Fracking goes global

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Threaded drilling pipes are stacked at a hydraulic fracturing site. Photo / Bloomberg
Despite environmental concerns, the technology that revolutionised the energy industry is spreading all over the world.

An icy rain is pelting about 30 protesters at the gate of a natural gas drilling site near Manchester, England. On the other side of a fence topped with razor wire, a 10-storey-high rig is boring into shale to determine if it's suitable for hydraulic fracturing - or "fracking". The demonstrators unfurl a banner: "Fracking will poison our children."

As police push the protesters back, a convoy of supply trucks inches out of the gate and past an encampment of tents and trailers sporting placards decrying the drilling practice. "Fracking will not lower gas prices, Lord Browne," reads one.

The following week, the man the protesters call "the fracking czar" is seated in a conference room overlooking the rooftops of Mayfair in central London. John Browne - a former chief executive of oil giant BP, and now an independent member of the House of Lords and a nonexecutive director in the British Government's Cabinet Office - is lamenting how the protests may slow his efforts to bring America's shale boom to Britain.

Browne says fracking would secure a new domestic energy source, create thousands of jobs, generate billions of pounds in tax revenue and be far cheaper than constructing nuclear plants.

"Shale gas could be very, very important for this country; it could be transformative," says Browne, who is also chairman of Cuadrilla Resources, a British exploration firm that plans to frack the English countryside. Seven years after leaving BP, he's at the forefront of a push by major energy companies and wildcatters to take fracking global.

Hydraulic fracturing - in which drillers blast water, sand and chemicals into shale deep beneath the earth to release oil and natural gas - is revolutionising the energy game in the world's biggest economy: after steadily declining for about 25 years, US oil production surged 47 per cent from 2008 to 2013, according to data compiled by Bloomberg. The Department of Energy forecasts that the US, which imported 6 per cent of the gas it used in 2012, will be a net exporter of the hydrocarbon by 2018.

Even as evidence mounts that fracking operations drain aquifers and spew methane into the air, energy firms are fanning out across mammoth shale deposits in China, Russia, India, South Africa, Australia, Argentina and elsewhere.

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Royal Dutch Shell has joined forces with China Petroleum & Chemical Corp, or SinOpec, in central and southern China to exploit the world's largest shale gas-laden formations.

And US company Chevron has agreed to invest up to US$16 billion ($18.69 billion) in partnership with Argentina's state oil producer to drill near the Andes. And in Mexico, US wildcatters, who started the shale boom in the mid-2000s, are ready to pounce now that President Enrique Pena Nieto has opened his country to foreign petroleum investment.

Even relatively small Britain is sitting on a gas mother lode. The Bowland-Hodder formation, a belt of shale that stretches across England's midsection, holds more than 37 trillion cubic meters of natural gas, according to estimates from the British Geological Survey (BGS).

That's almost the same size as the Marcellus deposit under the Appalachian Mountains, the No 1 shale gas find in the US. If the Bowland performs similarly to the Marcellus shale, Britain will have enough gas to meet its needs for more than 40 years, according to data from the BGS and the US Energy Information Administration, or EIA.

"Shale gas is coming to the UK one way or another," says Britain's Energy Minister Michael Fallon. "It would be far nicer if it came from underneath Britain rather than be imported from the US or elsewhere."

The shale boom is striking as the world's leading economies struggle to find a balance between promoting economic growth and addressing climate change. The US, the European Union and China, among others, have vowed to reduce greenhouse gas emissions by relying more on wind, sunlight and other renewable resources.

But "we are definitely going to have to burn hydrocarbons for a considerable amount of time; we have no choice," says Browne, who became the first chief executive of a major oil company to acknowledge that fossil fuels contributed to climate change, in a 1997 speech.

Even the green-leaning EU may find shale irresistible, says Fadel Gheit, an oil industry analyst at Oppenheimer & Co in New York. Natural gas, which is composed primarily of methane, emits half the carbon dioxide of coal when burned in power plants, according to the US Environmental Protection Agency (EPA).

Then there's the Russia angle. The EU imports about 30 per cent of its natural gas from its neighbour to the east, with several pipelines traversing strife-torn Ukraine on Russia's southwest flank.

Europe's vulnerability contrasts with the energy security that the US has derived from its shale bonanza. Following approval from the Obama Administration, American producers will begin exporting natural gas in 2015.

Browne says the upheaval in Ukraine should spur European political leaders to clear the way for shale gas.

"I hope this reminds people that having indigenous sources is a good thing," he says.

Germany, Spain and the Scandinavian nations have approved shale exploration, and Cuadrilla has leased sites in the Netherlands.

"John Browne is on the right track," Gheit says. "Fracking has transformed our thinking in the US about our energy future. And Europe will have to finally wake up and realise that it needs to make some hard choices about global developing its own domestic resources."

Renewable energy advocates counter that shale gas may deepen dependence on hydrocarbons and worsen global warming. The impact of unburned methane on climate change is 20 times that of carbon dioxide, says the EPA.

In August, a US study found that natural gas wells in Utah were releasing 6 to 12 per cent of their output into the air.

Such leakage could erase the advantage natural gas has over coal, says Nicholas Stern, chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science. He says he's concerned policy makers will embrace shale at the expense of alternatives such as wind and solar power.

Even if natural gas supplants coal in Britain or the EU, the dirtier fossil fuel will still be burned elsewhere, says Matthew Spencer, the director of Green Alliance, a British environmental group.

Spencer says shale gas may have the perverse effect of forcing coal producers to lower prices to compete, making coal more attractive to burn, increasing carbon dioxide emissions.

