‘ and also that ‗[t]his new tax regime, which I want to make the most generous for
175
See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/209279/PU1524_IUK_new_template.pdf
See
more
at
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/224238/Planning_practice_guidance_for_onshore_oil_and_ga
s.pdf
176
110
shale in the world, will contribute to that.‘ It is likely that the new tax regime will enter the
Finance Bill in 2014.
All of the latest announcements and publications are in-keeping with the
Government‘s encouragement of unlocking shale gas reserves in the UK and reducing
reliance on natural gas imports, with a hope to creating jobs and keeping energy bills low.
Many within the shale gas industry viewed tax incentives as vital for encouraging
participation given the high costs associated with exploration. On may 8th 2014 The House of
Lords recommended the British Prime Minister David Cameron to streamline and improve the
existing regulation to make it more effective and rigorous.177 The House of Lords called on
the government to ‗do much more to encourage exploration and get development moving.‘
Recognizing that shale gas is not the answer to all UK‘s energy security problems, the 102page report claimed that substantial economic benefits would flow from successful
development. It would among others reduce imports and help maintain security of supply.
This would be especially valuable given the continuing fall in output from the North Sea and
Europe‘s reliance on Russia, its biggest gas supplier, highlighted by the crisis in Ukraine.
Assessment of shale gas resources and legislation in Germany
German shale gas reserves are estimated to be large enough to cover 13 years of the
country‘s gas supply. The German Federal Institute for Geosciences and Natural Resources
estimated availability of shale gas resources of between 6.8 tcm and 22.6 tcm for Germany
(i.e. between 240 tcf and 800 tcf) - of which between 0.7 tcm to 2.3 tcm will be technically
recoverable (i.e. between 25 tcf and 81 tcf). In Germany, shale gas exploration projects exist
within the states of North Rhine Westphalia,7 Lower Saxony, Saxony-Anhalt, Thuringia and
Baden-Wuerttemberg.
177
See more at http://www.naturalgaseurope.com/house-lords-recommends-uk-streamline-shale-regulation
111
Figure 42. Shale gas basins in Germany
Source: U.S. Energy Information Administration: World Shale Gas Resources: An Initial Assessment of
14 Regions Outside the United States (April 2011)
The exploitation of geographical areas for the purpose of prospecting, exploring for
and producing hydrocarbons (oil and gas) is governed by the Federal Mining Act of 1982, as
amended. 178 It sets the framework for petroleum development with the individual federal
states prescribing local regulations. In practice, the states are responsible for overseeing oil
and gas licensing and operations. the legislative powers regarding hydrocarbon activities are
―concurrent‖ between the Federal Government, the Länder (States). The Länder may only
pass laws in this area if the Federal Government has not already done so. In the field of
hydrocarbons, the Federal State has taken over the power to adopt legislation by adopting the
―Bundesberggesetz‖. The Länder have the power to implement such federal law. the Länder
can adopt specific regulation differing from the legislation of the Federal State for the areas
laid down in Article 72 (3) of the Federal Constitution. In the fields of hydrocarbons, this
applies to nature preservation, land use, water management and a few other areas 179
The Länder through their administrative bodies are primarily responsible for enforcing
most laws, both federal and state, including the Bundesberggesetz. Federal government has
only limited authority to review enforcement of federal laws by the Länder. The licensing
system in Germany is organised on a state rather than on a federal level. Based on this, the
178
179
Bundesberggesetz of 13 August 1980 (Federal Mining Act – « BBergG »);
(see No. 2 to 5 of Article 72 (3) of the Constitution).
112
responsible agency granting licenses/authorizations differ from state to state. Some Länder
work together by sharing one competent authority that governs mining activities in more than
one Land.180 In most Länder, the State Economics Ministry is competent on a regional level33
and state mining authorities exist on a departmental level.34 In North Rhine Westphalia, for
instance, the Ministry of Economic Affairs and Energy is the competent supervising authority
in the field of energy and mining regulations. The authorising authority is the lower mining
authority (―Bezirksregierung Arnsberg‖).18135 The bulk of Germany‘s gas and oil production
is from the states of Lower Saxony and Schleswig-Holstein where the State Authority for
Mining, Energy and Geology, Clausthal, is responsible for granting licenses. 182
In North Rhine Westphalia, one commercial project of ExxonMobil Production
Deutschland GmbH aiming at the exploration of shale gas received an authorization. Nine
requests for granting an exploration authorization are pending. In Lower Saxony nine
exploration authorizations were granted to EMPG. Two exploration authorizations are granted
in Baden-Wuerttemberg (Three Leg Resources) and Thuringia (BNK Petroleum) respectively.
Saxony-Anhalt issued one exploration authorization to BNK Petroleum. In Lower Saxony
ExxonMobil has drilled five shale gas exploration wells plus an additional one in North Rhine
Westphalia, which results are currently being examined by ExxonMobil‘s experts.
In Germany, the legislative powers regarding hydrocarbon activities are ―concurrent‖ between
the Federal Government, the Länder (States). The Länder may only pass laws in this area if
the Federal Government has not already done so. In the field of hydrocarbons, the Federal
State has taken over the power to adopt legislation by adopting the ―Bundesberggesetz‖. The
Bundes Länder have the power to implement such federal law. in this country, the
exploitation of geographical areas for the purpose of prospecting, exploring for and producing
hydrocarbons (oil and gas) is governed by the Federal Mining Act of 1982, as amended. It
sets the framework for petroleum development with the individual federal states prescribing
local regulations. In practice, the states are responsible for overseeing oil and gas licensing
and operations. In the German state of North Rhine-Westphalia, affected citizens, local
politicians from almost all parties and representatives from water supply authorities and
mineral water companies raised their concerns opposing hydraulic fracturing. The State
Parliament of North Rhine-Westphalia also pledged for a moratorium until improved
knowledge would be available. A first step was to set water protection at the same level as
180
Philippe & Partners , FINAL REPORT ON UNCONVENTIONAL GAS IN EUROPE In the framework of the multiple framework service
contract for legal assistance Brussels, 8 November 2011 TREN/R1/350-2008 lot 1
181
http://www.bezreg-arnsberg.nrw.de.
182
http://www.lbeg.niedersachsen.de.
113
mining laws and to ensure that permits are not granted until water authorities agree.
183
The
North Rhine Westphalian government has recently introduced a bill to the German Bundesrat.
According to the Ministry of Economic Affairs and Energy of North Rhine Westphalia, this
bill particularly aims at expanding the scope of application of the environmental impact
assessment, making it compulsory for approval of every framework operation plan which
includes i.a. hydraulic fracturing. The bill has not been adopted yet and its future relies on
finding a majority both in the Bundesrat and the Bundestag. The bill has as its purpose to
make environmental requirements under exploration authorizations stricter. Currently, the
regulation governing environmental impact assessments for mining projects of 13 July 1990
only applies to exploitation projects.15 Furthermore, this bill will give municipalities the right
to participate more actively in the authorization procedure.184
Prior to the Federal Elections in September 2013 progress was made to develop draft
legislation to regulate hydraulic fracturing. The draft legislation clarified that hydraulic
fracturing was in principle permitted in Germany185 other than in areas which are or are
planned to become water protection areas. An attempt to implement the legislation stalled in
June 2013 when the coalition government withdrew the draft legislation due to internal
opposition . The Federal Elections have resulted in changes to the Federal Parliament and a
new coalition government. In February 2013, the Chancellor‘s government set up a draft law
to allow hydraulic fracturing in the country. The proposed legislation will not allow drilling
activities to be carried out in protected areas or in close proximity to drinking wells. It will
also provide terms that all potential projects are to carry out an Environmental Impact
Assessment.186 Currently, onshore licensing is governed by local mining legislation. This
requires an authorization for exploration and a concession to be granted for exploitation
activities. According to the European Commission, 12 exploration licenses have already been
granted to companies including ExxonMobil and BNK Petroleum. There are nine other
projects that are pending authorization. GDF Suez has stated that they are ‗evaluating and
analyzing‘ exploration in Germany. In February 2013, the Chancellor‘s government set up a
draft law to allow hydraulic fracturing in the country. The proposed legislation will not allow
183
http://www.eugcc-cleanergy.net/News/IndustryNews.aspx
Philippe & PartnersFINAL REPORT ON UNCONVENTIONAL GAS IN EUROPE
In the framework of the multiple framework service contract for legal assistance
TREN/R1/350-2008 lot 1 Brussels 2011
185
Only 12 % of Germany‘s natural gas consumption originates from domestic natural gas production. In addition, the annual domestic
natural gas production is decreasing due to depletion of conventional reservoirs (conventional and tight gas) data from the annual report
LBEG, 2012 Der Bericht "Erdöl und Erdgas in der Bundesrepublik Deutschland 2012" Germany's unconventional gas deposits are mainly
made up of shale gas, which may play a central role in improving the security of supply from a domestic energy source.
186
See more at http://www.bloomberg.com/news/2013-02-26/germany-agrees-on-regulation-to-permit-fracking-for-shale-gas.html
184
114
drilling activities to be carried out in protected areas or in close proximity to drinking wells. It
will also provide terms that all potential projects are to carry out an Environmental Impact
Assessment.187 Currently, onshore licensing is governed by local mining legislation. This
requires an authorization for exploration and a concession to be granted for exploitation
activities. According to the European Commission, 12 exploration licenses have already been
granted to companies including ExxonMobil and BNK Petroleum.
188
There are nine other
projects that are pending authorization.
Although the country still needs to deal with strong public opposition, recent reports
have suggested that companies are still viewing Germany as a potential destination for
exploration. GDF Suez has stated that they are ‗evaluating and analyzing‘ exploration in
Germany. Therefore it seems that despite the slow pace of progression with shale gas in
Germany there may be some positive movement ahead.
Assessment of shale gas resources and legislation in Lithuania
According to the 2011 report issued by the U.S. Energy Information Agency (EIA),
Lithuania is estimated to have 480 billion cubic meters of shale gas of which over 100 billion
cubic meters could be technically recoverable. Successful development of this potential would
require up to 1000 wells from up to 100 centralized pads based on current technical
capabilities. The major basins are the Silute-Taurage field comprising about 1,400 square
kilometers and the Kudirka-Kybartai field comprising about 270 square kilometers, Both
located in the southwest of the country where the shale resource is viewed to be the most
prospective. Because of this potential, Lithuania prepared its first shale gas tendering. But
surprisingly a new study of Lithuania‘s shale resources carried out by our ministry‘s
Geological Service, is turning the new results that the Baltic country‘s depths are oil shalerich, not full of shale gas as previously thought.189 The research reported that over 500
exploratory drills have been done, and in the most of the tests formations of liquid
carbohydrates were detected. 190
187
See more at http://www.bloomberg.com/news/2013-02-26/germany-agrees-on-regulation-to-permit-fracking-for-shale-gas.html
See more at http://ec.europa.eu/energy/studies/doc/2012_unconventional_gas_in_europe.pdf
See more at http://www.naturalgaseurope.com/surprising-findings-in-lithuania-oil-shale-not-shale-gas-underneath
190
Only one probe, in the Ramuciai exploratory strip in Silute district in southwestern Lithuania, evidently pointed to the existence of clear
condensate of shale gas
188
189
115
The Lithuanian Geologic Institute directed a commission to oversee the tendering. The
tender provisions allowed four months for applications, and making selections by the end of
the year. During the proceedings only one bidder for each block is selected and it is required
that the successful bidders must have shale gas development experience and a separate license
to produce will not be required from the one that will allow exploration. Companies that
already obtained a license to an area where the focus may have been conventional resource
development can now pursuant to regulations also develop shale gas and oil. After first
auction where US based Chevron company, the sole bidder in the shale gas procurement,
pulled out in October 2013 after securing the right, citing adverse tax and legal environment
in Lithuania. The US company‘s exasperation was largely over the numerous shale gas
legislation changes and especially after government‘s proposal to tag a 40 percent basic tax on
shale gas, which, if adopted, would have been the largest rate worldwide. 191 Lithuania‘s
government announced in April 2014setting new shale Gas Tender no later than May or
June this year.192 Lithuanian Environment Minister Valentinas Mazuronis
overseeing
Government‘s Strategic Committee bolstered the resolve of potential bidders to participate in
the Baltic country‘s new shale gas exploration and extraction tender by passing a ruling that
shale gas extraction will be tax-free for three or four years since the start of the activity. In
this case 15 percent tax will be applied thereafter.193
191
See more at http://www.naturalgaseurope.com/new-lithuania-shale-gas-tender-set-for-late-may-or-june
See more at http://www.naturalgaseurope.com/new-lithuania-shale-gas-tender-set-for-late-may-or-june
193
See more at http://www.naturalgaseurope.com/lithuania-shale-gas-valentinas-mazuronis
192
116
Figure 43. Shale gas basins in Lithuania
Source: U.S. Energy Information Administration: World Shale Gas Resources: An Initial Assessment of 14
Regions Outside the United States (April 2011)
The proposed legislation would work well in attracting potential foreign investors,
and this new taxation system would be similar to that one that Poland is to employ soon. The
Committee has also insisted on having the conventional gas tax tariff changed- from the
current 2-20 percent- it depends now on the volume of oil extraction- to a fixed 12 percent
tariff. To placate the public‘s unease about the adverse impact of shale gas mining on the
environment- a concern that had thwarted Chevron‘s shale gas extraction plans in the countrythe Government ordered the Environment Ministry to draw up a well-thought PR plan on
informing the public about the activity. 194 In addition, Lithuania‘s State Geological Service
(LSGS) has already drafted and submitted for coordination a number of hydrocarbons
regulations: new terms and conditions of the tender, new classification of hydrocarbon
resources and draft amendments to the Law on Environmental Impact Assessment of the
194
http://www.naturalgaseurope.com/lithuania-shale-gas-legislation
117
Proposed Economic Activity. 195 Lithuanian lawmakers defended the stringent law, arguing
they needed to lay out all safeguards to ensure safety of shale gas mining. Among other
incentives for shale gas investors, the Ministry is mulling exempting future investors from a
requirement of having environmental assessment impact (ESI) performed before exploratory
drills. Though the tender date is slated for May or June 2014 the minister did not elaborate
last week on a more precise date. Having booted out US-based Chevron as the explorer and
miner of country‘s shale gas resources,
196
Chevron, the sole bidder in the previous shale gas
procurement, pulled out after securing the right last October citing adverse tax and legal
environment in Lithuania. The US company‘s exasperation was largely over the numerous
shale gas legislation changes and especially the Baltic lawmakers‘ brewing proposal to tag a
40 percent basic tax on shale gas, which, if adopted, would have been the largest rate
worldwide. Lithuanian lawmakers argued they needed to set out all safeguards to ensure
safety of shale gas exploration and mining in the country.
