POLICY BRIEF

Sustainable Shale Gas Development: A Pathway to Clean and Reliable Production

UNPUBLISHED DRAFT DO NOT QUOTE OR DISTRIBUTE

BY VELLO KUUSKRAA AND SCOTT THOMASSON

FEBRUARY 2012

Advances in drilling and recovery technologies for shale gas have reshaped our assumptions about Americas natural gas resources and our future energy options. Expanded development of shale gas and its associated liquids offer the potential for turning energy scarcity into plenty, fostering a renaissance in our petrochemical and manufacturing sectors, and offering a cleaner option for power generation.1 If shale gas production realizes its potential of providing reliable supplies of natural gas for decades at affordable prices, it will lower utility bills for households and, by driving down feedstock and production costs, boost American manufacturing. In addition, greater use of natural gas in electricity generation is already providing environmental and climate benefits as a cleaner, marketfriendly substitute for coal and as a complement to intermittent renewable resources like wind and solar.2 Shale gas can provide a most valuable boost to the U.S. economya view President Obama strongly endorsed in his 2012 State of the Union address. The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we dont have to choose between our environment and our economy, he said, adding that his administration will take every possible action to safely develop this energy. But as the Presidents remarks suggest, safety and sustainability are key. For as gas production rises, so too does controversy over the environmental impacts of shale gas development. Amid claims and counterclaims about its dangers from environmentalists and gas producers, hydraulic fracturing (fracing) has become a household word. The public is being bombarded with negative images of shale production, from media reports of earthquakes in Ohio attributed to fracing
1 For an overview of the recent changes in the U.S. natural gas industry and their economic and policy implications, see Natural Gas Reconsidered, published by the Progressive Policy Institute in July, 2011. 2 Ibid

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activities to flaming water faucets in the movie Gasland. In response to real and imagined dangers, there is growing political pressure to regulate production at both the state and federal levels. Some states, including New York, Maryland and New Jersey, already have limited shale development. Environmental concerns also have inspired proposed legislation in Congress and prompted federal agencies to take tentative steps toward new regulations. 3,4 State and federal agencies have a duty to see that shale gas is developed in a manner than does not compromise public health and safety. But just as unchecked development entails one kind of risk, a new raft of aggressive restrictions and regulations on shale production entails another -- the risk of squandering our opportunity to capture the economic and employment benefits of cheap, plentiful natural gas (and its associated liquids such as ethane and propane).

Addressing the Challenges of Shale Gas

Given the current regulatory environment, we think there is much to be said for a more proactive strategy that seeks to mitigate environmental concerns about expanded production. For example, instead of waiting for regulators to set their own standards, the industry and its supporters may wish to compile and actively publicize the various efficient and cost-effective ways in which the environmental footprint of shale gas production can be reduced. The more these best practices for sustainable development are understood and appreciated, the more likely it is that such bottom-up and basin-specific approaches, rather than top-down mandates, could drive the regulatory agenda. Such a strategy would also emphasize openness and require strong outreach to environmental organizations, policy makers and other stakeholders. Taking this type of collaborative approach is not only likely to be good for business; it could cut costs for U.S. energy consumers, and protect public health and safety. To help make this goal of sustainable development a reality, the Progressive Policy Institute (PPI) and Advanced Resources International, Inc. (ARI) propose that the industry and stakeholders take two practical steps.

Chief among the bills proposed to regulate shale gas production is the Fracturing Responsibility and Awareness of Chemicals Act (FRAC Act), introduced in the House (H.R. 1084) by Rep. DeGette (CO1) with 64 cosponsors, and in the Senate (S. 587) by Sen. Robert Casey (PA) with 10 cosponsors. 4 EPA and the Interior Department have announced plans to create new rules for shale gas production, including EPAs proposed rule to regulate methane emissions under Clean Air Act (http://www.gpo.gov/fdsys/pkg/FR-2011-08-23/pdf/2011-19899.pdf); EPAs plans to develop standards for wastewater (http://yosemite.epa.gov/opa/admpress.nsf/0/91E7FADB4B114C4A8525792F00542001); and Interiors plans to set new rules for all hydraulic fracturing on federal lands
3

(http://thehill.com/video/administration/185653-interior-may-unveil-gas-fracking-rules-within-weeks).

