At a time when much of the world is looking with a mix of envy and excitement at the recent boom in USA unconventional gas from shale rock, when countries from China to Poland to France to the UK are beginning to launch their own ventures into unconventional shale gas extraction, hoping it is the cure for their energy woes, the US shale boom is revealing itself to have been a gigantic hyped confidence bubble that is already beginning to deflate. Carpe diem!
America: The New Saudi Arabia?
If we’re to believe the current media reports out of Washington and the US oil and gas industry, the United States is about to become the “new Saudi Arabia.” We are told she is suddenly and miraculously on the track to energy self-sufficiency. No longer need the US economy depend on high-risk oil or gas from the politically unstable Middle East or African countries. The Obama White House energy adviser, Heather Zichal, has even shifted her focus from pushing carbon cap ‘n trade schemes to promoting America’s “shale revolution.”
In his January 2012 State of the Union Address to Congress, President Obama claimed that, largely owing to the shale gas revolution, “We have a supply of natural gas that can last America nearly 100 years.” 
Renowned energy experts like Cambridge Energy Research’s Daniel Yergin in recent Congressional testimony waxed almost poetic about the purported benefits of the recent US shale oil and gas exploitation: “The United States is in the midst of the ‘unconventional revolution in oil and gas’ that, it becomes increasingly apparent, goes beyond energy itself.” He didn’t explain what exactly energy going beyond energy itself means. He also claimed that “the industry supports 1.7 million jobs – a considerable accomplishment given the relative newness of the technology. That number could rise to 3 million by 2020.” Very impressive numbers.
Mr Yergin went on to suggest a major geopolitical dimension of America’s shale oil and gas industry, saying “expansion of US energy exports will add an additional dimension to US influence in the world…Shale gas has risen from two percent of domestic production a decade ago to 37 percent of supply, and prices have dropped dramatically. US oil output, instead of continuing its long decline, has increased dramatically – by about 38 percent since 2008. Just the increase since 2008 is equivalent to the entire output of Nigeria, the seventh-largest producing country in OPEC…People talk about the potential geopolitical impact of the shale gas and tight oil. That impact is already here…”
In their Energy Outlook to 2030, published in 2012, BP’s CEO Bob Dudley sounded a similar upbeat projection of the role of shale gas and oil in making North America energy independent of the Middle East. BP predicted that growth in shale oil and gas supplies—“along with other fuel sources”—will make the western hemisphere virtually self-sufficient in energy by 2030. In a development with enormous geopolitical implications, a large swath of the world including North and South America would see its dependence on oil imports from potentially volatile countries in the Middle East and elsewhere disappear, BP added.
There’s only one thing wrong with all the predictions of a revitalized United States energy superpower flooding the world with its shale oil and shale gas. It’s based on a bubble, on hype from the usual Wall Street spin doctors. In reality it is becoming increasingly clear that the shale revolution is a short-term flash in the energy pan, a new Ponzi fraud, carefully built with the aid of the same Wall Street banks and their “market analyst” friends, many of whom brought us the 2000 “dot.com” bubble and, more spectacularly, the 2002-2007 US real estate securitization bubble. A more careful look at the actual performance of the shale revolution and its true costs is instructive.
One reason we hear little about the declining fortunes of shale gas and oil is that the boom is so recent, reaching significant proportions only in 2009-2010. Long-term field extraction data for a significant number of shale gas wells only recently is coming to light. Another reason is that there have grown up huge vested corporate interests from Wall Street to the oil industry who are trying everything possible to keep the shale revolution myth alive. Despite all their efforts however, data coming to light, mostly for the review of industry professionals, is alarming.
Shale gas has recently come onto the gas market in the US via use of several combined techniques developed among others by Dick Cheney’s old company, Halliburton Inc. Halliburton several years ago combined new methods for drilling in a horizontal direction with injection of chemicals and “fracking,” or hydraulic fracturing of the shale rock formations that often trap volumes of natural gas. Until certain changes in the last few years, shale gas was considered uneconomical. Because of the extraction method, shale gas is dubbed unconventional and is extracted in far different ways from conventional gas.
The US Department of Energy’ EIA defines conventional oil and gas as oil and gas “produced by a well drilled into a geologic formation in which the reservoir and fluid characteristics permit
the oil and natural gas to readily flow to the wellbore.” Conversely, unconventional hydrocarbon production doesn’t meet these criteria, either because geological formations present a very low level of porosity and permeability, or because the fluids have a density approaching or even exceeding that of water, so that they cannot be produced, transported, and refined by conventional methods. By definition then, unconventional oil and gas are far more costly and difficult to extract than conventional, one reason they only became attractive when oil prices soared above $100 a barrel in early 2008 and more or less remained there.
To extract the unconventional shale gas, a hydraulic fracture is formed by pumping a fracturing fluid into the wellbore at sufficient pressure causing the porous shale rock strata to crack. The fracture fluid, whose precise contents are usually company secret and extremely toxic, continues further into the rock, extending the crack. The trick is to then prevent the fracture from closing and ending the supply of gas or oil to the well. Because in a typical fracked well fluid volumes number in millions of gallons of water, water mixed with toxic chemicals, fluid leak-off or loss of fracturing fluid from the fracture channel into the surrounding permeable rock takes place. If not controlled properly, that fluid leak-off can exceed 70% of the injected volume resulting in formation matrix damage, adverse formation fluid interactions, or altered fracture geometry and thereby decreased production efficiency.
Hydraulic fracturing has recently become the preferred US method of extracting unconventional oil and gas resources. In North America, some estimate that hydraulic fracturing will account for nearly 70% of natural gas development in the future.
Why have we just now seen the boom in fracking shale rock to get gas and oil? Thank then-Vice president Dick Cheney and friends. The real reason for the recent explosion of fracking in the United States was passage of legislation in 2005 by the US Congress that exempted the oil industry’s hydraulic fracking, astonishing as it sounds, from any regulatory supervision by the US Environmental Protection Agency (EPA) under the Safe Drinking Water Act. The oil and gas industry is the only industry in America that is allowed by EPA to inject known hazardous materials – unchecked – directly into or adjacent to underground drinking water supplies.
The 2005 law is known as the “Halliburton Loophole.” That’s because it was introduced on massive lobbying pressure from the company that produces the lion’s share of chemical hydraulic fracking fluids – Dick Cheney’s old company, Halliburton. When he became Vice President under George W. Bush in early 2001, Cheney immediately got Presidential responsibility for a major Energy Task Force to make a comprehensive national energy strategy. Aside from looking at Iraq oil potentials as documents later revealed, the energy task force used Cheney’s considerable political muscle and industry lobbying money to win exemption from the Safe Drinking Water Act. 