The Ministry will leave the
taxation of traditional oil unchanged and keep the current tax average at 10 percent; or raise it
slightly, perhaps to the average of 12-13 percent and the average taxation of shale resources
could be 15 percent,
Lithuania‘s State Geological Service (LSGS) have already drafted and submitted for
coordination a number of hydrocarbons regulations: new terms and conditions of the tender,
new classification of hydrocarbon resources and draft amendments to the Law on
Environmental Impact Assessment of the Proposed Economic Activity. To better prepare for
the shale gas exploration and mining monitoring, LSGS specialists have been apprenticed
abroad for the task. In this pursuit, a joint Lithuanian-US agreement on collaboration in
developing an unconventional hydrocarbons sector technical possibility program and its plan
were prepared last year. The first hearing over the implementation of the plan has already
taken place. A Chevron representative in Lithuania has said the US energy giant restrains
from giving any comment whether the Americans will pursue the bid again
195
196
Op. cit. http://www.naturalgaseurope.com/new-lithuania-shale-gas-tender-set-for-late-may-or-june
http://www.naturalgaseurope.com/new-lithuania-shale-gas-tender-set-for-late-may-or-june
118
VII Assessment of Poland shale gas resources and its future
Poland with a population of 38 million uses about 14 billion cubic meters of natural
gas a year, of which 60 percent is imported from Russia. Poland and Lithuania are the only
two EU countries which are pushing forward with exploration and quick commercial
extraction of shale gas reserves using hydraulic fracturing. In addition Poland within
diversification framework hopes to import shale gas from the United States, the major global
player inn unconventional gas. Shale leasing and development in Poland began in 2007 when
the Ministry of Environment implemented highly favorable policies for shale gas
development, including a simple tax and royalty fiscal system.
PGI estimated technically recoverable shale gas resources in the onshore BalticPodlasie-Lublin region to be 230.5 to 619.4 billion m3 (8 to 22 Tcf), with an additional 1.569
to 1.956 billion barrels of oil (their ―higher probability range‖ estimate). 197 The corresponding
USGS estimate was about 1.345 Tcf and 0.168 billion barrels (mean estimate), or roughly
10% of PGI‘s estimate.198 the EIA/ARI shale gas/oil resource estimate for Poland is larger
because it includes two additional shale plays (Podlasie and Fore-Sudetic Monocline),
incorporates more recent shale industry data, and assumes higher recovery factors more
consistent with (but still considerably less than) actual Marcellus Shale well performance.
Optimistic estimates showed that Poland could have up to 1.92 trillion cubic meters (67.8
trillion cubic feet) of exploitable shale gas deposits, possibly the third largest reserves in
Europe after Norway and the Netherlands. 199 Total risked, technically recoverable shale
resources in the Poland portion of the Baltic Basin and Warsaw Trough are estimated at 105
Tcf of shale gas and 1.2 billion barrels of shale oil and condensate.
Plentiful natural gas would also potentially allow Poland to reduce its reliance on dirty
domestic coal for 90 percent of its electricity production, a situation that has caused tensions
with European partners concerned about missing clean air targets. In Poland, shale gas
deposits are located in the zone stretching from the north-west to the south-east of the
Member State. Due to the specificity of the upstream activities and the complex geology of
197
Polish Geological Institute, 2012. ―Assessment of Shale Gas and Shale Oil Resources of the Lower Paleozoic Baltic-Podlosie- Lublin
Basin in Poland.‖ March, Warsaw, Poland, 29 p; see also Instytut Nafty I Gazu, Rzeczpospolita łupkowa, Warszawa 2012
198
U.S. Geological Survey, 2012. ―Potential for Technically Recoverable Unconventional Gas and Oil Resources in the Polish- Ukrainian
Foredeep, Poland.‖ Fact Sheet 2012-3102, July, 2 p.
199
Poland could have between 800 billion and two trillion cubic metres of exploitable shale gas deposits, according to the Polish Geological
Institute. The PGI and USGS resource estimates both are considerably less than EIA/ARI‘s current estimate of 146 Tcf and 1.8 billion barrels
for Paleozoic shale gas and oil in Poland; see also Raport Polskiego Instytutu Spraw Międzynarodowych, Gaz łupkowy – szanse i wyzwania
dla Polski i Unii Europejskiej w świetle doświadczeń amerykańskich i rozwoju międzynarodowego rynku gazu
119
Polish Basins it is assumed that only 25% of the initial exploration wells will be successful.
Poland has four main basins where Paleozoic shales are prospective and exploration activity is
taking place, and this include the Baltic Basin and Warsaw Trough in northern Poland, the
Podlasie Depression and the Lublin Basin in east Poland, and the Fore-Sudetic Monocline in
the southwest. A fifth region, the Carpathian Foreland belt of southeastern Poland, could be
prospective for oil-prone Jurassic shales, but this area is structurally complex and has not yet
been targeted for shale leasing. The Baltic Basin in northern Poland remains the most
prospective region with a relatively simple structural setting. The Podlasie and Lublin basins
also have potential but are structurally complex, with closely spaced faults which may limit
horizontal shale drilling. A fourth area, the Fore-Sudetic Monocline in southwest Poland, is
less recognized but has non-marine coaly shale potential similar to Australia‘s Cooper Basin.
Figure 44. Location of Assessed Shale Basins in Poland.
Source: Modified from San Leon Energy, 2012
120
Poland‘s shale industry is still at an early exploratory, pre-commercial phase. About
30 vertical exploration wells and a half-dozen vertical and two horizontal production test
wells have been drilled to date.200 The initial results from some 30 vertical and two horizontal
shale wells have been less successful than hoped. Production rates and reservoir quality have
been lower than expected, with one operator testing ~4% porosity and ~40% clay content in
several wells. Hydraulic fracturing operations to stimulate production from the shale also have
been sub-par.
Figure 45. Presentation os shale gas basins in Poland
200
According to the U. S. Energy Information Administration early results have not met industry‘s high initial expectations.
121
The Polish Geological Institute released a report in June 2012 which suggested shale
gas reserves could be up to 1.9 trillion cubic meters and is expected to publish a new report
on the country‘s shale gas reserves in 2014 201 According to estimates by Wood Mackenzie, an
oil and gas research group, Poland‘s unconventional gas reserves could be as high as 48
TCF.202 Following initial large potential resource estimates, the US Energy Information
Administration (EIA) reduced Poland‘s shale gas resources to 148 trillion cubic feet this year,
from its 2011 assessment of 187 trillion, mainly due to a downgrade of the country‘s Lublin
Basin resource203. If confirmed, this would significantly increase the EU‘s proven reserves of
natural gas and make Poland, which imports 72 per cent of its gas, selfsufficient for the
foreseeable future.
Significant shale gas production in Poland could also alter the gas
geopolitics for the entire European region, which has historically been dependent on Russian
supplies of natural gas. In Poland are present several major energy companies investing in
shale gas industry and included among others
Chevron, Canadian-based Talisman. and
ConocoPhillips.204
201
Assessment of shale gas and shale oil resources of the lower Paleozoic Baltic-Podlasie-Lublin basin in Poland, Polish;
Geological Institute, Warsaw, March 2012, available at www.pgi.gov.pl/pl/component/docman/doc_download/769-raport-en; Ekonomiczny
potencjał produkcji gazu łupkowego w Polsce w latach 2012-2025. Analiza scenariuszowa, Centrum Analiz Społeczno-Ekonomicznych
Fundacja Naukowa, Warszawa 2012
202
Robin Pagnamenta, Dash for Poland’s Gas Could End Russian Stranglehold; see also Jusińska Dominika, Kotowicz Michał, Swoczyna
Bernard, Gas łupkowy, Wydział Mechaniczny Energetyki i Lotnictwa, Politechnika Warszawska, Warszawa 2013
on Supplies, TIMES (London), Apr. 5, 2010, at 33. see also Kim Talus, Access to Gas Markets: A Comparative Study on Access to LNG
Terminals in the EU and the United States, 31 Houston Journal of International Law 343, 354 (2009).
203
Decision time for Poland, Regester Larkin Shale Report January 2014
204
There has been recent success for Lane Energy Poland (a subsidiary of ConocoPhillips) which announced that it is extracting in the region
of 8,000 cubic meters of shale gas per day at a test well in the north of the country. This is the highest amount seen in Europe to date and the
company is planning to drill two or more wells in 2014.
122
Figure 46. . The major foreign companies in Poland
In 2009 Chevron acquired and currently operates four shale gas exploration blocks
totaling 4,433 km2 in the Lublin Basin of southeast Poland. In October 2011 Chevron
completed a 12-month 2-D seismic acquisition program across the four licenses to help plan a
multi-well exploration drilling campaign. The company completed its first wells in the
Grabowiec and Frampol licenses during Q1 2012but results have not been yet disclosed. On
March 31 2014 Polskie Górnictwo Naftowe i Gazownictwo (PGNiG) 205 and Chevron Polska
Energy Resources signed a collaboration agreement for shale gas exploration in south-eastern
Poland on Monday, surfing the wave of revived optimism about unconventional gas in the
country. Under the agreement, the companies will collaborate in appraising shale gas deposits
in four exploration license areas in south-eastern Poland - two owned by PGNiG (Tomaszów
Lubelski and Wiszniów-Tarnoszyn) and two belonging to Chevron (Zwierzyniec and
205
PGNiG is the largest Polish oil and gas exploration and production company. PGNiG owns 51 percent of shares in the Fences
concessions. FX Energy owns the remaining 49 percent. The concession covers 1,647 square kilometres in western Poland.
123
Grabowiec) 206 The joint effort will include drilling of an exploration well, exchange of
geological data from the concessions in question, as well as sharing experience gathered so far
as part of PGNiG and Chevron's respective exploration activities.
PGNiG, the national oil and gas company of Poland, holds 15 shale gas exploration
licenses. Last year the company reported plans to invest $0.5 billion in shale gas development
with several Polish state-owned partners. PGNiG has drilled at least four shale gas exploration
wells to date in the Baltic Basin, producing shale gas from the Cambrian in two vertical wells
from depths of about 3,000 m, while logging gas shows in the Ordovician and L. Silurian. The
company recently drilled its first horizontal well nearby (Lubocino-2H) and targets
commercial production in the Baltic Basin starting 2016.207
Another U.S. based company ConocoPhilips, , joined forces with Lane Energy Poland,
a subsidiary of UK-based 3Legs Resources, while GDFSuez has forged an alliance with the
small explorer Schuepbach Energy. ConocoPhillips has farmed into three of Lane Energy‘s
(subsidiary of 3Legs Resources PLC) shale blocks in the western Baltic Basin. Lane Energy
has tested low gas rates (90 and 500 Mcfd) from two stimulated horizontal shale wells.