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The first is launching a Sustainable Shale Gas Initiative, a consortium that includes shale gas producers, environmental advocates, and experts in shale resources and production. The Initiative will conduct studies of the different shale basins throughout the U.S. to identify the most efficient, cost-effective and environmentally responsible development and production methods appropriate for each basin. From these findings, the Initiative will recommend action items to industry leaders and policy makers for promoting the use of these practices. The second step is a review of these best sustainable practices by a wider community of stakeholders that includes industry associations, elected officials, state and federal regulators, and environmental and public interest groups. The ultimate aim is to encourage a sustainability regime for shale gas development that consists of voluntary standards, generally backstopped by state (not federal) regulation and overseen by a variety of stakeholders.

Two Alternative Pathways

This is a pivotal moment for the shale gas industry. Both legitimate concerns and misinformation about fracing are creating regulatory uncertainty for shale gas development. Depending on how producers respond to this increasingly negative narrative, one of two alternative pathways will emerge for future shale gas development. The first is continuing with business as usual, hoping that spreading awareness of shale gass economic benefits will overwhelm qualms about its environmental impact. But given the present level of public confusion and concern about hydraulic fracturing, this path could very well lead to more drilling moratoria and federal command-and-control regulations that legislate specific production practices. As we have seen in other industries, regulators too often impose one-size-fits-all solutions that reduce innovation while adding costly requirements and technology mandates. This outcome could stifle the types of innovation in exploration and production techniques that have revolutionized the industry in the last decade. And just as the best drilling practices for Barnett Shale in Texas may not be appropriate for Marcellus Shale in Pennsylvania, environmental and safety regulations need to be tailored to the evolving expertise and best practices in each area. The second pathway requires shale gas producers to take positive steps to head off unwise regulation. We think this is most likely to succeed if the initiative can point to a set of evolving best practices for more sustainable shale gas development throughout the industry. The research and study program outlined in the second portion of this paper is designed to identify these practices. We recognize that getting enough producers to buy into this approach may prove

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to be just as challenging as convincing regulators and environmental advocates it can work. To build a new climate of trust, producers must not only identify and implement sustainable development practices; they must also work cooperatively with stakeholders to allow for review and oversight of those practices. This task will not be easy, but we believe it will produce better outcomes for producers, consumers and the environment.

Taking Action: The Sustainable Shale Gas Initiative

The goal of the Sustainable Shale Gas Initiative is identifying win-win solutions that can reduce the industrys environmental footprint while realizing the full economic potential of shale gas development. The Initiative will pursue this goal through a comprehensive series of basin-by-basin studies of best sustainable practices that maximize both environmental and economic benefits. Beginning as a joint project sponsored by PPI, ARI, and a coalition of industry and environmental groups, the Initiative will leverage ARIs expertise and reputation in the natural gas industry with the policy and regulatory expertise of PPI. Starting with the Marcellus and Utica shales, ARI will conduct technical studies and analyses of best sustainable practices for each major shale gas basin in the U.S. PPI will then seek appropriate ways to publicize and support a best practices approach to industry regulation with producers, state and federal officials, and the public at large. By taking a systematic approach to identifying and improving best sustainable practices, the Initiative will highlight solutions that can be implemented effectively by producers and overseen by the states, precluding the need for new uniform national rules.

Best Sustainable Practices

Fortunately, we dont need to start from scratch. There is already a strong foundation of best practices that we can identify and build upon for this Initiative. Some shale gas production companies already use such practices and provide the rest of the industry with important anecdotal information about their economic benefits. Consider these examples: Evidence shows that pad drilling, which reduces land impacts, also saves money by improving rig efficiency and reducing pit construction costs. Companies report that treating and recycling water used in fracturing reduces truck traffic and cuts the costs. Some producers report that investments to capture methane emissions during well testing and production generate additional revenues that far exceed their costs. Indeed, the advantage of centering our approach around best sustainable practices is that they already exist. Producers have used them in the field and

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shown they can be environmentally effective and profitable. Even the industrys most vocal critics in the environmental community acknowledge that many of the concerns they raise could be addressed if the best practices of some producers were followed more widely and consistently at all new drilling sites. That gives the industry a unique opportunity to use its own expertise to solve these challenges, before regulators decide how they should be solved.

