Hydraulic Fracturing of Shale

Shale Gas

As the world, and the billions of people it supports, continues to evolve, new and important ways of delivering energy are needed to keep up with these changes and provide a safe and secure environment. Technology, reason and knowledge all contribute to these process of finding new ways of doing things that are more suitable for the times we live in. Energy is at the source of all we do and how attain, spend and share our energy resources reveals much about the human condition and much can be learned from how this practice is undertaken by humanity and how it affects the environment and society.

The energy market presents a very interesting and worthwhile case for investigation. As technology and energy modes have transformed over the decades, methods of delivering energy have also altered as well. The growth of the energy markets worldwide have also produced other consequences because of the enormity of the undertaking. For this reason it is important to keep investigating and looking for new and better ways of delivering energy resources to the world to maintain a high quality of living standards while encouraging a balanced and reasonable attitude.

The purpose of this essay is to describe one such application of the energy market in the development of shale gas. This essay will discuss the development of shale gas and its influence to the world's energy market. In this investigation, the impacts and unintended consequences of this form of energy will also be highlighted and contextualized to bring a clearer picture on what shale gas actually is and what exactly this technology can provide for humanity and its ever growing energy needs.

This essay will first look at shale gas from a historical perspective and investigate how the development of energy and energy markets significantly influenced this technology. The next section will examine shale gas specifically and how this relatively new technology has made significant headway since its implementation. The essay will also discuss the many problems and issues that accompany shale gas such as the public backlash to fracking and environmental destruction. The essay will then examine how energy markets are affected by this growth of shale gas both domestically and internationally. The essay will conclude by summarizing the points and bringing the argument to an understandable point of reference.

The History of Natural Gas Within the Energy Market

Regulation of the natural gas industry in the United States has always been a bumpy ride, as many vying interests clash about profits and markets. This has resulted in dramatic changes in the industry over the past three decades or more years. Today, competitive forces are being relied upon more heavily to determine market structure and operation. However, this has not always been the case. Almost all aspects of the natural gas industry were regulated at one point, a situation which led to tremendous difficulties in the industry, including the natural gas shortages experienced in the 1970s.

According to the American Public Gas Association (APGA), "Naturally occurring natural gas was discovered and identified in America as early as 1626, when French explorers discovered natives igniting gases that were seeping into and around Lake Erie. In 1821, William Hart dug the first successful natural gas well in the U.S. In Fredonia, New York. Eventually, the Fredonia Gas Light Company was formed, becoming the first American natural gas distribution company." Ever since that time, those wishing to gain profits over others have sought this natural commodity to sell and distribute.

During the 1800's natural gas was used almost exclusively as a source of light but in 1885 Robert Bunsen invented a burner that could process and burn this gas in new ways. The Bunsen Burner opened many new avenues and uses for natural gas and in the coming years it would soon become a more important resource not only domestically, but around the world as well. The Bunsen Burner now allowed natural gas to be used in cooking and heating applications making the product indispensible and very profitable when captured and processed in an effective and efficient manner.

In 1938 the market fundamentally changed when the American Congress passed the Natural Gas Act. "The Act gave the Federal Power Commission (FPC) jurisdiction to regulate the transportation and sale of natural gas in interstate commerce. The FPC was charged with regulating the rates that were charged for interstate natural gas delivery and with certifying new interstate pipeline construction if it was consistent with the public convenience and necessity, " (APGA, 2004). In the 1980s there were great pushes for deregulation in many areas that were previously regulated and natural gas was targeted by those who saw an opportunity to make substantial profits in this industry.

In 1989, Congress completed the process of deregulating the price of natural gas at the wellhead, which was begun in 1978 with the passage of the Natural Gas Policy Act, by passing the Natural Gas Wellhead Decontrol Act (NGWDA). The NGWDA repealed all remaining regulated prices on wellhead sales. In the current federal regulatory environment, only interstate pipelines are directly regulated as to the transportation of gas in interstate commerce. Investor-owned local distribution companies (LDCs) are typically regulated by state public service commission's regarding the services they provide. Natural gas producers and marketers are not directly regulated by the federal government as to rates and related matters. Interstate pipeline companies are regulated regarding the rates they charge, the access they offer to their pipeline facilities, and the siting and construction of new pipelines. Similarly, local distribution companies (excluding most municipally owned public gas systems) are regulated by state public service commissions, which oversee their rates and construction issues, and ensure that proper procedures exist for maintaining adequate supply to their customers.