ConocoPhillips recently became the operator of these blocks, shifting focus to the liquids-rich
window in the north. The company recently spud its first Poland shale well, the vertical
Strzeszewo LE-1, in an area with 3D seismic coverage. 208
It is interesting that the firm Lane Energy Poland—controlled by US energy giant
ConocoPhillips—was the first to extract shale gas in July 2013, and has been extracting about
8,000 cubic meters of gas per day since July 21 2013. Although the yield was lower than at
sites in Canada and the United States, it was the best such result in Europe to date but such
amount is not big enough to qualify as commercial production, however. Gas is being
exrtacted at a depth of 3,000 meters (9,800 feet) without present threat to the environment.
Another American company BNK Petroleum Inc. (the "Company" or "BNK") in 2013 has
successfully drilled, cased and cemented its Gapowo B-1, which is the longest horizontally
drilled well in Poland,horizontal well with excellent gas readings regularly
recorded
throughout the lateral. The well successfully drilled the targeted over-pressured, gas-charged,
organic-rich Lower Silurian and Ordovician shales that were originally encountered in the
vertical Gapowo B-1 well. The well has approximately 5,900 feet of lateral available to
206 The agreement with Chevron is part of PGNiG's new policy of openness towards other companies involved in shale gas exploration
projects in Poland. The collaboration will enable the parties to reduce costs, share risks, and increase the pace of the exploration work.
http://shalegas.cleantechpoland.com/?page=news&id=127&link=chevron-pgnig-sign-agreement-to-explore-for-shale-gas-in-poland
207 PGNiG, News Release, November 15, 2012.
208 ConocoPhillips, Corporate Presentation, February 7, 2013.
124
fracture stimulate.209 BNK Petroleum has all together drilled five vertical shale wells in the
Baltic Basin ($12 million/well). Porosity (3-4%) was lower than expected in over-pressured
L. Paleozoic shale; clay content was fairly high (30-40%). The company estimated total GIP
concentration of up to 135 Bcf/mi2, including 86 Bcf/mi2 in the target Ordovician and L.
Silurian shale zones (total 110 m thick). The Lebork S-1 well flared gas from several
intervals, but a fracture stimulation was unsuccessful due to high stress and inadequate pump
capacity.
But in July 2013 the Polish Oil and Gas Company (PGNiG) and FX Energy informed
that they achieved ―disappointing‖ results after the testing of the three fracked Rotliegend
intervals in the Plawce-2 well on the Fences concession, western Poland cited that The top
interval, where log interpretation indicated more than 60 meters of gas saturated sandstone at
the top of the Rotliegend, flowed only non-commercial levels of gas along with formation
water210
It is worth to mention that US energy giant Chevron announced in 2013 that it had
joined forces with Poland's PGNiG on shale gas exploration in the country's south. Chevron
Corp. has commenced in May 2014 drilling its first shale gas exploration well in Romania. 211
Earlier plans to proceed with exploration for the unconventional gas saw protests and the
occupation and blockage of a drilling site that saw Chevron twice suspends its plans in
Eastern Romania. Exploratory drilling at the well site near the village of Silistea, Pungesti
commune in Vaslui County, is targeting a depth of approximately 4,000 meters. Chevron also
holds three shale-gas exploration blocks in the south-eastern region of Dobrogea, near the
Black Sea
The same company along with Shell corporation won in 2012 a tender to explore two
major deposits in Ukraine Yuzivska (Kharkiv and Donetsk Oblasts) and Oleska (Lviv and
Ivano-Frankivsk Oblasts),, which the government estimates could hold 2.98 trillion cubic
meters of gas,212 Gas extraction on an industrial scale is expected to commence in late
2018/early 2019 at the earliest. According to estimates presented in the draft Energy Strategy
of Ukraine 2030, annual gas production levels may range between 30 billion m3 and 47
209
The Company believes that it controls about 285,000 net acres that have good potential to produce natural gas and another approximately
285,000 net acres that are also prospective but have higher associated risk.
210
See more at
http://shalegas.cleantechpoland.com/?page=news&id=95&link=pgnig-and-fx-energy-achieve-disappointing-results-onplawce-2-well211
See more at http://www.naturalgaseurope.com/chevron-commences-shale-gas-drilling-in-romania
212
In January 2013 , Ukraine and the Anglo-Dutch group Shell signed a $10-billion production-sharing agreement to explore shale gas at the
Yuzovska deposit in the eastern Donetsk region.
125
billion m3 towards the end of the next decade. According to initial estimates provided in the
still unapproved Energy Strategy of Ukraine 2030, gas from non-porous sandstone formations
is the most promising form of unconventional gas. Estimated reserves of tight gas range
between 2 and 8 trillion m3 and are found at depths of between 4 and 5 km. Estimated shale
gas reserves range between 5 and 8 trillion m3. In turn, the volume of potential coal bed
methane deposits is expected to range between 12 and 25 trillion m3. According to optimistic
forecasts from IHS CERA, total gas production (from both conventional and unconventional
reserves) could reach as much as 73 billion m3. 213
In the aftermath of global financial crisis and global energy ExxonMobil in 2012, 214
Marathon215 and Talisman dropped shale gas exploration in Poland, after disappointing
drilling results - finding deposits too deep to extract using the conventional method of
hydraulic fracturing, or fracking along with the environmental concerns.
In 2009
ExxonMobil leased six licenses in the Lublin and Podlasie basins of eastern Poland. The
company drilled two vertical shale gas test wells (Krupe 1 and Siennica 1), locating one well
in each basin. In late 2012 ExxonMobil sold two of the licenses (Wodynie-Lukow and
Wolomin in the Podlasie Basin) to PKN Orlen. PKN Orlen holds 10 shale gas licenses
totaling nearly 9,000 km2 (including the two former ExxonMobil blocks). In late October
2012, PKN reported drilling the first horizontal well in the Lublin Basin, which it plans to
hydraulically stimulate. Exxon already cautioned that commercial production of Polish shale
was at least five years away, said it would not go forward with exploration That was until
March 2013 , when a government report revealed the country's likely reserves were about
one-tenth the size of previous estimates.216 Exxon realised that commercial extraction was not
possible with currently available technology.
In addition Eni, the Italian oil company in Janaury 2014 announced that is giving up
on producing natural gas from shale rock in Poland, Italian oil giant Eni withdraw totally from
its shale gas project in Poland, allowing two of its three exploration licenses expire, with a
third one likely to follow Eni has let its licenses expire due to unclear regulations and difficult
213
But Ukrainians were concerned about the ecological consequences of shale gas exploration in the mountainous forest region, which is
also a prominent tourist resort.
214
In December 2009, ExxonMobil (Exxon) announced plans to buy XTO Energy (XTO) in an all-stock transaction worth about $41 billion
(including debt of $10 billion), Exxon‘s interest in XTO was driven primarily by XTO‘s
strong unconventional gas resource base and its technical expertise in extracting shale gas through hydraulic fracturing technology.
215
Marathon and partner Nexen have acquired new seismic and drilled at least one shale well in the Baltic Basin. Marathon in May 2012
noted disappointment with the reservoir quality.
216
Poland had high hopes for shale after a study by the U.S. Energy Information Association in 2011 estimated Polish reserves at 5.3 trillion
cubic metres, enough to cover domestic demand for some 300 years. The government's study in March slashed estimates for recoverable
shale gas reserves at 346 to 768 billion cubic metres
126
geology. As of 1 September 2011 26 shale gas prospection/exploration licenses were granted,
many of them also covering other hydrocarbons than shale gas. 217 Talisman Energy Polska
Limited Corporation reported it has three concessions in the Northern part of the Baltic Basin.
Most of the projects currently are at the phase of seismic surveys. 218 Talisman and San Leon
Energy have drilled three vertical shale wells in the Baltic Basin, logging gas and some
liquids shows throughout the Cambrian, Ordovician, and Silurian section. 219 San Leon had not
finished removing fracking fluid from the well when it achieved the flow rate, according to
the statement. It estimated a potential flow rate of 200,000 to 400,000 standard cubic feet per
day if the clean-up of fracturing fluid from the well was completed. That‘s equivalent to as
much as 4 million cubic meters per year, or 0.03 percent of Poland‘s fuel use. San Leon will
drill and hydraulically stimulate a horizontal well in the Lewino area to test the entire vertical
extent of the Ordovician interval with each frack and prove commercial flow rates, according
to the statement. In the U.S., horizontal wells typically yield between seven and 30 times the
production rate and recovery of vertical wells in the same formation . The company reported
that it may drill its first horizontal shale well during 2Q-2013, with a planned 1,000+ m lateral
completed with a multi-stage frac. San Leon became the sole owner of three permits in
northern Poland after Talisman‘s exit, including the Gdansk West license where the Lewino
well is located. Lewino produced gas almost immediately after clean-up and has done so
continuously when the well is open. 220
The Polish government has granted over 100 concessions for the exploration of nonconventional hydrocarbons as companies have flocked to the country, but and the biggest
holders of shale gas concessions are state-owned companies, most notably Polish Oil and Gas
Company (PGNiG). Despite over 110 exploratory shale concessions having been awarded, no
company has made a ―Declaration of Commerciality‖ and, as a result, no license has moved
into the Production Concession stage. Licenses covering primarily the most promising shale
belt area, reaching from Pomorze to Lubelskie have been granted to Polish private as well as
state-controlled companies and foreign registered companies. Out of nineteen companies
involved only three are partly State-owned.
217
ExxonMobil has submitted applications to the Ministry of Environment regarding the relinquishment of two exploration concessions in
the Podlasie Basin (Legionowo and Mińsk Mazowiecki) and one, together with its partner (French operator Total E&P Poland), in the Lublin
Basin (Werbkowice). Both companies eventually has had pulled out of shale gas extraction. Canadian International Oil Corp. (CIOC) has
filed for three concessions in south-central Poland, Pro Energis for two and Mazovia Energy Resources for nine
218
FINAL REPORT ON UNCONVENTIONAL GAS IN EUROPE In the framework of the multiple framework service contract for legal
assistance TREN/R1/350-2008 lot 1 Prepared by the law firm Philippe & Partners Brussels, 8 November
219
In Poland gas companies drilled about 50 shale wells as of the last year, is needed at least 200 of them to test the fuel‘s potential ,with
about 30 reservoirs will be drilled this year, up from 14 in 2013, he said in an interview earlier this month.
220
http://www.bloomberg.com/news/2014-01-23/europe-nears-first-commercial-shale-gas-production-in-poland-1-.html
127
Figure 47. Administrative structure in Poland
Source: Economist
As a reminder of legal obstacles facing issuance of licenses serves the case
Commission v. Poland decided by the Court of Justice ( before Treaty of Lisbon called
European Court of Justice) on 23 June 2013. 221 The Judges ruled that polish government
failed to fulfil obligations arising out of the Directive 94/22/EC – Conditions for granting
and using authorizations for the prospection, exploration and extraction of hydrocarbons –
Non-discriminatory access, by allowing licenses to be issued for the exploration and
extraction of hydrocarbons, without fully open tenders. The European Commission alleged
that priority to obtain the production concession, given by the Geological and Mining Act of
1994 to holders of exploration licenses, contradicts the requirements of the Directive because
tendering procedures were not fully open and effective as the Directive clearly states that
exploratory and mining authorizations should be granted by separate, transparent tenders.
Poland had not met obligations under the directive to ensure a non-discriminatory granting of
such rights to economic operators222
221
Judgment of the Court (Fourth Chamber) 23 June 2013 In Case C-569/10
Poland might face claims for damages from plaintiffs who will establish a connection between a decision not to grant a license and
material damages and that a license would have been granted to the company, if the EU‘s directive had been correctly implemented.
222
128
The polish government plans to invest 12.5 billion euros ($17.3 billion) in exploration
and development of its shale gas sector by 2020, with total investment in exploration and
development of the shale gas sector in Poland by both domestic and foreign companies could
reach 12.5 billion euros. The country plans to invest 12.5 billion euros ($17.0 billion)
Politically Poland remains supportive of shale gas development with the Deputy Environment
Minister announcing Poland would commence commercial shale gas production in 2014.