Basin-Specific Case Studies

Shale gas basins have different geologies and require variations in production practices, but there are some common issues and concerns that apply everywhere. The Initiatives most important undertaking will be to prepare a series of basinspecific case studies addressing these common issues, including specific findings about technical implementation, costs and economic benefits of best practices in each basin. Each case study will be organized around a top ten of the most important issues in sustainable shale gas development: 1. Reduced land disturbance. 2. Reduced water use and disposal. 3. Reduced atmospheric methane emissions. 4. Model well completion and operating practices. 5. Use of non-toxic hydraulic fracturing fluids. 6. Reduced air-quality impacts. 7. Treatment of naturally occurring radiation 8. Collection of pre-drilling and development baseline data. 9. Efficient incident response capability 10. Productive public outreach. Each of these ten issues would be examined for each basin to produce the specific findings and recommendations we need for implementing best practices industrywide: Background information on the specific issue and traditional practices employed in the region. Identification and documentation of the best sustainable development practices for the issue that are appropriate for that shale basin. Realistic cost estimates for implementation of the best sustainable development practices. Analysis of the benefitsboth economic and strategicthat would likely result from the implementation of best sustainable development practices. The case studies will present facts, options and supporting data on each of the best sustainable development practices. However, they are not intended to provide a detailed prescription of what each industry participant should do. Clear identification of best practices is a critical first step to inform the debate about implementation and oversight.

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Actionable Next Steps

Translating these case studies into real-world practice will be the Initiatives biggest challenge. To keep its work from ultimately gathering dust on a shelf, the Initiative will supplement its case studies with support materials specifically targeted to the shale gas industry. With this goal in mind, the Initiative will follow the release of each case-study report with additional outreach aimed at immediate improvements:
1. 2.

Preparing a series of short briefing memos for each of the top ten topics addressed by the Initiative. Conducting briefings on the Initiatives findings to industry groups, trade associations, and public officials.

Stakeholder Review
Identifying a set of best sustainable practices is only a first step toward building a workable bottom-up regime for regulating shale gas development. For a regional best-practices approach to be successful, it is critical that state policy makers, regulators and the environmental community be actively involved in the process. Shale production is an activity that is primarily regulated at the state level. Therefore, job one for the industry is engaging state regulators and keeping them fully informed throughout the review and implementation process.

A Continuing Process
Our hope is that the information we gain from producers about best practices will also help industry and regulators better understand the potential for continued improvement and innovation in best practices for shale gas development. This would go a long way toward meeting the recommendations by the Secretarys of Energys Advisory Board and the National Petroleum Council, as further discussed below.

A Window of Opportunity
Recent high-profile studies by two separate industry and government working groups both called on producers to take the lead in improving the environmental performance of shale gas development, and they both emphasized the need for stronger focus on best practices.

DOE and NPC Recommendations

President Obama has recognized the importance of domestic natural gas development to ensure Americas economic prosperity and security. In his Blueprint for a Secure Energy Future issued in March, 2011, the president called for moving forward with a balanced approach to developing our shale gas reserves: In order to take full advantage of this important domestic energy resource, we must proactively address concerns that have been raised