During Cheney’s term as vice president he moved to make sure the Government’s Environmental Protection Agency (EPA) would give a green light to a major expansion of shale gas drilling in the US.
In 2004 the EPA issued a study of the environmental effects of fracking. That study has been called “scientifically unsound” by EPA whistleblower Weston Wilson. In March of 2005, EPA Inspector General Nikki Tinsley found enough evidence of potential mishandling of the EPA hydraulic fracturing study to justify a review of Wilson’s complaints. The Oil and Gas Accountability Project conducted a review of the EPA study which found that EPA removed information from earlier drafts that suggested unregulated fracturing poses a threat to human health, and that the Agency did not include information that suggests “fracturing fluids may pose a threat to drinking water long after drilling operations are completed.” Under political pressure the report was ignored. Fracking went full-speed ahead.
© n/a Fracking toxic waste. This diagram depicts methane gas and toxic water contaminating the drinking water as the fracturing cracks penetrate the water table.
The Halliburton Loophole is no minor affair. The process of hydraulic fracking to extract gas involves staggering volumes of water and of some of the most toxic chemicals known. Water is essential to shale gas fracking. Hydraulic fracturing uses between 1.2 and 3.5 million US gallons (4.5 and 13 million liters) of water per well, with large projects using up to 5 million US gallons (19 Million liters). Additional water is used when wells are refractured; this may be done several times. An average well requires 3 to 8 million US gallons of water over its lifetime. Entire farm regions of Pennsylvania and other states with widespread hydraulic fracking report their well water sources have become so toxic as to make the water undrinkable. In some cases fracked gas seeps into the home via the normal water faucet.
© Screenshot from HBO film Gasland – Rural resident flicking on cigarette lighter next to his kitchen faucet and watching his drinking water, infused with gas and chemicals, ignite in flames as high as 3 feet.
During the uproar over the BP Deepwater Horizon Gulf of Mexico oil spill, the Obama Administration and the Energy Department formed an Advisory Commission on Shale Gas, ostensibly to examine the growing charges of environmental hazards from shale gas practices.
Their report was released in November 2011. It was what could only be called a “whitewash” of the dangers and benefits of shale gas.
The commission was headed by former CIA director John M. Deutch. Deutch himself is not neutral. He sits on the board of the LNG gas company Cheniere Energy. Deutch’s Cheniere Energy’s Sabine Pass project is one of only two current US projects to create an LNG terminal to export US shale gas to foreign markets.
Deutch is also on the board of Citigroup, one of the world’s most active energy industry banks, tied to the Rockefeller family. He also sits on the board of Schlumberger, which along with Halliburton, is one of the leading companies doing hydraulic fracking. In fact, of the seven panel members, six had ties to the energy industry, including fellow Deutch panel member and shale fracking booster, Daniel Yergin, himself a member of the National Petroleum Council. Little surprise that the Deutch report called shale gas, “the best piece of news about energy in the last 50 years.” Deutch added, “Over the long term it has the potential to displace liquid fuels in the United States.” 
Shale gas: Racing against the Clock
With regulatory free-rein, now also backed by the Obama Administration, the US oil and gas industry went full-power into shale gas extraction, taking advantage of high oil and natural gas prices to reap billions in quick gains.
According to official US Department of Energy Energy Information Administration data, shale gas extraction ballooned from just under 2 million MCF in 2007, the first year data was tracked, to more than 8,500,000 Mcf by 2011, a fourfold rise to comprise almost 40% of total dry natural gas extraction in the USA that year. In 2002 shale gas was a mere 3% of total gas.
Here enters the paradox of the US “shale gas revolution.” Since the days of oil production wars more than a century ago, various industry initiatives had been created to prevent oil and later gas price collapse due to over-production. During the 1930’s there was discovery of the huge East Texas oilfields, and a collapse of oil prices. The State of Texas, whose Railroad Commission (TRC) had been given regulatory powers not only over railroads but also over oil and gas production in what then was the world’s most important oil producing region, was called in to arbitrate the oil wars. That resulted in daily statewide production quotas so successful that OPEC later modeled itself on the TRC experience.
Today, with federal deregulation of the oil and gas industry, such extraction controls are absent as every shale gas producer from BP to Chesapeake Energy, Anadarko Petroleum, Chevron, Encana and others all raced full-tilt to extract the maximum shale gas from their properties.
The reason for the full-throttle extraction is telling. Shale Gas, unlike conventional gas, depletes dramatically faster owing to its specific geological location. It diffuses and becomes impossible to extract without the drilling of costly new wells.
The result of the rapidly rising volumes of shale gas suddenly on the market was a devastating collapse in the market price of that same gas. In 2005 when Cheney got the EPA exemption that began the shale boom, the marker US gas price measured at Henry Hub in Louisiana, at the intersection of nine interstate pipelines, was some $14 per thousand cubic feet. By February 2011 it had plunged amid a gas glut to $3.88. Currently prices hover around $3.50 per tcf.
In a sobering report, Arthur Berman, a veteran petroleum geologist specialized in well assessment, using existing well extraction data for major shale gas regions in the US since the boom started, reached sobering conclusions. His findings point to a new Ponzi scheme which well might play out in a colossal gas bust over the next months or at best, the next two or three years. Shale gas is anything but the “energy revolution” that will give US consumers or the world gas for 100 years as President Obama was told.
Berman wrote already in 2011, “Facts indicate that most wells are not commercial at current gas prices and require prices at least in the range of $8.00 to $9.00/mcf to break even on full-cycle prices, and $5.00 to $6.00/mcf on point-forward prices. Our price forecasts ($4.00-4.55/mcf average through 2012) are below $8.00/mcf for the next 18 months. It is, therefore, possible that some producers will be unable to maintain present drilling levels from cash flow, joint ventures, asset sales and stock offerings.” 
Berman continued, “Decline rates indicate that a decrease in drilling by any of the major producers in the shale gas plays would reveal the insecurity of supply. This is especially true in the case of the Haynesville Shale play where initial rates are about three times higher than in the Barnett or Fayetteville. Already, rig rates are dropping in the Haynesville as operators shift emphasis to more liquid-prone objectives that have even lower gas rates. This might create doubt about the paradigm of cheap and abundant shale gas supply and have a cascading effect on confidence and capital availability.” 
What Berman and others have also concluded is that the gas industry key players and their Wall Street bankers backing the shale boom have grossly inflated the volumes of recoverable shale gas reserves and hence its expected supply duration. He notes, “Reserves and economics depend on estimated ultimate recoveries (EUR) based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic….Our analysis of shale gas well decline trends indicates that the Estimated Ultimate Recovery per well is approximately one-half the values commonly presented by operators.” In brief, the gas producers have built the illusion that their unconventional and increasingly costly shale gas will last for decades.