However, the terms of and delays in the enactment of new legislation to regulate the licensing
and tax system have led to industry criticisms. 223 The Polish government has shown
continuing strong support for the shale gas industry in the past six months. On 12 June 2013,
two draft bills were published, one entitled ‗Bill on Hydrocarbon Taxation‘, the other ‗Bill to
Amend the Geological and Mining Act‘. These bills are intended to address gaps in the
existing legislation, to better provide for shale gas, and eventually to increase government
revenues.
Oil and gas exploration activities, like other geological and mining activities, are
subject to general Polish mining regulations, particularly the act of June 9 2011 Geological
and Mining Law.224 Exploration and exploitation of shale gas deposits is not different from
conventional hydrocarbons or any othe underground natural resources. As a general rule,
deposits of hydrocarbons, hard coal methane (as an accompanying mineral), brown coal, meta
ores (with the exception of bog meadow iron ores and native metals), ores of radioactive
elements, native sulphur, rock salt, potassium salt, magnesium-potassium salt, gypsum, and
anhydrite and precious stones, irrespective of the place where they can be found, are covered
by mining ownership. The right of mining ownership is vested in the State Treasury. The
State Treasury may use the object of mining ownership and dispose of its right only through
the establishment of amining usufruct.
The government of Poland
introduced new, competitive and attractive fiscal
legislation for shale gas in order to attract sufficient foreign investments to develop shale gas
reservoirs in Poland. On March 11, 2014 the Polish government on Tuesday decided to make
it tax-free to extract shale gas at home through 2020, after 2020, taxes shouldn't exceed 40
percent of extraction income. In April 2013, the Polish finance ministry announced that it is
preparing a new tax regime for the oil and gas industry. The proposed tax rates will have a
massive impact on the industry, because the new rate caps out taxes at nearly 60%, as
223
224
See also W. Bagiński, shale gas in Poland,, Warsaw, 2012
The Journal of Laws from 2011 No 163 item 981 as amended
129
opposed to an earlier promise of 40%. PKN Orlen, one of the country‘s statecontrolled
refiner‘s, has stated that the taxes on exploration and extraction of unconventional oil and gas
reserves could reach as high as 130%.7 These new rates are important when discussing the
country‘s shale gas potential, because Poland has high hopes of finding significant amounts of
shale gas over the next few years.
Figure 48. Overview of gas resources
Source: IEA
The polish authorities are exploring all possible avenues to succeed, for example the
Polish Ministry of Foreign Affairs had a contract with one of the biggest European lobbying
company Burson-Marsteller for around 0.5 million Euro, making it the firm's third largest
client in 2011. 225 According to latest rough estimates 5 000 to 15 000 wells would be required
to produce shale gas in Poland, leading to capital requirement of approximately $25 to $125
billion. Just over 50 exploratory wells have been drilled in Poland, about 40 of which were
drilled in 2012. Experts estimate that up to 300 wells will have to be drilled at up to $15
million a pop before we have a sound estimate of Poland‘s commercially viable reserves. But
energy firms operating in Poland have only drilled 33 wells over the past three years and have
hydraulically fractured only. That is not nearly enough to launch this industry and none of the
225
Entry
on
Burson-Marsteller
in
the
EU's
Transparency
http://ec.europa.eu/transparencyregister/public/consultation/displaylobbyist.do?id=9155503593-86
Register:
See
more
at
130
drilled wells have produced encouraging results. There are only 11 drilling rigs in Poland as
compared to 2000 in the United States and this too is impeding development. It costs roughly
$15 million to drill and fracture a well in Poland as compared to $4 million in the Barnett
Shale region of Texas. Local and global companies have thus far sunk around 50 exploratory
wells in Poland. This country has granted exploration rights to local and global firms which
have sunk 48 exploratory wells.
Nevertheless we must take into account the report criticizing the progress on shale gas
exploration by Poland' supreme Audit Office (NIK (senior auditing institution) which warned
that at the current rate it will take 12 years before the country's shale gas potential can be
properly assessed and pointed out that while 113 licenses have been issued, only a small
proportion of the territory in question has actually been explored. The report explained that
work on the legal framework for shale gas exploration and extraction was started with a
considerable delay in 2011. License issuing processes were unreliable and did not promote
equality, they also took more time than was necessary, the report went on to say. All this
irregularities could lead to potential corruption, NIK concluded. The office was also skeptical
of the progress in estimating the size of Poland‘s shale gas reserves. If the current rate of test
drilling is maintained, it may take about 12 years to complete the process, the report said. NIK
also criticized companies that were granted exploration licenses. According to the report, they
did not conduct necessary geological studies, or conducted them with significant delay. They
also delayed the payment of licensing fees.226
The Polish Exploration and Production Industry Organization (OPPPW) argues that
lack of regulatory clarity is to blame for the radical slowdown in shale exploration this year.
At the current rate of just over ten wells a year, the country will take about 25 years to reach
a reliable assessment of the country‘s shale gas resources.
Poland has some regulatory provision addressing the concerns addressed by the
environmental groups, which in both the US and Europe have raised the alarm that the
chemical-laced waste could be contaminating fresh water resources. The risk of
environmental contamination is present at all stages of extraction.
226
See more at http://www.wbj.pl/article-64745-nik-lambasts-polands-shale-gas-exploration.html?type=lim
131
Figure 49. Impacts and risks of shale gas production on nature and the environment
Source: SRU/Statement SRU (Sachverständigenrat für Umweltfragen) (2012): No. 18–2013
These include surface spills and leakages, emissions from gas-processing equipment,
and pollution from the large numbers of heavy transport vehicles involved. There is therefore
ample opportunity for pollutants to contaminate the air, and ground and surface water. 227 The
fracking drilling sites have larger surface footprints, and may be like in Poland much closer to
where people live. The need to transport and store large volumes of toxic chemicals and
contaminated water are likely to pose negative consequences for health. In addition to local
threats to health and environment, another key consideration is the contribution of shale gas to
climate change. There is conflicting evidence about whether fracking produces more or less
greenhouse gas emissions than coal. In any case, the evidence from the US is that shale gas
has developed alongside the use of coal, rather than replacing it, leading to an overall increase
in greenhouse gas emissions. In Poland, the Act of 25 February 2011 on Chemical Substances
provides for penalties with the purpose of enforcing compliance with REACH.
227
Nathaniel R. Warner, Cidney A. Christie, Robert B. Jackson, Avner Vengosh, Impacts of Shale Gas Wastewater Disposal on Water
Quality
in
Western
Pennsylvania"
Published
Oct.
3
in
Environmental
Science
&
Technology
132
EU regulatory framework for shale gas exploitation and production
The most important from current EU regulatory framework concerning hydraulic fracturing is
European Council‘s Conclusions from 4 February 2011: which assessed in order to further
enhance its security of supply, Europe‘s potential for sustainable extraction and use of
conventional and unconventional (shale gas and oil shale) fossil fuel resources 228 In November
2011 a report commissioned by the European Commission‘s Directorate- General for Energy
concluded that existing EU legislation already covers shale gas exploration and extraction.10 This
study looked at the situation in Sweden, Poland, France and Germany and did not find any significant
gaps in the current legislative framework either at EU or national level.229
On 15 December 2011, the European Commission adopted the Communication
―Energy Roadmap 2050‖ in which it identified shale gas and other unconventional gas
sources as potential important new sources of supply in or around Europe.11230 In September
2012, three new studies were carried out for the European Commission.12 The studies
investigate: (1) the potential effects of unconventional fossil fuels on energy markets,13 (2)
the potential climate impact of shale gas production,14 and (3) the potential risks shale gas
developments and associated hydraulic fracturing may present to human health and the
environment.15231
228
European Council, 4 February 2011, Conclusions, point 7. http://register.consilium.europa.eu/pdf/en/11/st00/st00002-re01.en11.pdf.
Philippe
and
Partners,
Final
Report
on
Unconventional
Gas
in
Europe,
8
November
2011,
http://ec.europa.eu/energy/studies/doc/2012_unconventional_gas_in_europe.pdf.
230
Communication from the Commission to the European parliament, The Council, The European Economic and Social Committee and the
Committee oft he Regions „Energy Roadmap 2050―, COM/2011/0885 final.
231
European Commission, Joint Research Centre, Institute for Energy and Transport, Unconventional Gas: Potential Energy Market Impacts
in the EU, http://ec.europa.eu/dgs/jrc/downloads/jrc_report_2012_09_unconventional_gas.pdf.
14 AEA Technology plc, Climate impact of potential shale gas production in the EU, Final
229
133
Figure 50.. Water implications for shale gas
Hydraulic fracturing creates permeability artificially, so the gas can migrate to the borehole
Source: RESOURCES FOR THE FUTURE, TOTAL October 2013
The European Commission stated that at a time when European reserves are being
depleted and consumers' appetite continues to increase, natural gas is becoming critically
important to the EU to recognize that shale gas could be part of the solution to meet European
consumers' ever increasing demand for energy. The risks associated with the high volume
hydraulic fracturing technique, also commonly referred to as "fracking", have triggered
concerns about public health and environmental effects, therefore in 2006 Regulation
2006/1907/EC concerning the Registration, Evaluation, Authorization and Restriction of
Chemicals150, establishing a European Chemicals Agency (―REACH‖) was passed which is
134
applicable to the use of chemicals in the hydraulic fracturing process, which requires the use
of fracturing fluid which consists of a mixture of chemical substances, provided that the
thresholds for registration are fulfilled. Through registration, evaluation, authorization and
restriction the regulation is to provide that no undesired substances will enter circulation. The
burden of obligation lays on manufacturers, importers and downstream users. Given the fact
that shale gas operators use mixtures of chemical substances in the course of hydraulic
fracturing, they are part of the category of downstream users under REACH. 232
Figure 51. typical hydraulic Fracturing Process
Source: IEA
REACH defines a downstream user as any natural or legal person established within
the Community/EU, other than a manufacturer, importer, distributor or customer, who uses a
substance, either on its own or in a mixture, in the course of his industrial or professional
activities (Article 3(13) of REACH). The Commission wants to ensure the environmental
integrity of extraction of unconventional hydrocarbons, such as shale gas, and ensure that
risks that may arise from individual projects and cumulative developments are managed
232
REACH needs to be complied with, since operators using chemical substances for hydraulic fracturing will considered being downstream
users in the meaning of REACH. However, up to now, we do not have certainty yet whether the chemicals used for hydraulic frac turing will
meet the relevant thresholds. As downstream users, they need to apply risk management measures for dangerous substances identified by the
supplier and communicated through Safety Data Sheets. They also have the obligation to make their use of a substance known to the
manufacturer so it can be registered as an identified use and covered in the supplier‘s chemical safety assessment.
135
adequately in Member States that wish to explore or exploit such resources. The European
Commission issued in 2011a Guidance Note233 confirming that the exploration and
exploitation of unconventional hydrocarbons has to comply with the requirements of EU
legislation. A comprehensive EU legislative framework on environmental protection and nondiscriminatory access to hydrocarbon resources is already in place and applies to all
hydrocarbons, conventional and unconventional, from planning to the aftercare of sites
following exploitation. The Commission Guidance Note states that exploration and
exploitation of unconventional hydrocarbons fall within the scope of the Environmental
Impact Assessment (EIA) Directive (2011/92/EU), which plays a central role in the
assessment of the environmental effects of proposed UGEE projects/ operations before
development consent can be granted. The Directive ensures that the environmental
implications of projects are taken into account in the permitting process, before the final
decisions are made. Any application for an exploration license that includes hydraulic
fracturing would be subject to environmental assessment in accordance with the requirements
of the EIA Directive.
Since 2012 the Commission has released a series of studies on unconventional fossil
fuels, in particular shale gas234, addressing especially potential energy market and climate
impacts, potential risks for environment and human health, regulatory provisions applicable in
selected Member States and the registration under REACH of certain substances potentially
used in hydraulic fracturing. It has also used reports from academia, international
organisations and studies conducted by Member States to underpin its analysis. 235
The European Commission aims to ensure a level playing field across the EU and that
the development of unconventional fossil fuels is carried out with proper health, climate and
environmental safeguards in place and under maximum legal clarity and predictability for
competent authorities, citizens and operators, for the potential economic and energy security
benefits to be reaped. The European Commission conducted a public consultation
―Unconventional fossil fuels (e.g. shale gas) in Europe‖ between 20 December 2012 and 23
March 2013, in all official EU languages.