"Even though gas is a cleaner fuel, the growth of shale runs a locomotive through our attempts to limit climate change," Spencer says. "If shale gas development isn't accompanied by a constraint of coal, then it's going to be a disaster."

In his new business incarnation, Browne will seek to overcome the opposition of many Britons, who can't accept his plans. Because gas output from shale typically falls 70 per cent after the first 12 months of operation, Cuadrilla and other operators would have to drill 2000 to 3000 new wells a year to match the annual volume of imported natural gas, says David King, a former British Government chief scientific adviser who is now the Foreign Office's special representative for climate change.

"If you want to keep up production, you have to keep up fracking," King told the House of Lords Economic Affairs Committee.

Dozens of community groups have joined forces with environmental organisations to appeal to local county councils not to approve fracking applications. In one stratagem organised by Greenpeace, homeowners are asking the courts to block Cuadrilla and other operators from drilling horizontally under their land, a key manoeuvre in fracking.

Unlike in the US, British property owners don't hold title to the oil and gas under their land - the Crown does. So drillers such as Cuadrilla can't win grass-roots support by paying out royalties in exchange for drilling rights.

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Browne says he'd rather face public opprobrium, legal challenges and environmental regulations in Britain than the political uncertainty that prevails in other countries.

"This is the next place to go to," Browne says. "It's easier than us going to China, where there was a land-grab free-for-all with lots of Chinese companies, or Argentina, or India, or South Africa. There are rules in Europe, and they are slavishly applied. And we are quite sure we can operate within those rules."

Browne's shale bet will be decided in a piece of land called the Fylde that juts into the Irish Sea north of Liverpool. Framed by Blackpool to the west and the moors of the Bowland Fells to the east, this coastal plain is quilted with rich pastureland, rural villages and some industry.

The Fylde sits on a part of the Bowland shale that's 1800m thick. Cuadrilla has been testing the rock here since 2007.

"We have no doubt there's a lot of gas here," says Andrew Quarles van Ufford, Cuadrilla's technical director.

In 2010, Cuadrilla's operations in the Fylde got off to a shaky start - literally - when its drilling triggered two tremors registering 2.3 and 1.5 on the Richter scale. The events alarmed local residents and the Government declared a moratorium to evaluate seismic risk, which has since been lifted.

If the company eventually moves to full-scale production, the Fylde will become a less tranquil place. Tanker trucks hauling water and equipment will make dozens of trips every day to the well sites, which will teem with rigs and chemical storage tanks.

Up to 18,750 cubic meters of water pumped into each well to frack the shale will come back to the surface as mud and wastewater, enough to fill about eight Olympic-sized swimming pools for each well.

An assessment by Britain's Department of Energy and Climate Change concludes that fracking may harm air quality, contaminate groundwater and despoil the landscape. It says regulators and local officials can prevent these adverse effects by making sure the wells are properly constructed and wastewater is safely removed from drilling sites.

That's cold comfort for Andrew Pemberton, a dairy farmer located about 1.5km south of one of the proposed fracking sites.

He says he's anxious because a network of dykes and brooks drains his land southward: If a well ruptured or wastewater spilled upstream from his farm, it could contaminate his pastures.

What's more, the British Environment Agency found in 2011 that the flowback water from Cuadrilla's fracked well contained high levels of radium, a naturally occurring radioactive byproduct of uranium that can cause cancer.

"I'm not a bloody tree-hugger, but if I have to raise cows on radioactive grass, who's going to buy my milk?" says Pemberton. "I'm out of business." Browne says fracking and farming can coexist because the shale lies thousands of metres below the water table. By making sure the wells remain intact, there will be little danger that wastewater will leak near the surface, he says.

To minimise the surface area of land affected by drill sites, Cuadrilla plans to bore two to four lateral underground shafts from each vertical well.

Even so, the Government and industry are using old-fashioned largess to win fracking support.

In January, Prime Minister David Cameron announced that county councils would be entitled to keep 100 per cent of the taxes drillers pay - twice what municipal bodies normally collect. The Onshore Operators Group, the industry lobby organisation, pledged to pay £100,000 ($196,642) per well to boroughs and villages.

In Lancashire, Cuadrilla has sponsored soccer teams, a theatre group and a young engineers contest for students.

Ian Roberts, co-founder of Residents Action on Fylde Fracking, decries these gestures as "bribes".

"Cuadrilla is not doing this in the national interest; it's self-interest," says Roberts. "We still have the power to stop it," adds Tina Rothery, another leader of the group.

Viewed from abroad, this sort of local opposition is off-putting for energy companies. Liberty Resources' Wright says it presents an obstacle to development.

'"I looked at the Bowland four years ago, but the process in England has been very slow and cumbersome, and that's because the locals aren't on board yet," Wright says.

As Browne sizes up the challenge, he reflects on how a technique promoted by a Texas wildcatter named George Mitchell in the early 1990s is changing the world's biggest industry.

Shale, a mineral composed primarily of quartz and clay that happens to be a superb container for oil and gas molecules, is everywhere.

And as nations around the globe grasp the potential for greater energy independence, there's little chance they'll leave their shale untouched.

For Browne, the engineer son of an oilman, exploration has always been about measuring the probabilities: Focus on a promising piece of ground, analyse the rock and drill test wells. Browne says fracking is inevitable.

"When you look at the balance of risk and reward, it's evident that this is something that's going to be done," he says.

And whether his compatriots like it or not, Browne's test well is Britain.

Meanwhile, in New Zealand

The first known use of fracking in NZ was in 1989, at a Taranaki gas well, says a 2012 report from the Parliamentary Commissioner for the Environment. Since then, there have been more than 40 fracking operations, almost all in the same region.

- Bloomberg

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