Basing his analysis on actual well data from major shale gas regions in the US, Berman concludes however, that the shale gas wells decline in production volumes at an exponential rate and are liable to run out far faster than being hyped to the market. Could this be the reason financially exposed US shale gas producers, loaded with billions of dollars in potential lease properties bought during the peak of prices, have recently been desperately trying to sell off their shale properties to naïve foreign or other investors?
Three decades of natural gas extraction from tight sandstone and coal-bed methane show that profits are marginal in low permeability reservoirs. Shale reservoirs have orders of magnitude lower reservoir permeability than tight sandstone and coal-bed methane. So why do smart analysts blindly accept that commercial results in shale plays should be different? The simple answer is found in high initial production rates. Unfortunately, these high initial rates are made up for by shorter lifespan wells and additional costs associated with well re-stimulation. Those who expect the long-term unit cost of shale gas to be less than that of other unconventional gas resources will be disappointed…the true structural cost of shale gas production is higher than present prices can support ($4.15/mcf average price for the year ending July 30, 2011), and that per-well reserves are about one-half of the volumes claimed by operators. 
Therein lies the explanation for why a sophisticated oil industry in the United States has desperately been producing full-throttle, in a high-stakes game laying the seeds of their own bankruptcy in the process—They are racing to offload the increasingly unprofitable shale assets before the bubble finally bursts. Wall Street financial backers are in on the Ponzi game with billions at stake, much as in the recent real estate securitization fraud.
One Hundred Years of Gas?
Where then did someone get the number to tell the US President that America had 100 years of gas supply? Here is where lies, damn lies and statistics play a crucial role. The US does not have 100 years of natural gas supply from shale or unconventional sources. That number came from a deliberate blurring by someone of the fundamental difference between what in oil and gas is termed resources and what is called reserves.
A gas or oil resource is the totality of the gas or oil originally existing on or within the earth’s crust in naturally occurring accumulations, including discovered and undiscovered, recoverable and unrecoverable. It is the total estimate, irrespective of whether the gas or oil is commercially recoverable. It’s also the least interesting number for extraction.
On the other hand “recoverable” oil or gas refers to the estimated volume commercially extractable with a specific technically feasible recovery project, a drilling plan, fracking program and the like. The industry breaks the resources into three categories: reserves, which are discovered and commercially recoverable; contingent resources, which are discovered and potentially recoverable but sub-commercial or non-economic in today’s cost-benefit regime; and prospective resources, which are undiscovered and only potentially recoverable.
The Potential Gas Committee (PGC), the standard for US gas resource assessments, uses three categories of technically recoverable gas resources, including shale gas: probable, possible and speculative.
According to careful examination of the numbers it is clear that the President, his advisers and others have taken the PGC’s latest total of all three categories, or 2,170 trillion cubic feet (Tcf) of gas—probable, possible and purely speculative—and divided by the 2010 annual consumption of 24 Tcf. To get a number between 90 and 100 years of gas. What is conveniently left unsaid is that most of that total resource is in accumulations too small to be produced at any price, inaccessible to drilling, or is too deep to recover economically.
Arthur Berman in another analysis points out that if we use more conservative and realistic assumptions such as the PGC does in its detailed assessment, more relevant is the Committee’s probable mean resources value of 550 (Tcf) of gas. In turn, if we estimate, also conservatively and realistically based on experience, that about half of this resource actually becomes a reserve (225 Tcf), then the US has approximately 11.5 years of potential future gas supply at present consumption rates.
If we include proved reserves of 273 Tcf, there is an additional 11.5 years of supply for a total of almost 23 years. It is worth noting that proved reserves include proved undeveloped reserves which may or may not be produced depending on economics, so even 23 years of supply is tenuous. If consumption increases, this supply will be exhausted in less than 23 years.
There are also widely differing estimates within the US Government over shale gas recoverable resources. The US Department of Energy EIA uses a very generous calculation for shale gas average recovery efficiency of 13% versus other conservative estimates of about half that or 7% in contrast to recovery efficiencies of 75-80% for conventional gas fields. The generously high recovery efficiency values used for EIA calculations allows the EIA to project an estimate of 482 tcf of recoverable gas for the US. In August 2011, the Interior Department’s US Geological Survey (USGS) released a far more sober estimate for the large shale plays in Pennsylvania and New York called Marcellus Shale. The USGS estimated there are about 84 trillion cubic feet of technically-recoverable natural gas under the Marcellus Shale. Previous estimates from the Energy Information Administration put the figures at 410 trillion cubic feet.
Shale gas plays show unusually high field decline rates with very steep trends, a combination giving low recovery efficiencies. 
Huge shale gas losses
Given the abnormally rapid well decline rates and low recovery efficiencies, it is little wonder that once the euphoria subsided, shale gas producers found themselves sitting on a financial time-bomb and began selling assets to unwary investors as fast as possible.
In a very recent analysis of the actual results of several years of shale gas extraction in the USA as well as the huge and high-cost Canadian Tar Sands oil, David Hughes notes, “Shale gas production has grown explosively to account for nearly 40 percent of US natural gas production. Nevertheless, production has been on a plateau since December 2011; 80 percent of shale gas production comes from five plays, several of which are in decline. The very high decline rates of shale gas wells require continuous inputs of capital—estimated at $42 billion per year to drill more than 7,000 wells—in order to maintain production. In comparison, the value of shale gas produced in 2012 was just $32.5 billion.”
He adds, “The best shale plays, like the Haynesville (which is already in decline) are relatively rare, and the number of wells and capital input required to maintain production will increase going forward as the best areas within these plays are depleted. High collateral environmental impacts have been followed by pushback from citizens, resulting in moratoriums in New York State and Maryland and protests in other states. Shale gas production growth has been offset by declines in conventional gas production, resulting in only modest gas production growth overall. Moreover, the basic economic viability of many shale gas plays is questionable in the current gas price environment.”
If these various estimates are anywhere near accurate, the USA has a resource in unconventional shale gas of anywhere between 11 years and 23 years duration and unconventional oil of perhaps a decade before entering steep decline. The recent rhetoric about US “energy independence” at the current technological state is utter nonsense.
The drilling boom which resulted in this recent glut of shale gas was in part motivated by “held-by-production” shale lease deals with landowners. In such deals the gas company is required to begin drilling in a lease running typically 3-5 years, or forfeit. In the US landowners such as farmers or ranchers typically hold subsurface mineral rights and can lease them out to oil companies. The gas (or oil) company then is under enormous pressure to book gas reserves on the new leases to support company stock prices on the stock market against which it has borrowed heavily to drill.
