Shale Gas: How Long Will The Environmental Debate Rage On?

Oil & Gas IQ

Shale gas continues to make the headlines in the energy industry at the moment, with continual reports of new drillings and deals between companies looking to strengthen their position in the sector.

A recent report by Wood Mackenzie found that the energy market staged a strong recovery over the course of 2009, with increased mergers and acquisitions (M&A) activity taking place through the year, from record lows in the first quarter to near-record highs by the end.

M&A Boosted by Shale Gas

Global M&A spend for 2009 topped $150 billion (£98.5 billion), up by over 35 per cent year-on-year and only 15 percent below the record investment levels of 2006. The outlook for 2010 also suggests that healthy transaction levels will continue over the coming year.

"Provided that tentative global economic recovery remains on track and commodity prices are relatively stable, the market is likely to hold at its current level through 2010," said Wood Mackenzie's M&A service manager, Luke Parker.

The report identified that unconventional resources, such as shale gas, remained an important theme within M&A during 2009. This included the largest upstream deal in nearly a decade—ExxonMobil's $41 billion acquisition of shale gas specialist XTO.

However, the potential stumbling block for shale gas is concerns over the environmental impact of drilling for the resource. Alexander Medvedev, head of exports at Gazprom, recently claimed that shale gas could be a threat to drinking water.

"Every American housewife is aware of shale gas, but not every housewife is aware of the environmental consequences of the use of shale gas. I don't know who would take the risk of endangering drinking water reservoirs," he said.

Medvedev said that the possibility of Europe exploiting the shale gas evolution was "almost unimaginable."


US Government Investigation

This month, the US House of Representatives' energy and commerce committee has been investigating the potential impacts of hydraulic fracturing. On February 18th, the panel sent letters to eight oil and gas companies that use the process to extract fuels from unconventional sources in the United States.

The committee wants to find out more information on the chemicals used in fracturing fluids to determine what kind of effects the technique could have on the environment and human health.

"Hydraulic fracturing could help us unlock vast domestic natural gas reserves once thought unattainable, strengthening America's energy independence and reducing carbon emissions," said committee chairman Henry Waxman.

"As we use this technology in more parts of the country on a much larger scale, we must ensure that we are not creating new environmental and public health problems.

"This investigation will help us better understand the potential risks this technology poses to drinking water supplies and the environment, and whether Congress needs to act to minimise those risks," he added.

Subcommittee chairman Edward Markey acknowledged the potential of shale gas as a resource.

"Natural gas can play a very important role in our clean energy future, provided that it is produced in a safe and sustainable way," he stressed.

No Evidence of Contamination

This is a comment that has since been reiterated by Andrew Gould, chief executive of Schlumberger, which has recently proposed a merger with Smith International with the aim of expanding its presence in the production of North America natural gas.

"There is, I don't think, any doubt that long term, shale gas is going to be one of the big, new energy sources both in the US and overseas," he said.

"We are, if you like, at a very early stage of understanding how shale gas is going to be produced and while [fracturing] will always be a key element in the production of shale gas, as we get better at identifying the sweet spots in shale reservoirs, drilling will systematically become more important," he added.

Despite the concerns raised by environmentalists, the US government and Medvedev, the shale gas industry insists that drilling is heavily regulated and that there has never been a documented case of water being contaminated because of hydraulic fracturing.

"I know it doesn't make for very sexy or controversial news but the plain truth is that processes that we have in place are very protective and the evidence all points to that," Paul Hagemeier, vice president of regulatory compliance at Chesapeake Energy, told Reuters.

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