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regarding potential negative impacts associated with hydraulic fracturing (fracing) practices. That is why the Administration is taking steps to address these concerns and ensure that natural gas production proceeds in a safe and responsible manner.5 With these goals in mind, President Obama directed the Secretary of Energys Advisory Board (SEAB) to create a Shale Gas Production Subcommittee to determine the best path forward for shale gas development. The Subcommittee released its final report in November, after six months of hearings and investigation. The report is notable in that the panel did not sound an alarm or call for a list of new regulations. Instead, the report recommended an industry-led initiative to reduce the environmental footprint of shale gas production: Organizing for best practice: The Subcommittee believes the creation of a shale gas industry production organization dedicated to continuous improvement of best practice, defined as improvements in techniques and methods that rely on measurement and field experience, is needed to improve operational and environmental outcomes. The Subcommittee favors a national approach including regional mechanisms that recognize differences in geology, land use, water resources, and regulation. 6 This recommendation includes two important elements. The first is that producers need to take a proactive approach centered on continuous improvement of best practice.7 The second is that the pursuit of best practices should rely on a bottom-up approach that empowers producers and state regulators to leverage the lessons learned within particular regions and basins. While SEABs work was still underway, the National Petroleum Council (NPC) released a report entitled Prudent Development: Realizing the Potential of North Americas Abundant Natural Gas and Oil Resources. 8 The NPCs first recommended strategy for government and companies endorsed a best-practices focus with decentralized councils of excellence: Support prudent development and regulation of natural gas and oil resources, through such measures as councils of excellence covering environmental, safety, and health practices; corporate and regulatory commitment to advancing environmental performance; engaging affected communities; reducing methane emissions; and structuring policies to support prudent development of and access to resources.
Blueprint for a Secure Energy Future, March 30, 2011, p. 13 (http://www.whitehouse.gov/sites/default/files/blueprint_secure_energy_future.pdf) 6 SEAB Shale Gas Production Subcommittee Second Ninety Day Report, November 18, 2011 (http://www.shalegas.energy.gov/resources/111811_final_report.pdf) 7 SEAB Shale Gas Production Subcommittee Ninety-Day Report (August 18, 2011), p. 1. (http://www.shalegas.energy.gov/resources/081811_90_day_report_final.pdf) 8 Prudent Development: Realizing the Potential of North America's Abundant Natural Gas and Oil Resources, National Petroleum Council, September 15, 2011, (http://www.npc.org/Prudent_Development.html)
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We strongly agree with the principles and recommendations in the SEAB and NPC reports.

State-Level Leadership
A rigorous campaign to promote best practices will be useful in informing the debate over proposed federal regulations, but there is an even more urgent need for this kind of education at the state level. While federal agencies are still studying the best approach to new rules, state policy makers across the country are already chest-deep in new shale gas regulations.9 A stronger commitment from the shale gas industry to sustainable production practices can improve the regulatory outcomes in all of these states. In states like New York, the burden is now on the industry to convince policy makers and the general public not only that shale gas can be produced in an environmentally responsible way, but that producers are fully committed to ensuring it will be by holding themselves to high standards for sustainability.

Choosing the Right Path

Public support for U.S. natural gas production is at a critical point. This January, the President used his State of the Union address to make the strongest commitment to date of the governments support for developing Americas shale gas reserves, provided that it is done in a safe and environmentally responsible way. Yet, as we know, there is a major unresolved debate about what safe and environmentally responsible mean in terms of regulation. How that debate is resolved whether by adopting new top-down federal mandates or through state oversight of bottom-up, best practice standards -- could have a decisive impact on the extent to which Americas shale gas resources are actually available, and therefore the fortunes of shale gas producers and the tens of thousands of workers and businesses they support. That is why we see this new Sustainable Shale Gas Initiative as so timely and important. It has the potential to help America resolve the regulatory debate over shale gas in a constructive and positive way -- a way that serves the interests of both industry and the public and that builds on the basin-by-basin best practices that many gas producers have already begun to deploy. By focusing attention on solutions, the Initiative can help industry make more responsible investments, empower policy makers craft more flexible rules and legislation, and assure the public that this resource can be developed in a more responsible manner.
9 For more on the steps taken by states to regulate shale gas development, see Considering Shale Gas Extraction in North Carolina: Lessons from Other States by the Nicholas Institute for Environmental Policy Solutions at Duke University (discussion draft released November, 2011 available at http://nicholasinstitute.duke.edu/nc-hydraulic-fracturing/paper); and state-specific reviews conducted by the State Review of Oil and Natural Gas Environmental Regulations (STRONGER) available at http://www.strongerinc.org

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