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IEA Workshop to Seek Recommendations On Easing Roadblocks to Unconventional Gas

Tuesday, January 31, 2012

By Rick Mitchell

PARIS—Poland and Mexico, which holds the Group of 20 presidency, will co-host a multilateral workshop in March aimed at “brainstorming” regulatory recommendations to help ease environmental obstacles to gas production using unconventional extraction methods, the International Energy Agency's top economic official told Bloomberg BNA Jan. 30.

IEA chief economist Fatih Birol said that booming production of unconventional gas, among other things, could power the U.S. economic recovery and help to meet soaring worldwide energy demand while contributing to reduced energy-related carbon dioxide emissions.

But first, governments have to address serious environmental problems that include water pollution and methane-gas venting linked to production and extraction of unconventional gas, he said.

Birol said existing technology could reduce or eliminate most of these problems, at minimal cost, but in many cases it is not being used, including in the United States.

The Paris-based agency is organizing a March 7 workshop in Warsaw convening government officials and regulators from major gas producing states, from the G-20 countries and elsewhere, as well as representatives from oil and gas companies and nongovernmental organizations, he said.

IEA will release recommendations produced by the workshop in a study report in May, as an excerpt from its yearly World Energy Outlook that comes out in November, he said.

“We hope the G-20 will consider the [regulatory] recommendations during their deliberations in Mexico this year and discuss what can be done to address these challenges,” Birol said.

Analyzing Problems, Solutions, Regulations

Birol said the May IEA publication will analyze problems facing the industry, how they can be solved, and what kind of regulations are needed. The aim is to produce a kind of “Magna Carta” of rules that the extraction industry could use for years to come, he said.

Recommendations will focus on three areas of extraction, Birol said: how to minimize water use, how to use the least harmful chemicals, and how to deal with venting and clearing issues.

“This [regulation] may give a slight increase in the cost of production, but the good news is that existing technology can minimize or completely address these real environmental problems,” Birol said.

Birol said for the past four years, unconventional gas extraction has been driving a revolution in gas markets, for shale gas in the United States and Canada, but also for coal-bed methane in China, Australia, Indonesia, India, and South Africa.

According to IEA, the agency's 28 member countries have some 250 trillion cubic meters of natural gas reserves, about half being unconventional forms including shale gas, coal-bed methane, so-called tight sands, and other types requiring unconventional extraction techniques (34 INER 1036, 10/26/11).

Cheaper, Cleaner Energy?

“A huge number of gas projects are coming and at very reasonable costs,” Birol said, adding that this could mean relatively inexpensive energy for consumers and cleaner-burning fossil fuel for electricity plants, compared with coal and oil.

According to IEA, recent U.S. success in producing shale gas has allowed the United States to slash imports of liquefied natural gas, and the United States could soon become an exporter of gas.

Birol said the surge in gas production could have the same effect on the global cost of energy as the growth of nuclear power did in the 1970s—that is by bringing down the cost of oil.

“It could be a game changer if the problem of local pollution can be solved. … This could be very good news in the United States. I expect this cheap gas to give an additional economic boost to the U.S. economic recovery,” he said.

Demand Expected to Rise

IEA said in a 2011 report, Are We Entering a Golden Age of Gas, that gas demand could rise 50 percent by 2035 compared with 2010 use. It said gas will account for more than 25 percent of worldwide energy demand by then, up from 21 percent.

Birol cited three new factors pushing gas demand higher. First, the Chinese government recently set national consumption targets, “which is very unusual.” Second, the Fukushima Daiichi nuclear plant disaster in Japan at least potentially reduced long-term nuclear power demand.

Third, the international climate change agreement reached in Durban, South Africa, in December was not enough to give a major push to zero emission technologies such as wind, carbon capture and storage, or nuclear power. In that context, gas is the perfect option for new power plants, Birol said.

However, “gas is not a completely innocent fossil fuel replacement,” he said. “If it replaces coal, that's good. But if it replaces renewable energies, will not help us reach the goal of keeping global warming under 2 degrees Centigrade [3.6 degrees Fahrenheit].”

International scientists have cited the 2 C threshold as the limit beyond which catastrophic climate change becomes far more likely.

Roadblocks Remain

Despite unconventional gas's potential benefits, major roadblocks could still prevent it from being exploited, Birol said. “There are real environmental problems that have to be addressed.”

Hydraulic fracturing, or fracking, has faced public resistance in Europe because of environmental questions. In July, France became the first country to ban the technique (34 INER 643, 7/6/11).

Environmental groups say the process can cause more environmental damage than conventional drilling, in particular by contaminating groundwater. Fracking involves high-pressure injection of water, sand, and chemicals deep underground to release natural gas. Conservation groups and others have expressed concern about the potential for the chemicals to harm groundwater and air quality.

Richard Jones, IEA's deputy executive director, said in October that if producers and regulators fail to use the best possible extraction procedures, they risk losing public acceptance for unconventional gas and the technologies required to exploit them (34 INER 1036, 10/26/11).

“We've seen it happen over nuclear energy after the disaster in Japan that struck the Fukushima Daiichi reactors, and we've also seen it after the Macondo [BP oil spill in the Gulf of Mexico in 2010],” Jones said.