This “drill or lose it” pressure typically has led companies to seek the juiciest “sweet spots” for fast spectacular gas flows. These are then typically promoted as “typical” of the entire play.
However, as Hughes points out, “High productivity shale plays are not ubiquitous, and relatively small sweet spots within plays offer the most potential. Six of thirty shale plays provide 88 percent of production. Individual well decline rates are high, ranging from 79 to 95 percent after 36 months. Although some wells can be extremely productive, they are typically a small percentage of the total and are concentrated in sweet spots.” 
One estimate of projected shale gas decline suggests the peak will pass well before the end of the decade, perhaps in four years, followed with a rapid decline in volume
The extremely rapid overall gas field declines require from 30 to 50 percent of production to be replaced annually with more drilling, a classic “tiger chasing its tail around the tree” syndrome. This translates to $42 billion of annual capital investment just to maintain current production. By comparison, all USA shale gas produced in 2012 was worth about $32.5 billion at a gas price of $3.40/mcf (which is higher than actual well head prices for most of 2012). That means about a net $10 billion loss on their shale gambles last year for all US shale gas producers.
Even worse, Hughes points out that capital inputs to offset field decline will necessarily increase going forward as the sweet spots within plays are drilled off and drilling moves to lower quality areas. Average well quality (as measured by initial productivity) has fallen nearly 20 percent in the Haynesville, the most productive shale gas play in the US. And it is falling or flat in eight of the top ten plays. Overall well quality is declining for 36 percent of US shale gas production and is flat for 34 percent.
Not surprising in this context, the major shale gas players have been making massive write-downs of their assets to reflect the new reality. Companies began in 2012 reassessing their reserves and, in the face of a gas spot price that was cut in half between July 2011 and July 2012, are being forced to admit that the long-term outlook for natural-gas prices is not positive. The write-downs have a domino effect as bank lending is typically tied to a company’s reserves meaning many companies are being forced to renegotiate credit lines or make distress asset sales to raise cash.
Beginning August 2012, many large shale gas producers in the US were forced to announce major write-downs of the value of their shale gas assets. BP announced write-downs of $4.8 billion, including a $1 billion-plus reduction in the value of its American shale gas assets. England’s BG Group made a $1.3 billion write-down of its US shale gas interests, and Encana, a large Canadian shale gas operator made a $1.7 billion write-down on shale assets in the US and Canada, accompanied by a warning that more were likely if gas prices did not recover. 
The Australian mining giant BHP Billiton is one of the worst hit in the US shale gas bubble as it came in late and big-time. In May, 2012 it announced it was considering taking impairments on the value its US shale-gas assets which it had bought at the peak of the shale gas boom in 2011, when the company paid $4.75 billion to buy shale projects from Chesapeake Energy and acquiring Petrohawk Energy for $15.1 billion.
But by far the worst hit is the once-superstar of shale gas, Oklahoma-based Chesapeake Energy.
Part VI: Chesapeake Energy: The Next Enron?
The company by most accounts that typifies this shale gas boom-bust bubble is the much-hailed leading player in shale, Chesapeake Energy. In August 2012 there were widespread rumors that the company would declare bankruptcy. That would have been embarrassing for the company that was the nation’s second largest gas producer. It would also have signaled to the world the hype that was behind promotion of a “shale energy revolution” from the likes of Yergin and the Wall Street energy promoters looking to earn billions on M&A and other deals in the sector to replace their dismal real estate experiences.
In May 2012, Bill Powers of the Powers Energy Investor, wrote of Chesapeake (CHK by its stock symbl): “Over the past year, however, CHK’s business model has broken down. The company’s shares continue to break to 52-week lows and the company has a funding issue—financial speak for the company is running out of money. While it was able to farm-out a portion of its Utica Shale assets in Ohio to France’s Total last year—this is remarkable given the accounting errors that resulted in Total receiving significantly less revenue from their Barnett Shale joint-venture—CHK has largely run out of prospective acreage to farm-out.” Powers estimated a $3 billion cash shortfall in 2012 for the company. That comes atop already huge corporate debt of $11.1 billion of which $1.7 billion was a revolving line of credit. 
Powers adds, “When the off-balance sheet debt and preferred issues are added to the company’s existing $11.1 billion of on-balance sheet debt, CHK’s has a whopping $20.5 billion of financial obligations. Given such a high level of indebtedness, CHK debt is rated junk and will be for the foreseeable future. “ He concludes, “Having America’s second largest natural gas producer as well as its most reckless destroyer of shareholder capital almost completely walk away from the shale gas business is a great indication that today’s natural gas price bubble is on the verge of popping. CHK has not made any money by drilling shale wells—and neither have virtually any of its peers—and now the dumb money has run out.” 
Angry shareholders forced a major shakeup of the Chesapeake board last September after a Reuters report that CEO Aubrey McClendon had been taking out large loans not fully disclosed to the company’s board or investors. McClendon was forced to resign as Chairman of the company he founded after details leaked out that McClendon has borrowed as much as $1.1 billion in the last three years by pledging his stake in the company’s oil and natural gas wells as collateral. In March 2013 the US Government Securities and Exchange Commission (SEC) announced that it was investigating the company and Chief Executive Aubrey McClendon and had issued subpoenas for information and testimony, among other items looking into a controversial program that grants McClendon a share in every well that Chesapeake drills.
The company is in the midst of a major asset sale of an estimated $6.9 billion to lower debt, including oil and gasfields covering roughly 2.4 million acres. It must invest heavily in drilling new wells to deliver the increased production of more lucrative oil and natural gas liquids, if it is to avoid bankruptcy. As one critical analyst of Chesapeake put it, “the company’s complex accounting methods make it almost impossible for analysts and stockholders to determine what the risks really are. The fact that the CEO is taking out billion-dollar loans and not openly disclosing them only furthers the perception that everything is not as it appears at Chesapeake – that the company is Enron with drilling rigs.” 
The much-touted shale gas revolution in the USA is collapsing along with the stock shares of Chesapeake and other key players.
F. William Engdahl is author of Myths, Lies and Oil Wars. He can be contacted via his website atwww.williamengdahl.com
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 Jeff Goodell, Op. Cit.
Fracking–the process the oil and gas industry uses to extract fossil fuel as much as two miles below the ground–may directly impact the nation’s water supply, reduce water-based recreational and sports activity, and lead to an increase in the cost of food.
The cocktail soup required for each well requires about two million pounds of silica sand, as much as 100,000 gallons of toxic chemicals, and three to nine million gallons of fresh water. There are more than 500,000 active wells in the country.