233
See more at http://ec.europa.eu/environment/integration/energy/uff_news_en.htm
For instance see (2014), ―Gas Regulatory Forum‖, official website of the European Commission
(http://ec.europa.eu/energy/gas_electricity/forum_gas_madrid_en.htm). See more - European Parliament (2013), ―Report on making the
internal energy market
234
235
Related studies: 2013: Overview of hydraulic fracturing and other formation stimulation technologies for shale gas production; December
2013 : Study on the Assessment of Land and Water Use Scenarios for Shale Gas Development: Poland and Germany; September 2013:
Assessment of the use of certain substances in hydraulic fracturing of shale gas reservoirs under REACH; September 2013: Study on the
regulatory provisions governing key aspects of unconventional gas development in eight Member States.
136
It was launched as part of the European Commission's wider efforts to listen to
relevant stakeholders and the general public on this topic, to better understand their views and
possible concerns, and to obtain evidence on issues relevant to unconventional fossil fuels
(e.g. shale gas).236 The public consultation "Unconventional fossil fuels (e.g. shale gas) in
Europe" took place between 20 December 2012 and 23 March 2013, to feed into the
development of the Assessment Framework and the related analysis of impacts. This online
consultation was part of the European Commission's wider efforts to listen to relevant
stakeholders and the general public on this topic, to better understand their views and possible
concerns, and to obtain evidence on issues relevant to unconventional fossil fuels (e.g. shale
gas). Contributions were sought in particular from the oil and gas sector, environmental nongovernmental organisations, geological surveys, scientists, experts in the management of
industrial risks, national and local authorities and citizens at large. The consultation referred
notably to shale gas, because it is currently expected to be the unconventional fossil fuel with
the largest potential in the EU and for which most public concern is raised. The Commission
published, in September 2013, an assessment of the use of certain substances in hydraulic
fracturing of shale gas reservoirs under REACH3, as well as a study on the regulatory
provisions governing key aspects of unconventional gas development in eight Member States
(study conducted on the basis of information collected between October 2012 and April
2013). 237
On 21 November 2012 European Parliament adopted two non-legislative resolutions
regarding shale gas and oil: Resolution on the environmental impacts of shale gas and shale
oil extraction activities (2011/2308(INI))20 and Resolution on industrial, energy and other
aspects of shale gas and oil (2011/2309(INI))21.238 Parliament stressed that any development
of exploitation energy resources should ensure a fair and level playing field across the Union,
in full compliance with relevant EU safety and environmental protection laws. The legislative
body recommend identification of risks, lifecycle GHG emissions, chemicals, water, land-use
and effects of shale gas on EU energy markets and urged Member States to be cautious in
236
Public consultation on unconventional fossil fuels generated 22 875 responses, with citizen contributions accounting more than 95% of
the total. More than 90% of citizen responses came from five EU countries: Poland, France, Romania, Spain and Germany. There were 696
responses from organisations, including 33% from companies and 32% from NGOs
237
See
more
at
http://publications.jrc.ec.europa.eu/repository/bitstream/111111111/29386/1/req_jrc83512_assessment_use_substances_hydraulic_fracturing
_shale_gas_reach.pdf
238
See
more
at
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-20120443+0+DOC+XML+V0//EN&language=EN.
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2012-0444+0+DOC+XML+V0//EN&language=EN.
137
going further with UFF until the completion of the ongoing regulatory analysis and to
implement all existing regulations effectively as a crucial way of reducing risk in all gas
extraction operations. Parliament advised the Commission, following the completion of its
studies, to conduct a thorough assessment on the basis of the European regulatory framework
for the protection of health and the environment and to propose, as soon as possible and in
line with Treaty principles, appropriate measures, including legislative measures, if necessary;
The Commission was
called on to: consider including operations related to hydraulic
fracturing in Annex III of the Environmental Liability Directive,
a) bring forward proposals to ensure that the provisions of the Environmental Impact
Assessment Directive 2011/92/EU adequately cover the specificities of shale gas,
shale oil, and coal bed methane exploration and extraction,
b) issue guidance on the establishment of both the baseline water monitoring data
necessary for an environmental impact assessment of shale gas exploration and
extraction and the criteria to be used for assessing the impacts of hydraulic fracturing
on groundwater reservoirs in different geological formations, including potential
leakage and cumulative impacts,
c) bring forward legislative proposals: i) to make the use of completion combustion
devices (―green completions‖) mandatory for all shale gas wells in the EU, ii) to limit
flaring to cases where there are concerns about safety, and iii) to completely forbid
venting of all shale gas wells, in an effort to reduce the fugitive methane emissions
and volatile organic compounds linked to shale gas.
In Parliament‘s opinion extraction of shale gas like conventional fossil fuel extraction, has
risks and such risks should be contained through pre-emptive measures including proper
planning, testing, use of new and best available technologies, best industry practices and
continuous data collection, monitoring and reporting conducted within a robust regulatory
framework; considers it crucial, before the start of UFF operations, to require measuring for
baseline levels of naturally occurring methane and chemicals in groundwater in aquifers and
current air quality levels at potential drilling sites; considers, furthermore, that regular
involvement of the Original Equipment Manufacturers (OEM) or equivalent equipment
manufacturers could ensure that the critical safety and environmental equipment continues to
138
perform effectively and meet safety standards;239 The Parliament made also many
recommendations regarding the enhancement of the regulatory frame.
In July 2013 the European Parliament‘s Environment Committee voted in favor of an
amendment to the Directive 2011/92/EU of the assessment of the effects of certain public and
private projects on the environment that would require a mandatory environmental impact
assessment to apply to all unconventional fossil fuels projects. In accordance with the
precautionary principle, it is proposed that non-conventional hydrocarbons be included in
Annex I, so that the relevant projects are systematically made subject to EIA, regardless of the
amount extracted.
On 10 September 2013, the European Parliament adopted a report on the internal
energy market.240 Calling for a review of the existing gas contracts, the report stated that oil
indexation ―imposes high prices on consumers‖. In this context, the report emphasised ―the
need to develop and support all products and mechanisms aimed at strengthening short-term
gas trading capacities‖ and called for the abolishment of oil-indexation and conversion to
―more flexible alternatives‖ In October 2013 the European Parliament adopted proposed
amendments to the Environmental Impact Directive 2011/92/EU by a narrow majority. These
amendments included an automatic requirement for an Environmental Impact Assessment
(EIA) for the exploration or extraction of shale gas involving hydraulic fracturing. (Currently
an EIA is only required when the extraction of natural gas exceeds 500,000 m3/day). The
proposed amendments now require the agreement of the European Council. On 21 November
2012, the European Parliament recommended:
¥ the development of suitable legislative proposals to enable a more harmonised and safe
development of unconventional energy projects;
¥ a thorough analysis of the EU regulatory framework regarding unconventional exploration
and exploitation;
¥ an EU-wide risk management framework for unconventional fossil fuels exploration or
extraction (harmonised provisions for protection of human health and the environment);
the development of a comprehensive European Best Available Techniques Reference
for fracking;
239
European Parliament resolution of 21 November 2012 on the environmental impacts of shale gas and shale oil extraction activities
(2011/2308(INI)) P7_TA(2012)0443
240
European Parliament (2013), ―Report on making the internal energy market work‖, 2013/2005(INI), Strasbourg.
139
¥ a blanket ban on hydraulic fracturing in certain sensitive and particularly endangered
areas (beneath drinking water protection areas and in coal mining areas);
¥ standardised emergency response plans; and
¥ that a minimum safety distance should be maintained between drilling pads and
water wells.
The European Parliament also noted that mutual non-disclosure agreements regarding
damage to environmental, human and animal health are not in line with EU and Member State
obligations under the Aarhus Convention, the Access to Information Directive (2003/04/EC)
and the Environmental Liability Directive.
140
Figure 52. Use of water in hydraulic proceedings
Efforts to add an amendment to the resolution banning hydraulic fracturing failed, but
the Parliament should not forget that the use of shale gas and other fossil fuels must be
consistent with Article 2 of the United Nations Framework Convention on Climate Change
141
1992 (UNFCCC)241, which calls for the ‗stabilisation of greenhouse gas concentrations in the
atmosphere at a level that would prevent dangerous anthropogenic interference with the
climate system‘ and underlines that substantial lock-in to fossil fuel infrastructures such as
shale gas could put this international objective out of reach; In fact the EP realized that
increased shale gas exploration and production worldwide will lead to a considerable increase
in fugitive methane emissions and that the overall greenhouse warming potential (GWP) of
shale gas has not been evaluated; stresses, therefore, that the exploitation of unconventional
oil and gas resources could hamper the achievement of UN Millennium Development Goal
(MDG) 7 – ensuring environmental sustainability – and undermine the latest international
climate change commitments enshrined in the Copenhagen Accord; The parliaments members
know that climate change already affects poor countries the most; stresses, furthermore, that
in addition to the direct effects on health and the environment, the impact of unconventional
gas or oil extraction on people‘s livelihoods poses a particular threat, particularly in African
countries where local communities largely depend on natural resources for agriculture and
fisheries; Parliament several times Insisted that lessons must be drawn from the USA on the
exploitation of shale gas; notes with particular concern that shale gas extraction necessitates
very large volumes of water, which may make it difficult to achieve the MDG 7 targets
concerning access to clean water and food security, especially in poor countries that already
face a severe scarcity of water;
Finally even commission members recognized that land acquisitions for oil and gas
mining are a major driver of land-grabbing in developing countries, which can pose a
significant threat to the world‘s indigenous communities, farmers and poor people in terms of
access to water, fertile soil and food; notes that, following the 2008 collapse of financial
markets, there has been a marked acceleration of global investments in extractive industries
from hedge and pension funds, with the effect of encouraging more extraction; underlines,
therefore, that all European economic entities should always act in a transparent manner and
in close consultation with all appropriate government bodies and local communities on issues
of land leases and/or acquisitions.242
241
This convention, which was adopted at the United Nations Conference on Environment and Development (UNCED), sets forth a structure
for the control and reduction of greenhouse gases At the UN Climate Change Conference in Bali in December 2007, delegates agreed on a
―roadmap‖ for 2008 and 2009 designed to bring about an agreement by December 2009.
242
European Parliament resolution of 21 November 2012 on the environmental impacts of shale gas and shale oil extraction activities
(2011/2308(INI)) P7_TA(2012)0443
142
Member States remain divided, however, the Council was expected to adopt a decision
in January 2014. Intense lobbying by countries like the UK and Poland and opposition from
the side of DG Energy resulted in the Commission's decision not to propose EU-wide legally
binding rules regulating the safety of unconventional shale gas activities in the EU Member
States. Instead, a mere recommendation was issued. In the past years, DG Environment,
European Parliament and more cautious Member States have pushed the Commission to
propose binding legislation on the exploration and exploitation of shale gas in order to ensure
minimum standards of protection of human health and the environment. A Directive proposal
had been already drafted last year, but strong opposition of member states like the UK,
Poland, Hungary, Slovakia and the Czech Republic brought the Commission to reconsider the
form of its proposal.
In the latest development on 22 January 2014, the European Commission has issued a
Communication on the exploration and production of hydrocarbons using high-volume
hydraulic fracturing in the EU and Recommendations on minimum principles for the
exploration and production of such hydrocarbons (the Recommendations). Both documents
are part of an integrated climate and energy policy framework proposal of the Commission for
the period up to 2030243 Commission advocates the implementation of voluntary guidelines
on a number of topics, including the monitoring of hydraulic fracturing fluids and well
integrity. This recommendation differs from the EU Commission' previous stance, which
favoured legally binding regulations for shale gas extraction. The Recommendation is
intended to complement EU existing legislation, covering issues such as strategic
environmental assessments and planning, underground risk assessment, well integrity,
baseline reporting and operational monitoring, capture of methane emissions, and disclosure
of chemicals used in each well. the Recommendation lays down minimum principles which
should be taken into account by the Member States when applying or adapting their regulation
related to
activities
involving high volume hydraulic
fracturing.
However,
the
Recommendation provides for also a monitoring of application of EU law related to
exploitation of unconventional hydrocarbons and provisions of Recommendation. This might
be the most important part of the Recommendation since it is clearly said that either updating
of the Recommendation or development of legally binding provisions is possible. The
Recommendation imposes a great burden on Member States. Although announced only as the
243
2014/70/EU: Commission Recommendation of 22 January 2014 on minimum principles for the exploration and production of
hydrocarbons (such as shale gas) using high-volume hydraulic fracturing (2014/70/EU)
143
non-binding guidelines, the Recommendation prescribes a very short period of time for
implementation and provides for a monitoring, which within 1,5 year might end up with a
conclusion of a necessity to introduce a binding law on shale gas. New EU Shale Gas
constitutes therefore a concession to the countries such as Poland or UK but with a clear
threat of possible further-reaching actions in case of failure to comply with new guidelines.
