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Safe Fracking Looks Cheap

by Michael Levi
May 29, 2012

The public battle over fracking tends to emphasize extremes: some say that shale gas can’t be developed safely; others say that new regulation would kill the industry. But a third set of observers (myself included) has claimed that smart new rules would boost costs only marginally, while building public acceptance for drilling. A new study from the International Energy Agency (IEA) adds serious support to this middle way.

The study, “Golden Rules for a Golden Age of Gas”, is worth reading in its entirety – it’s a great assessment of the environmental challenges involved in developing unconventional gas and of ways to address them. What jumps out at me, though, is how the authors have gone beyond the usual hand-waving claims about how steps to ensure safe drilling shouldn’t be too expensive. Instead, they’d actually done some concrete cost estimates.

The verdict? Adopting “Golden Rules” for shale gas development would add a mere seven percent to the cost of each well. And though the IEA report doesn’t discuss this the impact on the price of gas, at least in the United States, would be even less, because some of the cost of delivered gas has nothing to do with well expenses: distribution costs, for example, would be unaffected by new drilling rules; severance taxes and impact fees wouldn’t change; and corporate taxes would presumably fall a bit, since many compliance costs could be written off. If you think that delivered gas will ultimately cost five dollars for a thousand cubic feet, the IEA is saying that its golden rules would add less than thirty-five cents. Contrast that with the much bigger impact of a backlash against drilling, and you have a pretty compelling case.

So what do the IEA “Golden Rules” entail? Some extra spending on “cement design, selection and verification”, together with a bit of extra drilling time to make sure that things are done right. Green completions would be required to avoid flaring and venting. Green fracturing fluids and rock solid treatment of produced water would protect groundwater resources. The IEA even includes costs for soundproofing rigs and implementing some trucking restrictions in order to reduce noise pollution.

The authors indicate that this suite of measures is an upper bound on the costs of a smart environmental approach. They observe that large-scale development creates additional ways to improve environmental performance while actually reducing costs. Economies of scale, for example, can make better water infrastructure make simple economic sense, reducing truck trips and improving safe disposal. “Systematic learning” about shale areas can reduce the number of dry wells and unnecessary fracture stages, improving economics while reducing environmental footprints. All told, the authors estimate that these and other steps could cut costs by five percent. In case you’re keeping track, that’s a net impact of two percent on production costs for large-scale development.

The IEA estimates, of course, are extremely crude. It wouldn’t be surprising to see compliance costs twice what they estimate – or half. Either way, the bottom line remains: smart regulation of shale gas looks like it would be relatively cheap. It’s the excessively hands off approach that could turn out to be a lot more costly.

Post a Comment 4 Comments

  • Posted by Chris Hope

    Any kind of sensible price on greenhouse gas emissions (methane in this case) would mean that everyone involved in shale gas would do it safely. Why are we not bringing this policy in as a matter of urgency?

    Chris Hope @cwhope

  • Posted by LMADster

    To paraphrase Charlton Heston: “Keep your stinking paws off natural gas, you damned dirty apes”

  • Posted by Aaron Rappaport

    I can’t help thinking that when the dust settles, good fracking practices will be implemented in the U.S. and other democratic countries, but dirty ones will prevail elsewhere. Unfortunately, we will all have to live with some of the environmental consequences, especially extra global warming caused by methane leakage.

  • Posted by Concerned Scientist

    “Unfortunately, we will all have to live with some of the environmental consequences, especially extra global warming caused by methane leakage.”

    Extra global warming compared to what? If gas displaces coal there will be less impact on the climate, even with some methane leakage. Where shale gas is being developed in a big way with multiple wells drilled per pad, methane leakage is almost a non-issue and wells are not even flared that often. They are hooked up and flow into the pipeline almost immediately. Most methane leakage comes in areas where they are producing liquids (oil, condensate and natural gas liquids) and the natural gas is a by-product. Gas is commonly flared or leaks from tanks. So that is really more of a problem with oil production than it is with gas production. Methane also leaks in the process of coal mining and from landfills and compost piles.

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