In 2011, the last year for which data is available, Texas energy companies used about 26.5 billion gallons of water. Energy companies drilling Pennsylvania used the second greatest amount of water, followed by Colorado and Arkansas. Nuclear plants, which use more water, can recycle most of it. Because frack wastewater is toxic, oil and gas companies can’t recycle the contaminated water.
The water is provided by companies that draw up to three million gallons a day from rivers and lakes, by individuals who sell water from their ponds, and by municipalities. Steubenville, Ohio, is tapping one of its reservoirs to sell up to 700,000 gallons of water every day for five years to Chesapeake Energy, one of the largest players in the fracking industry.
Big EnergyHowever, fresh water is not unlimited.
Beginning about five years ago, the water in the nation’s aquifers has been decreasing significantly. The depletion since 2008, according to Leonard Konikow, a research hydrologist at the U.S. Geological Survey. is about three times the rate as between 1900 through 2008.
Significant reductions in water availability are now common for the 1,450 mile long Colorado River, which provides water to about 40 million people in California and the southwest, including the agriculture-rich Imperial Desert of southeastern California. Lake Mead, a part of the Colorado system, provides water to Las Vegas and the Nevada desert communities; its water level is close to the point where the Department of the Interior will declare a water shortage and impose strict water-use regulation.
The depletion of the rivers, lakes, and aquifers is because of population growth, higher usage, climate change, and a severe drought that has spread throughout the Midwest and southwest for the past three years.
The C oalition for Environmentally Responsible Economies (CERES), basing its analysis upon more than 25,000 wells, reports almost 47 percent of wells that use fracking were developed in areas with high or extremely high water stress levels; 92 percent of all gas wells in Colorado are in extremely high-stressed regions; In Texas, 51 percent are in high or extremely high stress water regions.
Water is so critical to fracking that oil and gas companies have been paying premium prices, as much as $1,000–$2,000 for about 326,000 gallons (an acre foot) and outbidding farmers in the drought-ravaged parts of the country for the water; the normal price is about $30–$100 for the same amount. Oil and gas drillers have also been trucking in water to the Midwest and southwest from as far away as Ohio and Pennsylvania. The companies are “going to pay what they need to pay,” said Dr. Reagan Waskom, director of the Colorado Water Institute at Colorado State University.
If farmers have to pay more for water, they will raise the prices of their product. If they can’t get enough water, because the energy companies are taking as much as they can get, they grow fewer crops and reduce the size of their livestock herds; this, also, will force food prices up. It’s a simple case of supply and demand.
But, there are other problems. Some farmers and owners of corporate farms who have large water resources often sell that water to the energy companies; they can get more money for the water and leave their fields barren than they can get for growing crops and selling them to wholesalers and distributors.
Another reality may be driving food prices higher.
Fossil fuel mining and agriculture have always co-existed. But, that is changing.
Beneath about 200,000 square miles of North Dakota, Montana, and Saskatchewan, lying between 4,500 and 7,500 feet below the surface of the earth, is the Bakken Shale. Oil in the shale was discovered in 1953; however, because the shale is only 13 to 140 feet thick, using conventional drilling methods were marginally profitable until five years ago with the development of horizontal fracking.
The Bakken Shale lies directly below one of the most fertile wheat fields in the United States. North Dakota farmers produce almost three-fourths of all amber durum harvested in the United States. High in protein and one of the strongest of all wheat, amber durum is a base for most of the world’s food production. It is used for all pastas, pizza crusts, couscous, and numerous kinds of breads. Red durum, a variety, is used to feed cattle. North Dakota farmers in late Summer harvest about 50 million bushels (about 1.4 million tons) of amber durum, almost three-fourths of all amber durum produced in the United States. About one-third of the production is exported, primarily to Europe, Africa, and the Middle East. Destruction of the wheat fields, from a combination of global warming and fracking, will cause production to decline, prices to rise, and famine to increase.
Energy company landmen, buying land and negotiating min eral rights leases, became as pesky as aphids in the wheat fields. However, the landmen didn’t have to do much sweet talking with the farmers, many of whom were hugging bankruptcy during the Great Recession. The farmers yielded parts of their land to the energy companies in exchange for immediate income and the promise of future royalties. By November 2012 there were 7,791 wells in North Dakota .
In 2006, oil production in the North Dakota fields was about 92 million gallons. Energy companies are expected to mine more than 15.2 billion gallons this year. Drilling for oil also yields natural gas; there are about two trillion barrels of natural gas in the shale.
In Pennsylvania, 17,000 acres have already been lost to the development of natural gas fracking. That land is not likely to be productive for several years because of “compaction and landscape reshaping,” according to a study by the Penn State Extension Office. U.S. Geological Survey scientists conclude there is a “low probability that the disturbed land will revert back to a natural state in the near future.”
The presence of natural gas drilling companies has also led to decreased milk and cheese production. Penn State researchers Riley Adams and Dr. Timothy Kelsey concluded: ” Changes in dairy cow numbers also seem to be associated with the level of Marcellus shale drilling activity.” Counties with 150 or more Marcellus shale wells on average experi enced an 18.7 percent decrease in dairy cows, compared to only a 1.2 percent average decrease in counties with no Marcellus wells.”
Beneath some of the nation’s richest agricultural land in drought-ravaged central California lies the Monterrey Shale, a 1,750 square mile formation that holds about two-thirds of the country’s estimated shale oil reserves, about 15.4 billion barrels (647 trillion gallons). The landmen have already arrived to buy leases and set up what is likely to be the biggest oil and gas boom in the country.
More than 200 different crops are grown in the central valley, including about 70 percent of the world’s supply of almonds, most of the grape production and 90 percent of all domestic wine sold in the United States. The Sun-Maid farm cooperative, headquartered in the Central Valley, is one of the world’s largest producers of raisins and dried fruits.
When the politicians unleashed Big Energy to frack the nation and extract gas, they parroted industry claims that extensive drilling would improve the economy, lower natural gas prices, and help make the United States energy independent from having to import foreign oil. What is happening is that the companies have purchased far too much land, are in heavy debt with the banks, and have a glut of natural gas that has forced the prices to the lowest level in almost 10 years.
The solution is that these patriotic corporations, to reduce the glut and force domestic residential prices back up as the mined gas becomes less available, are developing extensive plans to export natural gas to countries that will pay significantly higher prices than what is currently charged in the American market.
There is one problem. The United States can’t import water.
You Drank Your Water – Postcard Campaign by North West Network Against Fracking
The government has said that there will be no fracking until the next EPA study is completed, not until at least 2014. However, the last EPA report was produced by Aberdeen University, which has strong ties to the fossil fuel industry. How do we know that the new study will not be compromised?
The people are not reassured by the government’s promises. The Irish anti-fracking campaign will go on and is getting stronger every day.