Commission thus left the door to further regulation of shale gas exploration and production
open244
The principles are expected to be made effective by the EU Member States within 6
months of their publication. Member States are also invited to inform the Commission
annually about measures taken. The Recommendation includes a review clause to assess the
effectiveness of this approach. The Commission will also consider the need to propose further
legal clarification where necessary.
The Communication recognized that moving ahead towards a low carbon economy in
the current context of rising energy prices, increasing global competition for natural
resources, and instability of security of supply requires addressing these challenges, especially
since the import dependency of Europe is forecasted to continue growing beyond the 67%
mark reached in 2011. As some regions of Europe are considered to have substantial reserves
of unconventional gas (especially shale gas), some member states have already been actively
pursuing shale gas exploration.
As a result of a public consultation organized by the Commission last year, the
majority of the respondents considered that the Commission should take additional actions
related to the development of shale gas in Europe. In addition, the European Council of May
2013 called for the development of indigenous energy resources to reduce Europe‘s external
dependency and stimulate economic growth. According to the Communication, although the
EU will not become self-sufficient in natural gas (as has been the case with the US) in a bestcase scenario, shale gas could contribute almost half of EU‘s total gas production and meet
10% of its gas demand by 2035. In the same scenario, shale gas would hold approximately
3% of the energy mix in Europe by 2030, but the direct effect on the European regional gas
market is likely to remain moderate.
244
See more at http://jacekczarnecki.pl/eu-shale-gas-law-policy/
144
The Commission package replaced its current Program which lays down a target for a
20 percent reduction compared with 1990 levels in carbon dioxide emissions by 2020.
245
The
Commission Work Program for 2013 included the initiative ―Environmental, Climate and
Energy Assessment Framework to Enable Safe and Secure Unconventional Hydrocarbon
Extraction‖. This initiative aims to deliver a framework on unconventional fossil fuels
(through legislative and/or non-legislative measures) to manage risks, address regulatory
shortcomings and provide maximum legal clarity and predictability to both market operators
and citizens across the EU. The initiative is subject to an impact assessment. The impact
assessment will look at options to prevent, reduce and manage surface and subsurface risks, to
adapt monitoring, reporting and transparency requirements, and to clarify the EU regulatory
framework with regard to both exploration and extraction activities The Commission‘s
Program is in line with the European Council‘s call of February 2011 to assess Europe‘s
potential for sustainable extraction and use of conventional and unconventional fossil fuels in
order to enhance Europe‘s security of supply. The Program equally addresses the European
Parliament‘s call of November 2012 to introduce an EU-wide risk management framework
for unconventional fossil fuels exploration and extraction, with a view to ensuring harmonised
provisions for the protection of human health and the environment across all Member States.
Commission studies and assessments, a public consultation and European Parliament reports
setting out its position are all informing the Commission‘s work. The Commission is expected
to adopt a binding legal framework which will produce a base level of European regulation.
Whilst the Framework‘s legislative form is still to be officially confirmed, it is increasingly
expected to take the form of a specific Directive similar to those covering waste water and
environmental impact assessments. In Brussels this framework is being referred to as the
―Shale Gas Enabling Framework
The Commission has been developed for the Framework four general principles and
measures. These principles created a level playing field in Europe, tackling public acceptance
through increased transparency and a focus on health and environmental risks, being clear and
simple to understand and a degree of flexibility regarding specific local features. the new
245
See also: Commission Recommendation on minimum principles for the exploration and production of hydrocarbons (such as shale gas)
using high volume hydraulic fracturing, C(2014) 267/3, 22 January 2014
Commission Communication to the Council and the European Parliament on the exploration and production of hydrocarbons (such a s shale
gas) using high volume hydraulic fracturing, Draft - 22 January 2014
Commission Staff Working Document – Impact Assessment accompanying the Communication on the exploration and production of
hydrocarbons using high volume hydraulic fracturing, Draft - 22 January 2014 Joint Research Centre, Assessment of the use of substances in
hydraulic fracturing of shale gas reservoirs under REACH, September 2013
European Voice, Commission prepares shale-gas guidelines, 16 January 2014 RTCC, UK and Poland announce plans to push fracking across
Europe, 10 January 2014
145
framework is compatible with the EU‘s long term strategy of a low carbon, resource-efficient
economy. DG Environment has confirmed that rules will cover all potential environmental
impacts of hydraulic fracturing. The new recommendations include the careful assessments of
the environmental impact and risks of shale gas projects, informing the public about which
chemicals are used, insuring industry best practices are used, and the close monitoring of
water, soil and air quality. While non-binding, the Commission urged the 28 member states to
implement them within six months. The Commission added it would require they report
annually about what shale gas measures have been put in place and prepare a scoreboard on
the situation in each country. The recommendations are part of a wider initiative by the
Commission to create an integrated climate and energy policy framework for the period up to
2030. A document prepared for the Commission's 2030 Energy and Climate Package
recognizes the importance of the shale gas revolution, which has driven US gas prices down
sharply, but also recommends strong regulation. 246
246
The Commission has released a number of studies as part of its consideration of whether new policy proposals for unconventional shale
gas should be brought forward, included the January 2012 report produced by Brussels law firm Philippe & Partners which l ooked at
experiences in four Member States (Poland, France, Sweden and Germany). In addition, three studies were released in September 2012 on
the environmental and human health issues associated with hydraulic fracturing in Europe, the potential climate impact of shale gas
production and unconventional gas‘s potential energy market impacts. The latest study, released in September 2013, considered the
regulatory provisions applicable to unconventional gas in 8 Member States (Bulgaria, Denmark, Germany, Lithuania, Poland, Romania,
Spain and United Kingdom).
146
Figure 53.. Natural Gas Prices around the World
Mentioned above document points out that most experts agreed that shale gas
extraction leads to higher cumulative environmental risks and impacts compared to
conventional gas extraction. The recommendations are at this stage non-binding but the
Commission said it would "closely monitor" their implementation and encouraged member
states to adopt them as best practice. EC explained that it will report again in 2015 and at
that point could "decide to put forward legislative proposals." 247 that this strategy could be
released at the same time as the Shale Gas Enabling Framework in early 2014.
247
In addition, EU member states are supposed to source 20 percent of their energy from renewable sources and achieve a 20 percent energy
efficiency gain by the same date. The European Parliament's environmental committee wants a 40-30-40 package but this looks ambitious,
with member states focused on getting a economy back on track rather than add to business costs
147
REACH Regulation (EC 1907/2006)
The Commission is also looked closely at the application of the stringent REACH
Regulation to ensure that shale gas activities are dealt with appropriately. This is in the
context of a wider concern by ECHA (the European Chemicals Agency), regarding the
completeness of registration dossiers, in particular the adequacy of the use descriptors for
particular substances which are submitted as part of the registration process.
REACH requires manufacturers or importers of substances in the EU to register those
substances with ECHA within timescales which depend upon the toxicity of the substance and
the volume manufactured or imported by each registrant per year. The final registration
deadline is 31 May 2018 for substances manufactured or imported in quantities of 1 tonne or
more. In addition, a chemical safety assessment (with exposure scenarios) is required where a
substance is manufactured or imported in quantities of 10 tonnes or more per year. The aim
of REACH is to ensure that the risks of substances are properly understood and managed
appropriately. In 2011, DG Environment expressed concern that chemicals used in hydraulic
fracturing were not registered for that use under REACH. However, based on current levels of
shale gas activity in the EU, it is likely that the tonnages necessary to trigger registration
under REACH will not have been reached. In addition, the use descriptors which have to be
submitted as part of the registration process do not require details of the precise use of the
substance, simply that it is sufficient to allow adequate risk management measures. This
means that use descriptors do not have to be specific to shale gas.
148
Conclusions
Presented data may suggests that by 2030-2035, the EU could meet between three to
10 percent of its projected energy demands from shale. Shale gas cannot be ignored without
potentially damaging consequences to European energy security and prosperity, unless the EU
is able to provide a favourable environment (including regulatory stability) for that
exploration, The environmental impact of hydro-fracturing processes used in shale gas
exploitation will as it happened in the US draw political and public attention to shale gas and
increase the costs of extraction. The use of shale gas will have a significant impact on CO2
emissions and on the imperative to implement clean coal technologies and Carbon Capture
Storage. The more shale gas available, the less need for clean coal and CCS and vice-versa
The challenges to the industry in Europe are more serious because of population density,
strong environmental regulation, water shortages in some regions and public resistance. Shale gas not
only poses unforeseeable risks to the environment, the climate and human health, it could also
undermine the development of renewable energies and lock Europe into even deeper fossil fuel
dependency. Although this contradicts the EU's commitment to reducing greenhouse gas emissions,
gas in combination with carbon capture and storage is now being promoted as a green alternative by
the industry. Additionally the demographic, political, regulatory, environmental and social differences
between the US and the EU will create barriers on the development of shale gas in Europe. It is
unlikely that the EU will repeat the US experience in terms of the scale of unconventional oil and gas
production.
Shale oil and gas have had limited benefits for the US economy and their advantages
for Europe will be lower than expected. The shale boon in the US has mainly benefited local
economies and the gas industry with only "minimal" impact on macro-economic growth248
Between 2000 and 2010, the US drilled a total of 17,268 exploratory natural gas wells, at an
average of 130 per month. Exploration in the EU is in its early stage, with about 50 wells
drilled" thus far.
The principal arguments for relaxing restrictions on U.S. oil and natural gas exports
are economic rather than geopolitical. Even if the USA more very costly LNG facilities were
approved tomorrow, it would still take years before they would begin delivering gas to
customers.249
248
249
The Report of Institute for Sustainable Development and International Relations (IDDRI) 2014
It‘s inconceivable that the U.S. could ever replace the 7.4 trillion cubic feet of natural gas that Russia exported in 2012.
149
Figure 54. . Existing North American LNG Terminals
Source: IEA
In the case of crude oil, it is even harder to make the case for relaxing export
restrictions because of geopolitical considerations. Despite recent increases in U.S.
production, the U.S. still imports on net around 5.5 million barrels a day.
The USA has up to 2,000 onshore gas-drilling rigs operating at any one time, with
Europe having little more than 50 with, for example, only seven of those located in Poland.
150
Figure 55. Shale Gas Output in Poland Source: IEA estimates
Sources IEA 2013
Companies such as PGNiG and BNK Petroleum have already cited these particular
constraints, as bringing in foreign expertise and companies would delay action and could act
as a bottleneck for development.250 Uncertainty exists around the exact size of exploitable EU
shale gas reserves; a median scenario would see the EU producing about 3-10% of its gas
demand from shale gas by 2030-2035. European shale gas resources are likely to be less than
desired by many countries. Although shale gas exploitation can benefit some European
countries, it will not significantly reduce dependency on gas imports from Russia and the
Middle East.251
Unfortunately shale gas resource in Poland estimates are potentially overoptimistic
and it is uncertain to which extent they can be produced economically. Poland should adopt
measures that should encourage not only shale gas exploration but what is most important
find new means of national energy policy. It is very likely that investments in shale gas
projects in Poland might have a short-living impact on gas supply which could be
counterproductive , as it would provide the impression of an ensured gas supply at a time
when the signal to consumers should be to reduce this dependency by savings and efficiency
measures. water sourcing and local infrastructure in Poland might also present difficulties
given the fact that the fracking process requires large amounts of water that The biggest
―Europe, the new frontier in shale gas rush‖, Financial Times, 7 March 2010.
Thomas Spencer, Oliver Sartor, Mathilde Mathieu (IDDRI) Unconventional wisdom: an economic analysis of US shale gas and
implications for the EU N°02/14 february 2014 | CLIMATE
250
251
151
problem in Poland is to simplify the existing bureaucracy, It is very important for local and
national agencies to identify ways to speed up the process, so that more exploration and
production can take place in order to learn more about the country‘s geology. The foreign
companies complained that administration procedures are inefficient, there is not enough
expertise of unconventionals in the administration, and while the government has pledged to
be more efficient, similar commitments at the local level are required. It is clear Poland
cannot go it alone on shale gas. But the extent to which foreign majors will be willing to keep
the money flowing into the country will depend largely on how much legislative progress the
government makes in what could be a make-or-break year for shale in Poland.
The industry specialist predict that it may take 1-16 years before shale gas can be
added to Poland's energy supplies: from five years to eight years to assess whether shale gas
exists in commercial quantities, maybe another seven years before production starts and then
a few more years before enough shale gas is produced on the commercial scale.