Today, the natural gas industry is regulated by the Federal Energy Regulatory Commission (FERC). While FERC does not deal exclusively with natural gas issues, it is the primary rule making body with respect to the regulation of the natural gas industry. Competition characterizes the natural gas industry as it is known today. The restructuring of the industry, and the move away from strict regulation, has allowed for increased efficiency and technological improvements. Natural gas is now being obtained more efficiently, cheaply, and easily than ever before. However, the search for more natural gas to serve our ever growing demand requires new techniques and knowledge to obtain it from hard-to-reach places.

The natural gas industry has existed in this country for more than 150 years, and it continues to grow. Restructuring and the move toward cleaner-burning fuels have created an enormous market for natural gas across the country. Technologies are continually being developed that allow Americans to use natural gas in new and exciting ways. And new production techniques now allow us to produce natural gas from shale formations. With all of the advantages of natural gas, it is no wonder that it has become the fuel of choice in this country, and throughout the world.

Overall the energy market has been shaped by institutions. Throughout the majority of history, America has been regulated by both antitrust law and public utility law. Antitrust laws are seen more in the oil side of energy markets, where natural gas is mostly managed by public utilities. Regulation has historically been about preventing abuses and promoting fair and profitable competition. As the energy markets continue to grow in strength, size and sophistication, tradition has fallen by the wayside and new methods, markets and approaches have become necessary as dictated by the times we live in.

By understanding and realizing how the situation has developed is useful in applying the right arguments and ideals when discussing the shale gas industry and how it fits within the larger scheme of things. As the evolution of the energy markets continue to evolve and unfold, the lessons of the past can be helpful in avoiding mistakes and developing wise approaches to problems that are very important to the entire energy consuming public.

Shale Gas and Its Revolution

Brooks (2011) wrote "The shale gas revolution challenges the coal industry, renders new nuclear plants uneconomic and changes the economics for the renewable energy companies, which are now much further from viability. The inherent risks can be managed if there is a reasonable regulatory regime, and if the general public has a balanced and realistic sense of the costs and benefits." Shale, when properly processed can produce energy in ways that has fundamentally shifted the way that we view the industry and how the market is developed.

Stevens (2012) described how these developments and changes have impacted the business by laying out several key arguments. He claimed that the shale gas revolution that is occurring in the United States has essentially created an oversupply of liquefied natural gas and has seen the price in the commodity drop substantially. Shale itself is recovered and processed in debatable ways and the term fracking has put a negative connotation on the practice due to the environmental strain that is produced from the execution of this process.

The growing opposition to the shale gas industry has conflicted with the need for domestic independence on energy and a reasonable debate is understandably created. Like a Pandora's box, a great and helpful technology has been afforded to the people of this country in the form of hydraulic fracturing, however this technology must be tempered in order for the true and real benefits to be realized. Debate and opposition on this topic is welcomed and will produce a situation where many interests have been heard and incorporated within the argument. " if the hype turns into reality, then the world energy markets can look forward to floating on clouds of cheap gas, certainly up to 2030, if not beyond, " (p.10).

There is a great deal of literature extant on this topic and is worth exploring to gather a finer appreciation for what is at stake in this shale gas revolution. Seeing both sides, or the multiple sides, of this idea is important to help develop a picture of this technology that produces the most predictable and effective results. Since the industry is composed of many differing professions, such as geology, sales, business and logistics, there are many factors to consider when weighing the totality of the entire situation.

Wisniewski (2011) explored some of the general points of the debate in his argument. He suggested that fast rise of shale gas can be expected to continue due to the profitability that hydraulic fracturing of shale produces. In other words, the business is good and looks good for the future and therefore the means justify the ends. This argument exploits the economic argument for the practice based on strictly commercial figures. He wrote "Perhaps crucially, shale gas is expected to offset the decline in the production of conventional deposits (both onshore and offshore) and the stagnation of output from other so-called unconventional pockets of natural gas (tight gas and coal-bed methane). Once the pace at which estimates about the actual or potential size of shale deposits have been recalibrated is factored in, the role of shale gas can be expected to rise even further."

Aladeitan & Nwosu (2013) explained a different perspective. These authors being from Canada highlights the importance of this issue as the global impact of this practice are undeniably formidable. They wrote "Although shale gas development raises critical legal and environmental challenges, yet its development seems set to take the global energy world in a revolutionary way. The effect of this gradual but sweeping revolution carries with it gains and pains. Gains are for those who traditionally were classified as importing countries and pains for the exporting countries in terms of loss of revenue."