Campaigners have produced a postcard that highlights the greatest problem with shale gas extraction – the irreversible pollution to our water. Can Ireland afford to contaminate its most precious resource, the source of our agriculture industry, and the source of all life?
Add your voice to your neighbours’! Call on our elected representatives and civil servants to respect the wishes of the Irish people and ban fracking.
You can download the photo here: http://frackingfreeireland.org/info-to-download/postcards/
Nick Flores is an economist who knows the oil-and-gas industry from the inside, having been in the merchant marines hauling platforms and rigs to sundry locations in the Gulf. Industry exposure didn’t end there; he was in grad school six months after the Exxon Valdez sullied the Arctic shore and studied first-hand the economics of accidents. He was not dismayed. In his words, “Shale gas is a revolution. It has transformed energy in America. What we’re seeing now is but the tip of the iceberg.” He didn’t say from which dwindling sheet it might have been calved.
Yet Flores is not utterly enchanted by the industry. There is what he terms a problem of externalities, meaning that the full cost of the venture is not appreciated when such “routine” risks as methane leaks and pollution of ground or surface water, and “high-priority” risks such as cement, drill-casing, and wastewater-impoundment failures, are not factored into the economic analysis. Such externalities are often expensive and not easily addressed, and should be internalized to reflect real costs.
Having lived in San Francisco, which receives water from the Hetch Hetchy water system, a system so pristine it is one of the few for which the Environmental Protection Agency requires no filtration, Flores comprehends the preciousness of pure water. He wonders what will happen if in our zeal to poke the earth we should inadvertently pollute a major aquifer such as the Ogallala, which underlies eight states and once contained water equal in quantity to Lake Huron. (It too is dwindling.) If such an integral resource should be fouled by whatever means, what then? Part of the damage hits the pocketbook. In heavily fracked Washington County, Pennsylvania, property values have declined almost 25 percent in places overlying aquifers through which drillers cement their casings. Is it “right” that property values have declined, or is it just perception? The answer is unimportant; all that matters is perception’s effect on the market.
Flores notes EPA’s limp-wristed governance of greenhouse gases. Methane, the major component of natural gas, is utterly ignored. (Oh, there are voluntary programs.) EPA may have downsized its prior estimate of how much methane leaks from fracking wells, but that puts it at odds with NOAA‘s recent study. Who is right? In any case, geologists and EPA agree that, compared to conventional drilling, hydraulic fracturing leaks more methane. Fracking fluid is injected and then pumped out (or a percentage is), but it returns laden with natural gas and other disinterred volatile chemicals that if released foul the air around drill sites. An estimated 90 percent of this “burping” can be captured in a “green-completion” process that caps the well and separates the petrochemicals for later sale. Even though this is of economic benefit of drillers, however, it is by no means always done; old fields may lack technology while new fields may have neither pipelines nor storage facilities built, and meanwhile methane seeps away. As you may know, methane in the atmosphere is a serious contender in atmospheric warming. Atmospheric methane gradually converts to carbon dioxide so it is over the short term that it does its damage. In its first 20 years, methane’s ability to capture heat in the atmosphere dwarfs that of carbon dioxide 70 times over.
Much like spent rods from nuclear plants and almost as dangerous, wastewater is a facet of fracking often overlooked and underfunded. Current options include dumping it into often-open holding pools, forcing it into injection wells, or recycling. Dumping it anywhere presents obvious problems including, with injection wells, persuasive evidence of earthquakes. Recycling would be great, but it’s not easy to clean water laced with not only heavy metals and radionuclides but dissolved salts, which require reverse osmosis or other exotic means to treat. (If desalinating salt water were easy, the world would have no freshwater problem, at least not yet.)
Options for dealing with wastewater are under creative review. Why not ship it away? (What do you mean there is no away?) Last March the Coast Guard “quietly” sent to the White House a proposal to put fracking wastewater on barges, said to be safer for transport than trucks and trains. The toxic brew will be shipped to someone else’s back yard for disposal. Yucca Mountain anyone? Frio County, Texas, which is not among the state’s top gas producers but that nevertheless has more disposal wells than the three top gas-producing counties combined, is evaluating a penny-a-barrel fee on disposed wastewater. The compensation is expected to bring the county over a million dollars a year, which would feed a fund to combat environmental damage.
We have such faith in compensation. While it comforts the aggrieved and pains the aggressor, that’s often as far as it goes. And the aggressor’s pain may be tiny indeed. Caps on damages provide a well-trod path for industry to escape real consequence for their sins. (Caps can zap citizens on the other cheek when they limit damages for civil suits.) In the end, let us not forget that no amount of compensation will restore what is irreplaceable.
Subterranean Aquifer Blues
Although groundwater property rights vary widely by state, they generally emphasize water quantity over contamination. Some landowners may use as much groundwater as they wish without regard for impacts anywhere else. This is called the Absolute Dominion Rule, and it is codified in 11 states, including Texas. “Use” in this case would include, I suppose, the right to pollute the groundwater. Colorado and other western states have adopted a doctrine of Prior Appropriation–the first landowner to “beneficially” use or divert water from underground is given priority over later users. Now many states have updated this doctrine with a permit system. Available permits are in hot pursuit; you can guess by whom.
When your well-water starts fizzing, fingering the culprit isn’t easy. Contaminants act differently underground, like senators behind doors. How do you prove who polluted the water, and when, and how? Equally important, what is to be done? EPA says that much progress on cleaning polluted aquifers has been made. Wells can shlep contaminated water to the surface for treatment. This intensive technology works if contaminants contain neither solvents nor oil and so long as the contamination has not spread. Since fracking fluid and wastewater are excluded and aquifers tend not to be contained, EPA’s assertion seems delusional.
Small producers lose their shirts in these times of low gas prices, so one might wonder why they keep drilling. Two reasons. Leases may mandate that lessees use their drilling rights or lose them. And prices may be low now, but just wait. Prices for natural gas in other areas–Japan, Europe–are much higher. It costs to convert gas to liquefied natural gas for long-distance transport, but producers have their eyes on the prize and preparations are being made. US prices will then rise; it won’t go the other way around.
It wasn’t so long ago that energy prices were rising in the face of looming energy scarcity. Very quickly shale-gas production has reversed that. In the first decade of this century, US gas production went from almost none to more than 10 billion cubic feet per day. In 2012, shale gas was 50 percent of the gas market; by 2035, Flores says, the percentage should swell to three-quarters. If oil imports diminish and “petro dollars” remain in the US, the dollar should be fortified and economic growth fueled by this bonanza. That is, to the extent that the bonanza remains both at low prices and here. And to the extent that climate change does not rudely intervene.