Exploitation of Poland‘s shale gas reserves – potentially Europe‘s biggest – needs to
be handled carefully to avoid local pollution, especially from water contamination and
methane leakages. Improving water quality and waste management are other important
environmental challenges: fertiliser and pesticide use has risen, and Poland still uses mainly
landfill-based solid waste management, while wastewater treatment should be further
developed. Despite considerable progress, a third of the population was still not connected to
a sewage network in 2011. 252 In addition in order to minimize disruption of the local
population during shale gas development, the existing legal provision should be amended to
protect both landowners and those that do not have cleartitle to lands. The further
amendments should not only give landowners a choice in selling or leasing their land and
allow for some gas development operations under negotiated surface use agreements, but also
in private lands are sold to the state, compensation should be based on a market assessment.
Neither buyout nor condemnation should be allowed without clear title; the state or
developers should be required to pay for the title work to settle ownership. In order to
properly protect water resources a model framework for drilling and completing wells that
involve hydraulic fracturing should be implementing along with revising existing law on
withdrawal and disposal of water used and produced during development; the law regarding
use of process water basins and retention ponds may require clarifications and needless to say
the government agencies should ensurethat drainage waters from oil and gas construction and
operations is treated to reduce the level of pollutants before discharging into water bodies.
252
OECD Economic Surveys POLAND March 2014 OVERVIEW
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To protect biodiversity, Poland should develop a comprehensive law on non-native
species and provide the resources to collect adequate baseline information and to monitor
populations and enforce existing biodiversity protection laws. Plans for shale gas
development should require and insurance or bonding to guarantee successful interim and
final reclamation that supports a restoration of native communities where appropriate.
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Annexes
Shale Gas mini dictionary
Selected European legal documents
Suggested readings
Shale Gas mini dictionary
Gas measurements:
MMBTU or MBTU: These can both mean 1 million BTUs. (MBTU can also stand for 1000
BTUs, so context is important.) A BTU is the British Thermal Unit. It is the amount of heat
needed to increase the temperature of a pint of water by one degree Fahrenheit. An MMBTU
is roughly comparable to 1000 cubic feet of natural gas.
$6 gas: $6 per MMBTU/1000 cubic feet of natural gas as priced on the international market.
This is the point at which most analysts believe market returns will make shale gas profitable
for companies operating in Pennsylvania. It is based on a roughly $4 million estimated cost
per Marcellus well in Pennsylvania. The estimates for cost and profitability will vary
according to region, state and local conditions.
CCF = One hundred (100) cubic feet.
MCF = One thousand (1000) cubic feet.
MMCF = One million cubic feet.
TCF = One trillion cubic feet.
BCF = One billion cubic feet.
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Glossary
Acquifer – A single underground geological formation, or group of formations, containing
water.
Antrim Shale – A shale deposit located in the northern Michigan basin that is a Devonian age
rock formation lying at a relatively shallow depth of 1,000 feet. Gas has been produced from
this formation for several decades primarily via vertical, rather than horizontal, wells. The
Energy Information Administration (EIA) estimates the technically recoverable Antrim shale
resource at 20 trillion cubic feet (tcf).
Appalachian Basin – The geological formations that roughly follow the Appalachian
Mountain range and contain potentially exploitable shale gas resources. The U.S. Department
of Energy (DOE) associates the Appalachian Basin with the Marcellus Shale, the Devonian
Shale and the Utica Shale.
Barnett Shale – A newly developed major play within the Fort Worth Basin in Northeast
Texas. Wells are in the 6,000-to-8,000 foot depth range and the EIA estimated technically
recoverable resource is 43 tcf.
Borehole – The hole or shaft in the earth made by a well drill; also, the uncased drill hole
from the surface to the bottom of the well.
Caney Shale – Located in Arkoma Basin of Northeastern Oklahoma; has only recently been
developed following the success of the Barnett Shale in Texas.
Casing – Pipe cemented in an oil or gas well to seal off formation fluids and to keep the
borehole from caving in. Smaller diameter ―strings‖ of casing are cemented inside larger
diameter strings as a well is deepened.
Clean Water Act – The federal law that regulates discharges into waterways.
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Closed loop system: Generally refers to drillers operating with a water cycle that is never
exposed to the open air, unlike containment ponds. Closed loop drillers might operate on a
well pad that is too isolated or too small to allow for construction of a pond.
Coal Bed Methane (CBM) – A form of natural gas extracted from coal beds. Along with tight
and shale gas, CBM is considered an unconventional natural gas resource.
Conesauga Shale – Cambrian Age shale deposits located in north central Alabama currently
being evaluated for development.
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Department of Energy – The federal agency whose Office of Fossil Energy (FE) and
National Energy Technology Laboratory (NETL) have played a significant role in advancing
research and development related to hydraulic fracturing, horizontal drilling, and improved
environmental practices.
Department of Environmental Protection (DEP): This state agency has permitting and
primary regulatory authority over the natural gas industry in the state
Devonian Shale – The general term used to describe the thick sequence of shales in the
Appalachian Basin that has been produced for more than a century. Development was greatest
in the 1930s-through-1980s, using vertical wells and explosive fracturing. However, any shale
deposited during the Devonian geologic period (360 million to 406 million years ago) is
considered Devonian shale.
Directional drilling: The process that allows drillers to sink a well to a certain depth and then
aim it in a lateral direction toward a target area. Directional drilling allows greater access to
hard to reach stores of gas or oil and it means drillers can cover more territory with one well
Drilling Rig – Usually a large-standing structure employing a drill that creates holes or shafts
in the ground for purposes of accessing and producing natural gas or oil from subsurface
deposits.
Eagle Ford Shale – A newly discovered (2009) shale play located in several counties in south
Texas. The average gross thickness of the shale is 350 feet and it produces from depths
varying from 4,000 to 14,000 feet. Eagle Ford is the most active shale play in the world, with
about 250 rigs operating at any single time and the technically recoverable resource is
estimated by EIA to be 21 tcf.
Eastern Gas Shales Project – A program initiated by the U.S. Department of Energy in the
late-1970s to evaluate the gas potential of – and to enhance gas production from – the
extensive Devonian and Mississippian black shales located in the Appalachian, Illinois and
Michigan basins of the eastern United States. The program not only identified and classified
shales throughout the three basins, but also focused on developing and implementing new
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drilling, stimulation and recovery technologies to increase production potential. Between
1978 and 1992, DOE spent about $137 million on the program, which helped develop and
demonstrate directional and horizontal drilling technology.
Environmental Protection Agency (EPA): Federal agency that regulates industrial impacts
on the environment. Despite its environmental mandate, the EPA has shown little activity in
Pennsylvania since Marcellus shale drilling began in 2005. The federal agency began a twoyear study this summer aimed at considering new rules for the industry after 2012
Fayetteville Shale – Newly developed shale deposit located in the Arkoma Basin of
Arkansas, lying at a depth of 1,500-to-6,500 feet. Previously produced from vertical wells but
all current wells are horizontal. Technically recoverable resource is estimated by EIA to be 32
tcf.
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Fossil Energy – Energy derived from crude oil, natural gas or coal. Shale gas is a form of
fossil energy.
The Frack Act: The Fracturing Responsibility and Awareness of Chemicals Act seeks to
reverse some of the policies enacted in the 2005 energy policy and compel full disclosure of
the chemicals, and specifically the concentrations of the chemicals used in hydraulic
fracturing. Currently, the amount of each chemical is considered proprietary information.
Democratic Senator Bob Casey (Pennsylvania) and Congresswoman Diana DeGette
(Colorado) are the primary sponsors of the bill
Fracturing Fluid – The primarily water-based fluid used to fracture shale. It is basically
composed of 99 percent water, with the remainder consisting of sand and various chemical
additives. Fracturing fluid is pumped into wells at very high pressure to break up and hold
open underground rock formations, which in turn releases natural gas.
Frac Focus – A joint effort by the Ground Water Protection Council (GWPC) and the
Interstate Oil and Gas Compact Commission (IOGCC) that is an online registry for companies
to publicly disclose the chemicals used in their hydraulic fracturing operations. As of
November 2012, more than 30,000 well sites and 200 companies were registered on the site
(http://fracfocus.org/).
Fugitive Emissions – According to a study by DOE‘s Argonne National Laboratory, a
primary air quality concern from natural gas production (including shale gas) is leaking and
venting throughout the supply chain (see Hydraulic Fracturing and Shale Gas Production:
Technology, Impacts, and Policy, September 10, 2012, page 5). These fugitive emissions can
potentially result in releases of methane, the primary constituent of natural gas and a potent
greenhouse gas (GHG). In addition, fugitive emissions of natural gas can release volatile
organic compounds (VOCs) and hazardous air pollutants (HAPs), according to the study.
Geological Formation – A body of earth material with distinctive and characteristic
properties and a degree of homogeneity in its physical properties.
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Gothic Shale – A newly exploited shale formation located in the Paradox Basin of Colorado.
Only a few wells have been drilled, one testing to 5,700 mcf (million cubic feet) per day.
Groundwater – The supply of usually fresh water found beneath the surface usually in
acquifers, which are a body of permeable rock containing water and supplying wells and
springs with drinking water.
Haynesville Shale – Along with the Marcellus and Barnett, this is one of the major shale
plays. Located in Northwestern Louisiana, Haynesville is a Jurassic Age formation where
vertical wells were drilled as far back as 1905; but it was not considered a major natural gas
source until the advent of directional drilling.
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Hydraulic Fracturing – The use of water, sand and chemical additives pumped under high
pressure to fracture subsurface non-porous rock formations such as shale to improve the flow
of natural gas into the well. Hydraulic fracturing is a mature technology that has been used for
60 years and today accounts for 95 percent of all new wells drilled.
Hydraulic fracturing water lifecycle: The lifecycle of water in the hydraulic fracturing
process, encompassing the acquisition of water, chemical mixing of the fracturing fluid,
injection of the fluid into the formation, the production and management of flowback and
produced water, and the ultimate treatment and disposal of hydraulic fracturing wastewaters
Marcellus Shale – A large play that underlies most of the U.S. Northeast, the Marcellus is a
Devonian-age shale that is estimated by the Energy Information Administration to contain at
least 410 tcf of unproved, technically recoverable gas. Most of the play is at the 5,000-to8,000 foot level below the surface and was long considered too expensive to access until
advances in drilling and fracturing technology.
Mechanical integrity: An injection well has mechanical integrity if: (1) there is no significant
leak in the casing, tubing, or packer (internal mechanical integrity) and (2) there is no
significant fluid movement into an underground source of drinking water through vertical
channels adjacent to the injection wellbore (external mechanical integrity).
Natural gas – A naturally occurring mixture of hydrocarbon and non-hydrocarbon gases
beneath the surface, the principal component of which (50-to-90 percent) is methane.
New Albany Shale – This Devonian to Mississippian age shale deposit is located in the
Illinois Basin and has been a producer of natural gas for over 100 years. Most wells are
shallow, between 120 and 2,100 feet; new drilling and completion technologies and
competitive prices have resulted in energy companies revisiting old leases and drilling new
wells. Estimated by EIA to contain 11 tcf of technically recoverable resources.
On-Site Water Treatment – A practice employed by many shale gas producers to facilitate
reuse of flowback fluids. In this instance, mobile and fixed treatment units are employed
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using processes such as evaporation, distillation, oxidation, and membrane filtration for
recycling and reuse. On-site treatment technologies may be capable of returning 70-80 percent
of the initial water to potable water standards, making it immediately available for reuse.
Pearsall Shale – Located in the Maverick Basin of southwestern Texas. Located about 2,500
feet below the Eagle Ford Shale and is approximately 500-600 feet in thickness.
Permeability – The measure of the ability of a material, such as rock, to allow fluids to pass
through it.
Pooling or land pooling: A legal process that allows exploration and production companies
to compel unwilling land and mineral rights holders to lease or sell their land and/or mineral
rights for exploration, drilling, or pipeline installation.
162
Proppant – A granular substance, often sand, that is mixed with and carried by fracturing
fluid pumped into a shale well. Its purpose is to keep cracks and fractures that occur during
the hydraulic fracturing process open so trapped natural gas can escape.
Reclamation – The clean up or restoring a well site to its pre-existing condition after drilling
operations cease. Reclamation activities, which are governed by state, federal and local laws
and regulations, can include soil replacement, compacting and re-seeding of natural
vegetation.
Royalty – A payment received by a lessor or property owner from an oil, gas or mineralsproducing company, based on the production of a well or other extraction process and market
prices.
Safe Water Drinking Act – A federal law whose provisions also apply to shale production
activities related to wastewater disposal through underground injection and discharge to
surface waters.
Shale – A fine-grained sedimentary rock composed mostly of consolidated clay or mud.
