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Reimagining Australia’s shale gas revolution

Australia faces a potential energy shortage, yet it has 437 Tcf of shale gas reserves that could transform the domestic gas market, increase energy security and bolster our economy.

However, the nascent Australian industry is grappling with community concerns, conflicts over competing resources, intense capital requirements, rising labour costs, infrastructure constraints and regulatory duplication and delays.

In contrast, in the United States, supportive government policies, favourable regulations, extensive infrastructure, strong competition and a focus on research and development have helped the shale gas industry to flourish.

In the United Kingdom, evidence-based research and government-led building of community support saw the end of the moratorium on the shale gas extraction process of “˜fraccing’ in December 2013.

Australia has its own unique challenges, but the United States and United Kingdom experiences point to the need for a shift in the shale gas debate.

Community support

In only one decade, fraccing has moved from public obscurity to become a symbol of all that opponents see as wrong with the shale gas industry.

The lesson for Australia from the experiences in the United States and the United Kingdom is that industry and government need to work together to proactively engage with and listen to communities well before shale gas projects are developed.

Moreover, they must ensure that communities receive a clear, consistent and co-ordinated message, setting out evidence-based information that the environmental, social and public health risks (if any) can be managed with a robust and responsible approach.

The power of knowledge

A good deal of community fear and scepticism is a result of lack of knowledge about the fraccing process and more specifically, the chemicals pumped into wells during fraccing.

Without sufficient evidence-based information to evaluate fraccing, the public will rely on intuition and information put forward by third parties to form an opinion.

Scientific empirical evidence produced by a reputable independent third party can fill this void. Indeed the first recommendation of the report by the Australian Council of Learned Academies into Shale Gas in June 2013 was to recommend scientific research.

In 2004, the United States Environmental Protection Agency undertook a study in relation to the contamination of drinking water by hydraulic fracturing fluids, and concluded that the injection of these fluids into wells posed little or no threat to underground drinking water.

In 2011, a study undertaken by the Massachusetts Institute of Technology concluded that, with more than 20,000 shale gas wells drilled in the preceding decade, there was no evidence that demonstrated contamination of shallow water zones by fracture fluids.

In the United Kingdom, to address deep community concern about fraccing, the Chief Scientific Adviser Sir John Beddington FRS asked the Royal Society and the Royal Academy of Engineering to carry out an independent review of the risks associated with hydraulic fracturing to inform government policymaking about shale gas extraction.

However, as research commissioned by industry is likely to be open to claims of bias, it is incumbent on the Government and its science and research agencies to prepare and undertake this research.

Regulating disclosure of chemicals

Industry players should also have a role to fill the information void, which can later be co-opted by government to facilitate official disclosure requirements.

The Australian National Harmonised Regulatory Framework for Natural Gas and Coal Seams is certainly a good beginning in this regard and should be extended to shale gas.

Due to the lack of federal regulation in the United States, certain states have developed their own rules about the disclosure of chemicals (other than trade secrets) pumped into wells.

Such states include Arkansas, Colorado, Montana, Wyoming, Idaho, North Dakota, New York, Texas and West Virginia.

In the United States, FracFocus is the national hydraulic fracturing chemical registry.

The primary purpose of this site is to provide factual information concerning hydraulic fracturing and groundwater protection.

While FracFocus is not intended to replace or supplant any State governmental information systems, it is being used by a number of states as a means of official chemical disclosure.

Currently, ten states in the United States use FracFocus in this manner.

For Australia, it is important that any regulatory framework developed should be applied consistently and on a national basis to avoid a myriad of regulatory approaches.

Baseline data

At an operational level, policy makers, regulators and operators must also ensure that shale gas operations are measured, monitored and disclosed against base-line data on an ongoing basis.

In the United States, the recent creation of a Center for Sustainable Development is an interesting example of this.

Significant shale developers including Shell and Chevron have joined with environmental groups to create 15 standards for the use of hydraulic fracturing in the north-eastern United States.

These standards will form the basis of the Center’s independent third party certification process.

The Australian Government and its scientific agencies can take the lead in measuring this base-line data, which can then be disclosed to the public.

Incentivise community support

Communications alone will not engender community support and may need to be accompanied by financial incentives that align industry aspirations with the community.

In the United States, oil and gas rights are typically owned by the owner of the surface land, meaning that private landowners can in many cases negotiate directly with companies to secure direct financial benefits from the resource development.

These financial incentives have created a strong alignment between the community and industry.

In the United Kingdom, where rights are more like Australia’s, the shale gas and oil industry has adopted a community benefits charter.

This charter includes £100,000 for each fraccing well site, with communities receiving 1 per cent of production revenues and annual public statements on how community commitments have been met.

Cash compensation can, however, threaten a project’s viability and widen the gap between the community’s profit expectations and commercial realities.

One solution may be that industry offer financial mechanisms which indicate industry’s comfort in the operational safety of shale gas.

There are opportunities for the Australian Government to provide supporting mechanisms in the absence of a market solution.

In Europe, since the imposition of the Environmental Liability Directive, insurance has been the most popular financial instrument to cover environmental liability with re-insurance pool solutions developed in Spain, France, Italy and the Netherlands – as distinct from parent company or bank guarantees.

In time, these pools can be supported by market-based instruments.

Statutory liability regimes such as the one for CO2 sequestration, which includes a release from liability once an appropriate period of clear reporting has lapsed, may also be useful in the context of shale gas.

Reimagining the industry

To develop a successful shale gas industry in Australia, the debate needs to be reimagined by a principle of co-existence with a shared commitment between industry, community and government.

This cannot be achieved in isolation, and government has a key role to play in leading and providing information to inform debate and provide regulatory settings to effectively and efficiently manage the shale gas industry.

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