Meeting the challenge of unconventional gas

30 April 2010

It's no surprise that unconventional gas – gas that has been trapped for millions of years in rocks – has come onto the radar of some of the world’s largest resources companies. New technologies such as horizontal drilling and hydrofracturing or “fracking” are finally allowing operators to exploit what are vast global resources of gas. They are also helping to turn the US, for one, into a major producer. The caveat for all those involved is sensitivity. How do you manage some of the most sensitive environmental and social issues to ensure projects are both acceptable to stakeholders and sustainable?

According to the International Energy Agency, unconventional gas output will rise from around 360 billion cubic meters in 2007 to nearly 630 billion cubic meters in 2030. In the US, as much as 50% of gas consumption is now sourced from unconventional deposits, for example shale gas, tight gas and coal bed methane. The priority of keeping this valuable resource flowing while also managing sensitive issues around its exploration and production is critical for those involved.

Managing environmental risks

A particular challenge facing companies intent on exploiting some of the vast unconventional gas deposits in the US, Europe and elsewhere revolves around their location. Many of the known deposits are located beneath densely populated areas where the management of environmental and social risks can be highly sensitive.  A key example is the impact of drilling on local water supplies, which is a major reason why companies are having to be very cautious.

While unconventional gas was until recently the preserve of specialist players, the majors now see it as a highly profitable business area. With sophisticated environmental and social programs already in place, the leading oil and gas companies are striving to demonstrate that they have a clear grasp of the relevant issues.

Issues of specific concern to ERM clients, and to the regulators, range from the impact of exploration activities on local water supplies to potential human health effects. There is also of course the general challenge of meeting tough environmental regulations relating to large scale exploration and production activities.

Water resources and the Marcellus Shale

Access to water resources and effective water management, have rapidly become key priorities for all those involved in the exploration and production of unconventional gas. ERM was recently asked to undertake a water resource study for each of six US States crossed by the Marcellus Shale; a formation containing shale gas which stretches from southern West Virginia, through most of Pennsylvania and into upstate New York. In this case, the client needed to procure enough water to support fracking activities to free up the trapped gas while also managing the disposal and flow back of the water produced. The project included the creation of a database on the water permitting regimes in the affected states and working with the client to develop a drilling program which did not compromise local water resources. Putting together a plan for the treatment of wastewater generated was another important part of the project.

ERM confirmed that the client was able to procure the large amounts of water needed for drilling and fracking without making a significant impact in local resources. The project also satisfied the relevant regulatory authorities that the wastewater generated would be treated and managed in an acceptable manner. As a result, the company concerned has been able to install multiple gas wells in the shale and will soon be in a position to deliver gas to market.

Another “early warning” water service being commissioned by ERM clients is a frac water risk analysis for firms wishing to explore deposits below urban areas. The analysis is designed to provide a clear understanding of any risks to human health and what could be done to mitigate those risks. The work will frequently lead to a comprehensive water management plan which can help steer a program through from initial exploration to full production.

Concern over toxic chemicals

In many shale gas projects, ERM clients have sought an early insight into the viability of projects – and any issues which could constrain them. In addition to the unusually large quantities of water required to drill and frack a well – up to a million gallons or more -  there have also been major concerns over the use of certain chemicals like benzene which fracture the clay portion of the shale as part of the fracking process. The concern is that a spill or mistake could lead to contamination of land or, more likely, of the water table where the gas well is located. Operators need to demonstrate that relevant risks have been identified and are being effectively managed.

For their part, the regulatory authorities are stepping up monitoring activities in relation to unconventional gas. The State of Texas, for example, has installed both mobile and fixed station air monitoring equipment throughout the gas producing areas and has made contact with a number of shale gas companies in relation to benzene emissions.

Clearly there is a whole range of other environmental and social issues relating to gas exploration and production of this kind. However both in terms of available resources and potential impacts on human health, water has emerged as the number one priority. With the volume of water required and a frack well measuring up to 16,000 feet in length there is the need for a major withdrawal from the aquifer – even if some of the water used can be recycled.

With considerable transaction activity in the O&G market and the majors now lining up to develop opportunities, there is little doubt that unconventional gas projects will continue to multiply. The challenge for ERM clients is to demonstrate effective environmental and social management in order to ensure that unconventional gas becomes a sustainable resource for the future.

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