Cheap energy allows business to produce goods and services and a more efficient and effective rate. Shale gas may be the key to regaining economic solvency after a global economic depression. The temptation to look at this source as a saving grace is very promising, but once again must be put into perspective with the negative side effects that accompanies such a potent and impactful tool. Bullis (2013) agreed with this idea when he wrote "The impact of cheap natural gas on manufacturing could extend beyond the production of various chemicals. Using natural gas as an energy source, rather than a chemical feedstock, could significantly lower costs for manufacturers who use a lot of energy, such as steel makers. Overall, cheaper chemicals, cheaper steel, and cheaper transportation could make the U.S. A far more attractive place for a wide range of industries."

The U.S. Energy Information Administration revealed the importance of shale gas for the future of America in their Annual Energy Outlook for 2013. The emphasis for America to become energy independent and ultimately a net exporter of energy is well within the goals and capabilities for this country according to their opinions. Shale gas plays a very significant role in this process and is necessary for this growth. The report stated "Higher volumes of shale gas production are central to higher total production volumes and a transition to net exports. As domestic supply has increased in recent years, natural gas prices have declined, making the United States a less attractive market for imported natural gas and more attractive for export. Relatively low natural gas prices, maintained by growing shale gas production, spur increased use in the industrial and electric power sectors, particularly over the next decade, " (p.15).

Shale producing natural gas has great benefit for many reasons which is why its proponents are headstrong about incorporating the risks that derive from these efforts. Natural gas is the cleanest burning fossil fuel. The costs to the environment which will be discussed, are not as damaging for shale gas supporters. Stevens (2012) wrote "Results from recent studies indicate that the impact on climate of shale gas is only slightly higher in comparison with conventional natural gas and significantly lower than coal, when currently available best technologies are used."

Hydraulic Fracturing makes it possible to produce oil and natural gas in places where conventional technologies are ineffective. To many it appears, that fracking has potentially unlocked massive new supplies of oil and clean-burning natural gas from dense deposits of shale, supplies that dramatically give rise to our country's energy security and improve the globe's ability to generate electricity, heat homes and power vehicles for generations to come. Hydraulic fracturing has also improved local economies by substantially generating royalty payments to property owners, providing tax revenues to the government and creating much-needed high-paying American jobs. Engineering and surveying, construction, hospitality, equipment manufacturing and environmental permitting are just some of the many different professions experiencing the positive ripple effects of increased oil and natural gas shale development.

Problems With Shale Gas

The aforementioned argument that places shale gas as a savior to the world's energy problems must be tempered with some of the more negative aspects of the practice to garner a finer appreciation of what is really at stake. There are indeed many problems with the hydraulic fracturing of shale to produce natural gas and many of these problems, if ignored, will place the environment and society in worse shape than it found itself before the experience.

The gas, oil and energy industry is steadfast in its opinions and beliefs that hydraulic fracturing and associated drilling practices are safe and pose no to very little threat to human and environmental health. The truth of this idea is suspect. Given the recent outbreak of media coverage about gas industry threats, it appears current gas operations are demonstrating a lot of the same type of hazardous practices and arrogant industry culture that led to the BP oil disaster in the Gulf of Mexico. Shale gas extraction is not different than other kinds of other types of energy extraction. Much like offshore drilling, gas operations occur in an environment where regulations are not heavily adhered to by its participants, having outpaced federal and state oversight and maintenance. The power of the energy lobby within the halls of Congress have shown that their power and influence is strong.

Advancements in extraction technologies, particularly horizontal drilling and high volume hydraulic fracturing have significantly allowed drilling companies to reach previously unreachable gas in geological formations underlying several areas of the U.S. where energy industry had been absent. There have been recent complaints, suggestions and reports about the dangers that unconventional gas drilling poses to drinking water supplies, public health and the global climate. These are important issues and discussing these ideas in public are raising important questions about how safe and clean this gas apparently is.

Scientists studying the impacts of unconventional gas drilling warn that gas is likely to have a greater influence on the water, air and climate than previously understood. As the practice of fracking continues, new and unrecognized information will develop as data and information is continually developed and published. Major scientific bodies have cautioned against a national commitment to gas as a bridge fuel, citing the need for further research into the potential consequences of continued reliance on this fossil fuel.