Some large shale gas formations were formed more than 300 million years ago during the
Devonian period of Earth‘s history, where conditions were particularly favorable for the
preservation of organic material within the sediment. Methane that remained locked in the
shale layers is the source of today‘s shale gas.
Shale basin: An underground deposit of shale (pdf link), often in a layer that extends along a
plane at a certain depth under the surface. There are many different types of shale, each with
certain defining characteristics. Shale gas: Natural gas trapped in a shale formation
Shale Gas – Natural gas produced from shale formations. Shale gas is widely distributed in
the United States and is currently being produced in 16 states. Although data are being
constantly revised, the Energy Information Administration currently estimates the recoverable
U.S. shale gas resource is 482 trillion cubic feet; domestic shale gas production has increased
12-fold over the past decade and led to a new abundance of natural gas supply in the United
States.
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Shale Gas Play – A set of discovered, undiscovered or possible natural gas accumulations
that exhibit similar geological characteristics. Shale plays are located within basins, which are
large-scale geologic depressions, often hundreds of miles across, which also may contain
other oil and natural gas resources. For a map detailing the location of major shale gas plays
in the lower 48 states, see: http://www.eia.gov/oil_gas/rpd/shale_gas.pdf.
Surface Water – Water that is open to the atmosphere, such as rivers, lakes, ponds, reservoirs,
streams, impoundments, seas and estuaries.
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Tight Gas – Natural gas found in low-permeability sandstones and carbonate reservoirs. The
rock layers that hold the gas are very dense, preventing easy flow.
Total Dissolved Solids (TDS): The amount of salt and minerals that are suspended in water.
TDS occur naturally in groundwater, but at high concentrations, TDS can be corrosive, and
can cause ground (drinking) water to be classified as contaminated. New Pennsylvania
Department of Environmental Protection rules on TDS discharges will take effect in January
2011, and will require discharges into Pennsylvania waterways to meet stricter standards of
500 parts per million.
Unconventional gas: Natural gas resources which require greater than industry-standard
levels of technology or investment to harvest. The three most common types of
unconventional gas resources are tight sands, coalbed methane (CBM), and shale gas.
Unconventional Natural Gas Reservoir – Coal bed methane, shale or tight gas, where the
natural gas does not flow naturally to the well, but instead requires some form of extensive
stimulation to generate economic flow rates.
Underground Injection Well – A steel and concrete-encased shaft into which hazardous
waste is deposited by force and under pressure. The Environmental Protection Agency‘s
(EPA‘s) Underground Injection Control Program (UIC) is responsible for regulating the
construction, operation, permitting and closure of injection wells that place fluids
underground for storage or disposal.
Utica Shale – An Ordovician age natural gas-containing rock formation located below the
Marcellus Shale. The formation (also called the Utica-Point Pleasant in some areas) extends
from eastern Ohio through much of Pennsylvania to western New York. It is currently being
actively developed in eastern Ohio.
Well plan - The description of a proposed wellbore, including the shape, orientation, depth,
completion, and evaluation. Well plans might be relatively simple for vertical wellbores.
Directional or horizontal wellbores require more detailed planning about where to land the
well and begin directional drilling, how long the directional or horizontal section should be,
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and how to evaluate and complete the well. Shale gas wells, many of which are horizontal
wells, require highly detailed well plans to optimize production from reservoirs that are
vertically and laterally heterogeneous
Selected European legal documents
Regulations
Regulation (EC) No 1907/2006 of the European Parliament and of the
Council of 18 December 2006 concerning the Registration, Evaluation, Authorization and
Restriction of Chemicals (REACH), establishing a European Chemicals Agency , amending
Directive 1999/45/EC and repealing Council Regulation (EEC) No 793/93 and Commission
Regulation (EC) No 1488/94 as well as Council Directive 76/769/EEC and Commission
Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/21/EC (REACH Regulation)
Regulation (EC) No 1272/2008 of the European Parliament and of the
Council of 16 December 2008 on classification, labelling and packaging of substances and
mixtures (aligning existing EU legislation with the United Nations Globally Harmonised
System (GHS)
Directives
Environmental Impact Assessment Directive EIA Directive 1985/337/EEC
Council Directive 92/43/EEC of 21 May 1992 on the conservation of
natural habitats and of wild fauna and flora (Habitats Directive)
166
Council Directive 92/91/EEC of 3 November 1992 concerning the minimum requirements for
improving the safety and health protection of workers in the mineral-extracting industries
through drilling
Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the
conditions for granting and using authorizations for the prospection, exploration and
production of hydrocarbons
Council Directive 96/82/EC of 9 December 1996 on the control of major accident hazards
involving dangerous substances (Seveso II Directive)
Directive 98/8/EC of the European Parliament and of the Council of
16 February 1998 concerning the placing of biocidal products on the market (Biocidal
Products Directive)
Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003
establishing a scheme for greenhouse gas emission allowance trading (as amended)
Directive 2004/35/EC of the European Parliament and of the Council of
21 April 2004 on environmental liability with regard to the prevention and remedying of
environmental damage (Environmental Liability Directive, or ELD)
Directive 2006/21/EC of the European Parliament and of the Council of
15 March 2006 on the management of waste from extractive industries (Mining Waste
Directive) and amending Directive 2004/35/EC
Directive concerning integrated pollution prevention and control (codified version) 2008/1/EC
Directive 2008/98/EC of the European Parliament and of the Council of
19 November 2008 on waste and repealing certain Directives
Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010
on industrial emissions (integrated pollution prevention and control) IPPC-Directive
2010/75/EU
Directive 2011/92/EU of the European Parliament and of the Council of
13 December 2011 on the assessment of the effects of certain public and private projects on
the environment
Decision
167
Decision 406/2009/EC of the European Parliament and of the Council of 23 April 2009 on the
effort of Member States to reduce their greenhouse gas emissions to meet the Community‘s
greenhouse gas emission reduction commitments up to 2020
Relevant EU-Directives on Water Directive Title
Council Directive 98/83/EC of 3 November 1998 on the quality of water
intended for human consumption (Drinking Water Directive)
Directive 2000/60/EC of the European Parliament and of the Council of
23 October 2000 establishing a framework for Community action in the field of water policy
(Water Framework Directive) 2000/60/EC
Directive 2006/118/EC of the European Parliament and of the Council of
12 December 2006 on the protection of groundwater against pollution and deterioration
(Groundwater Directive)
Directive on pollution caused by certain dangerous substances discharged into the aquatic
environment of the Community (Codified version) 2006/11/EC
168
Suggested readings
Alberta Competitiveness Review, March 2010,
http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/AlbertaCompetitivenessRevie
w2010.aspx.
―America‘s cheap gas; Bonanza or Bane,‖ The Economist, 2 March 2013.
Begos, Kevin, ―Natural Gas boom in US. Is Russia the big Loser?‖ The Christian
Science Monitor, 1 October 2012.
Begos, Kevin ―Decades of federal dollars helped fuel gas boom,‖ Associated Press,
24 September, 2012
Carey, Julie M. ―Surprise side of shale gas boom: A plunge in US Greenhouse Gas
Emissions,
Forbes, 12 December 2012,
http://www.forbes.com/sites/energysource/2012/12/07/surprise-side-effect-of-shale-gasboom-a-plunge-in-u-s-greenhouse-gas-emissions/
Casselman, Ben and Russell Gold, ―Cheap natural gas gives hope to Rust Belt, The
Wall Street Journal, 24 October 2012.
169
Chazan, Guy, ―Gazprom rejects Kyiv plea,‖ Financial Times, 14 February 2013.
Chazan, Guy, Crooks, Ed. US to be world‘s top energy producer. Financial Times,
12 November 2012
Denning, Steve, ―Why Apple and GE are bringing back manufacturing,‖ Forbes, 12
July 2012,
http://www.forbes.com/sites/stevedenning/2012/12/07/why-apple-and-ge-are-bringingmanufacturing-back/
Ernst & Young, Shale gas in Europe: Revolution or evolution?,
http://www.ey.com/Publication/vwLUAssets/Shale-gas-in-Europe_revolution-or
evolution/$FILE/Shale-gas-in-Europe_revolution-or-evolution.pdf
Fowler, Tom ―U.S. Oil Notches Historic Gusher,‖ The Wall Street Journal, 21 January 2013.
―A Fracking Great Shift of Power,‖ Think Defence, 21 December 2012.
―Germany to Allow Fracking in Limited Areas,‖ Natural Gas Europe, 27 February 2012,
http://www.naturalgaseurope.com/germany-to-permit-shale-gas-fracking-schiefergas
Gustafson, Thane ―Putin‘s Petroleum Problem: How oil is holding Russia Back-and
how it could save it,‖ Foreign Affairs, November/December 2012.
Haluszczak, Lara A. R. (2013). Geochemical evaluation of flowback brine from
Marcellus gas wells in Pennsylvania, USA. University Park, PA: Pennsylvania State
University
Herdon, Andrew and Brian Swint, ―Shale glut becomes $2 diesel using gas to liquid
methods,‖ Bloomberg, 25 October 2012
http://www.bloomberg.com/news/2012-10-24/nazi-technology-turns-cheap-shale-gas-intosub-2-diesel-energy.html
Instytut Nafty i Gazu, Rzeczpospolita łupkowa, Warszawa 2012
International Energy Agency, Golden Rules for a Golden Age of Gas, World Energy
Outlook: Special report on Unconventional Gas, 12 November 2012.
Jusińska Dominika, Kotowicz Michał, Swoczyna Bernard, Gas łupkowy, Wydział
170
Mechaniczny Energetyki i Lotnictwa, Politechnika Warszawska, Warszawa 2013
Kenarov, Dimiter, ―Poland stumbles as the Shale Gas Industry fails to take off,‖
Herald Standard, 29 January 2013.
Krauss, Clifford "Exports of American natural gas may fall short of high hopes,", The
New York Times, 4 January, 2013.
Levi, Michal, ―The case for natural gas exports,‖ The New York Times, 15 August 2012.
―LNG: A Liquid Market‖, The Economist, 14 July 2012.
McFarlane, Robert and George Olah, ―Let the Market Decide,‖ Financial Times, 4 March
2013.
Mackintosh, James. ―US to be Saudi Arabia of… oil?‖ Financial Times, 12 November 2012.
Makan, Ajay, ―Statoil seeks clarity on role for gas in Europe,‖ Financial Times, 4 March
2013.
Oil Sands Economic Benefits: Fact Sheet, May 2012
http://www.oilsands.alberta.ca/FactSheets/Economic_FSht_May_2012_Online.pdf
Olson, Bradley; Lee, Michael. Crude Export Ban No Match for Lightest Shale Oil.
Bloomberg, 26 February 2013.
OECD-IEA Briefing to the NATO PA Economics and Security Committee, 27
February 2013.
Olearchyk, Roman and Neil Buckley, ―Ukraine deal losens Russian Grip,‖ Financial
Times, 24 January 2013.
Polish Geological Institute, 2012. ―Assessment of Shale Gas and Shale Oil Resources of the
Lower Paleozoic Baltic-Podlosie- Lublin Basin in Poland.‖ March, Warsaw, Poland, 29 p.
Pearson, Ivan et.al. ―Unconventional Gas Potential Market Impacts in the European Union,‖
European Commission Joint Research Center, 2012
http://ec.europa.eu/dgs/jrc/downloads/jrc_report_2012_09_unconventional_gas.pdf
171
―Precautionary Principle should be applied to Shale Gas,‖ DG Environment Newsletter, 30
June 2011.
Raport Polskiego Instytutu Spraw Międzynarodowych, Gaz łupkowy – szanse i wyzwania dla
Polski
i
Unii
Europejskiej
w
świetle
doświadczeń
amerykańskich
i
rozwoju
międzynarodowego rynku gazu
Szalai, Pawel, ―Gas in Central Europe: From Russia to Qatar and Back‖, V 4 Review,
20 August 2012, http://visegradrevue.eu/?p=1016
―Ukraine‘s gas bill,‖ Financial Times, 13 January 2013.
United States Energy Information Administration. US crude oil production tops 7
million barrels per day, US Energy Information Administration, 28 February 2013.
U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment
of 14 Regions Outside the United States, April 2011, Washington, DC
Wayne, A. ―Fracking Moratorium Urged by U.S. Doctors Until Health Studies
Conducted,‖ Bloomberg, 9 January 2012.
Witter, Roxana J. A. (2012). Health Impacts of Natural Gas Development . Denver:
University of Colorado School of Public Health.
Yergin, Daniel. Unconventional Oil and Gas Revolution in US. US House Energy and
Commerce Subcommittee, 5 February 2013.
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