Natural gas may burn cleanly but it remains a fossil fuel. Our dependence on fossil fuels is irrevocably changing our world while we tend to our piquant concerns. Even if less is escaping at wellheads, incalculable amounts of methane now erupt from thawing Arctic tundra and waters. Will depleting a new fossil fuel will be our salvation?
As European Union (EU) member states consider the implications of environmentally risky shale gas development (fracking), negotiations are underway for a controversial EU–Canada Comprehensive Economic and Trade Agreement (CETA) that would grant investors the right to challenge governments’ decisions to ban and regulate fracking.
This briefing by Corporate Europe Observatory, the Council of Canadians and the Transnational Institute highlights the public debate around fracking, the interests of Canadian oil and gas companies in shale gas reserves in Europe, and the impacts an investment protection clause in the proposed CETA could have on governments’ ability to regulate or ban fracking. It examines the case study of the company Lone Pine Resources Inc. versus Canada, which, using a similar clause, is challenging a fracking moratorium and suing the Canadian government for compensation, and warns this could be the state of things to come in Europe. It recommends that the investor–state dispute settlement mechanism should not be included in CETA.
Fracking in the EU: regulators play catch-up
Fracking – short for hydraulic fracturing – is a newly popular technology to extract hard-to-access natural gas or oil trapped in shale and coal bedrock formations. The rock must be fractured and chemicals, sand and water propelled in to allow the gas or oil to migrate to the well. Each stage of the extraction process has considerable environmental risks, especially in terms of water contamination.1
Environmental and public health problems related to fracking have created popular distrust and resistance, to the extent that the majority of countries concerned with shale gas endowments in Europe (see map on page 3 in PDF version of this briefing) are taking positions against fracking. France and Bulgaria have already banned it, while Romania, Ireland, the Czech Republic, Denmark and North-Rhine Westphalia in Germany have proclaimed moratoria. As in the Netherlands, the UK and Switzerland, projects in the listed countries with moratoria have been suspended until further environmental risk assessments are done. In Norway and Sweden fracking has been declared economically unviable. Projects in Austria and Sweden have been cancelled for the same reason, though without legislative measures.
But powerful gas corporations are constantly pushing back against regulation.2 Despite citizens mobilisation, unconventional gas projects are underway in much of Spain and Poland. Even when a moratorium or a ban exists as in France, the industry exploits legal loopholes to push through its operations.
These struggles for the democratic right to decide environmental regulation are all the more important as to date there is no political consensus at the EU level regarding fracking. The issue is under debate, however: in September 2012 the European Parliament brought an amendment calling for a European moratorium on fracking that was supported by a third of Members of European Parliament (MEPs). The EU currently lacks clear regulation on fracking and it rests mainly on member states’ shoulders to legislate on the issue.
CETA threatens fracking bans
The EU and Canada are currently negotiating a free trade agreement that could threaten the ability of countries to implement fracking bans and regulations. There are many oil and gas companies with headquarters or offices in Canada who have already begun exploring shale gas reserves in Europe, particularly in Poland (see box 1). Though many of these firms are not strictly Canadian, a subsidiary based in Canada would allow them to challenge fracking bans and regulations through CETA. Moreover, there is ample evidence that firms will shift their nationalities in order to profit from such a treaty.
Box 1: North American Energy Giants Lead Fracking in Europe
Total, a French corporation with a subsidiary in Canada, has invested in Denmark, Poland and France. In 2010, the Danish government issued two exploration permits to Total and despite a moratorium the company began exploratory drilling in that country. Total has one Polish concession. The company also invested in France prior to the moratorium and filed a legal appeal against its license being withdrawn.
Chevron, a US-based company with subsidiaries in Canada, owns and operates four shale concessions in southeast Poland and since 2012 has been drilling exploratory wells. Before the Romanian moratorium, Chevron had the gigantic Barlad Shale concession. Chevron also had a 50% stake in an exploration and production company in Lithuania.
In early 2013, Shell signed the biggest shale gas contract in Europe – a $10 billion deal in the Ukraine where it will drill 15 test wells.
In 2011, ExxonMobil signed an agreement with Ukraine’s state energy company, Naftogaz. The company is pursuing shale gas potential in Germany, and in response to a moratorium in North-Rhine Westphalia, Exxon has developed a website to address public concern.
In partnership with Lane Energy, Texas-based Conoco Philips is assessing the reserves of 1.1 million acres in northern Poland.
Other North American companies interested in Europe’s shale gas reserves are Halliburton, Enegi, Talisman and Encana.
The proposed CETA includes several chapters that would limit environmental, health or consumer protection regulations. These include chapters on so-called Technical Barriers to Trade and Regulatory Cooperation that will give the Canadian government more influence in how and when European governments act to protect the public good. Canada is already disputing the European seal product ban at the World Trade Organisation (WTO), claiming it is an illegal technical barrier to trade. Canada has also threatened to challenge the proposed European Fuel Quality Directive at the WTO if it labels fuel from tar sands as more polluting than conventional oil. One of the world’s largest deposits of the controversial tar sands is located in the Canadian province of Alberta.
CETA will also include a process through which a Canadian investor can settle disputes with the EU or a member state outside of the regular court system. This process, called investor–state dispute settlement, is increasingly controversial globally as mining and energy firms use it to challenge environmental, public health or other government measures that, in their terms, indirectly lower their profit expectations – or, in other words, run counter to their financial interests.
This investment protection provision will enable energy and extractive companies with an office in Canada to challenge fracking bans, moratoria and environmental standards for fracking sites across the EU – and potentially pave the way for millions of Euros in compensation to be paid to these companies by European taxpayers. Precedents already exist for these types of challenges under a similar provision in the North American Free Trade Agreement (NAFTA), where a US energy firm, Lone Pine Resources Inc., is challenging a moratorium on fracking in the Canadian province of Quebec.
Investor rights trump democracy: the alarming case of Lone Pine vs Canada
North American governments are under enormous pressure from natural gas and energy firms to embrace fracking. While production is more advanced in the US, several energy firms are staking out claims to Canada’s large shale gas basins across the country. The Utica basin in the province of Quebec, sitting underneath the St. Lawrence River and Valley, is estimated to contain around 181 trillion cubic feet of natural gas.
But public resistance to fracking in Quebec, as well as growing documentation about water pollution, forced Quebec’s government of the day to be cautious. Public consultations on fracking resulted in the creation of a strategic environmental assessment committee. In 2011, based on the recommendations of a study by Bureau d’audiences publiques sur l’environnement, the Quebec government placed a moratorium on all new drilling permits until a strategic environmental evaluation was completed. Finally, a new provincial government was elected in 2012, promising to extend the moratorium to all exploration and development of shale gas in the entire province. At this point, Lone Pine Resources Inc. decided to use the investor rights chapter in the NAFTA to challenge the Quebec moratorium and demand US$250 million (€191 million) in compensation.