The potentially devastating impacts from unconventional gas development on water supplies, air quality and the global climate deserve much greater study and scrutiny. The emerging red flags of concern raised by scientists conducting research into unconventional gas threats clearly indicate that a precautionary approach is necessary. This is a necessary counter balance to the industrial instincts that seem to dominate the current rush to profits that are being experienced as a result of hydraulic fracturing of shale sediment into natural gas, fit for consumption and energy purposes.

Biello (2010) pointed out some of the finer details about how hydraulic fracturing of shale gas may provide some specific environmental costs. He suggested that the fluids that are involved in the process are contaminating the water supply in areas where this is happening. He wrote "It all comes down to the fact that fracking involves a lot of water. There's at least 11.5 million liters involved in fracking a well in the first place. There's the brine and other fluids that can come to the surface with the natural gas. And there's the problem of what to do with all that waste fluid at the end of the day." Water, being the lifeblood of everything on this planet, is no doubt targeted by the process of this procedure and can cause serious damage.

Gold (2013) explained how some have caught on to this danger and are addressing the problem as it happens. He suggested that "While the cost of getting rid of the millions of gallons varies from state to state, it can be substantial. In Texas, where there are plenty of emptied-out oil fields, companies can often inject the water into spent wells, which are generally older conventional wells that have been converted to accept oil-field wastewater. Some companies are finding it is still cheaper in many parts of the U.S. To inject the wastewater deep underground instead of cleaning it, which has slowed adoption of recycling technology. But experts say that is likely to change as fracking grows."

The extraction of natural gas through hydraulic fracturing of shale has brought many opinions, studies and comments about the negative aspects of its practice. The global impact of this practice presents a distinct lack of leadership on the issue as it is limited to no consensus on what exactly the health risks are that are associated with fracking. The Environmental Protection Agency (EPA ) provided some guidance on the issue. Their website proclaimed that "although the national study should enhance our scientific knowledge, some concerns associated with overall natural gas and shale gas extraction, including hydraulic fracturing, are already well-known. These operations can result in a number of potential impacts to the environment, including:

Stress on surface water and ground water supplies from the withdrawal of large volumes of water used in drilling and hydraulic fracturing;

Contamination of underground sources of drinking water and surface waters resulting from spills, faulty well construction, or by other means;

Adverse impacts from discharges into surface waters or from disposal into underground injection wells; and Air pollution resulting from the release of volatile organic compounds, hazardous air pollutants, and greenhouse gases."

Market Implications

Money and markets drives the world's actions and reactions in today's society and it is essential that this aspect of shale gas is understood in order to fully grasp the totality of the situation. The domestic market implications are very great for America and its ability to successfully and safely extract natural gas from shale sources and the impacts on the way we live are immense. Since most conflict and war is fought over resources and power, shale gas allows the nation as a whole to either benefit or suffer at the hands of its success.

The U.S. Energy Information Administration's Annual Energy Outlook 2013 presented some enlightening information about the U.S. And its natural gas situation. In this report it was stated "Shale gas production, which grows by 113% from 2011 to 2040, is the greatest contributor to natural gas production growth. Its share of total production increases from 34% in 2011 to 50% in 2040." There are high hopes riding on shale's ability to assist in making natural gas a predominate energy source in the next few decades and this report demonstrated the reliance on this product in the future.

Shale gas brings levels of independence to the United States and allows the country to not have to worry about international affairs when dealing with energy problems. Since the market is a global, force, the domestic market cannot be uninfluenced by other global pressures, however the freedom that comes with energy independence provides economic and sustained growth.

There is much optimism for the growth of American economy due to this energy resource. Makan & Hume (2013) agreed with this argument and suggested that a gas boom will assist the U.S. In making strides in gaining competitive advantage in certain markets. They wrote "The shale gas boom will boost U.S. manufacturing and jobs until at least 2035, the world's most respected energy body predicted yesterday, reinforcing America's economic edge over Asia and Europe for the next two decades. We will see manufacturing industry in the U.S. flourish. U.S. companies will enjoy a competitive advantage and increase their market share in terms of exports," said Fatih Birol, chief economist at the IEA."

Shale gas must not be over relied upon as a panacea to cure all ills. The success of shale gas extraction must be tempered with environmental concerns. Too often greed leading to corruption will spoil a good thing and it is essential that respect, balance and patience are applied to the situation by leaders within the industry. Achieving too much too fast is often dangerous and the side effects from such haste aren't often felt until later down the road. Domestic capitalization of this energy source will require discipline and a steady will to guide and lead the market into a profitable promised land.