Lone Pine claims the Quebec moratorium is an “arbitrary, capricious, and illegal revocation of [its] valuable right to mine for oil and gas.” The firm says the government acted “with no cognizable public purpose,”3 even though there is broad public support for a precautionary moratorium while the environmental impacts of fracking are studied. Milos Barutciski, a lawyer with Bennett Jones LLP, who is representing Lone Pine in the arbitration, described the moratorium as a “capricious administrative action that was done for purely political reasons – exactly what the NAFTA rights are supposed to be protecting investors against.”4 It may seem unbelievable but this lawyer may be correct that Lone Pine’s right under NAFTA to make a profit is more important than the right of communities to say no to destructive and environmentally dangerous resource projects.
Essentially, this means companies in shale gas exploitation have their considerable investment risks reduced to near zero. If affected communities speak out against fracking, or the government changes its mind, it is the taxpayer who picks up the tab, not the firm – sometimes even if the government wins the investment dispute or settles beforehand. In investment arbitration, legal costs aren’t always awarded to the winning party.
The Lone Pine case is extremely significant for the EU and member states. It shows that governments are highly susceptible to investor–state disputes related to fracking and other controversial energy and mining projects, and that those firms eager to establish or expand shale gas exploration and extraction in Europe will be able to undermine precautionary measures in the public interest – as long as they have a subsidiary or an office in Canada. An investor–state dispute settlement in the proposed CETA would create needless risk to European communities weighing the pros and cons of fracking.
The right to pollute, the right to profit
EU member states already have experience with investor–state disputes undermining green energy and environmental protection policies. More than 1200 existing international investment treaties signed by EU member states allow companies to challenge public policy at private international tribunals. Germany has been sued by energy company Vattenfall for environmental restrictions on a coal-fired power plant, claiming more than €1.4 billion (US$1.8 billion) in compensation. The case was settled out of court after Germany agreed to water down the environmental standards, thus exacerbating the impact that Vattenfall’s power plant will have on the environment.5
Despite this negative experience, the EU is negotiating free trade and investment agreements that will allow foreign investors to bring similar legal claims against member states, including over measures to protect the environment and public health. If ratified, CETA will be the first EU-wide agreement to grant foreign investors such far-reaching rights enshrined in international law for Europe and Canada, which, even if eventually cancelled by either party, will remain in force for 20 years.6
Based on Canada’s negative experience under NAFTA’s investor–state dispute process – it is the 6th most sued country in the world and currently faces over US$5-billion (€3.8 billion) worth of NAFTA investment claims – the Canadian government is trying to limit when a company can invoke investment arbitration in CETA. However, EU negotiators are pushing back and seeking much more investor-friendly definitions for key terms in the treaty such as what would count as “direct” or “indirect expropriation,” or what would contravene an investor’s “fair and equitable” treatment (see box 2).
In the general context of controversy over fracking at both EU and member state levels, investor–state dispute settlement is a real threat to governments’ sovereignty. In cases where member countries already have a ban or a moratorium, such a process would allow these to be challenged. For countries moving towards permitting projects related to shale gas, or without a strong protective legal framework, the mere threat of an investor–state dispute could freeze government action. Evidence under NAFTA suggests that the threat of a dispute has a chilling effect when policy-makers realise they have got to pay to regulate.
The present EU regulatory framework concerning fracking is at an early and fragile stage, which could be severely undermined by investment rules within the CETA agreement. They are in potential conflict with democratic efforts to regulate and roll back fracking activities at both EU and member state levels.
Box 2: The Devil in the (Free Trade Treaty) Details
“Indirect expropriation”: Allows investors to claim compensation as a result of a regulation, law, policy, measure or other government decision that has the effect of reducing or eliminating profit-making opportunities for the firm. Since almost any government measure can fit that definition when seen from a certain (investment-biased) point of view, legitimate public policies have faced investor–state lawsuits globally.
Canada is proposing to include exceptions so investors cannot sue against regulations to protect public welfare, such as health, safety and the environment. Thus, Canada hopes to create more freedom to regulate without the fear of being sued.
According to the leaked CETA investment text, the EU, on the other hand, would apply both “necessity” and “effectiveness” tests to such public welfare measures, in other words placing a very big burden of proof on governments to justify any measures such as fracking moratoriums or strict regulations on energy projects.
“Fair and equitable treatment”: A vaguely defined minimum standard of treatment for foreign investors found in almost all bilateral and multilateral investment treaties. Because this clause is so vague and arbitrators tend to interpret it in an investor-friendly way, it is the clause most relied on by investors when suing states. It is cited in all of the current NAFTA claims against Canada.7
For example, a Canadian oil or gas company could argue that it was under the impression, given favourable signals from the EU or member state governments, that a fracking project was going to go ahead. This is exactly what happened in the Quebec case where the project was only halted by strong community resistance. Under CETA, a Canadian firm would be able to challenge this kind of moratorium or ban.
Because of how broadly investment tribunals tend to interpret minimum standards of treatment, Canada is trying to narrow the definition of the so-called fair and equitable treatment standard in CETA. But again, the EU favours a more expansive, pro-investor definition in line with the type of investment treaties favoured by Germany and the Netherlands.8
No excessive corporate rights in CETA
The negative environmental impacts of fracking have been well documented and serious concern over the practice is widespread. Many governments are currently considering moratoria or exploration bans, especially in light of public health and environmental protection. These democratic proceedings and communities’ rights to self-determination ought to be respected, if not protected, and policy-makers should ensure that no treaties or laws can interfere with that process. In the case of fracking, moratoria are fully in line with the long-standing EU respect for the precautionary principle.
Clearly CETA, and in particular its planned investment chapters, will give corporations unreasonable and undemocratic rights to challenge fracking bans and to frustrate public interest regulation. CETA may also give EU-based energy companies with an interest in fracking the ability to skirt European laws by pretending to be Canadian to access the investor–state dispute settlement process.
In June 2011 a European Parliament resolution on the EU–Canada negotiations stated that, “given the highly developed legal systems of Canada and the EU, a state-to-state dispute settlement mechanism and the use of local judicial remedies are the most appropriate tools to address investment disputes.”9 In July that year, the Commission’s own Sustainability Impact Assessment of CETA came to the same conclusion, recommending a state-to-state dispute process only.10
The case of Lone Pine Resources Inc. suing Canada over a fracking ban shows that government policies on environmental issues can be undermined by granting investors the right to sue at international tribunals. Like their US competitors, Canadian energy firms and the Canadian government are eager to establish a strong presence in emerging European markets for shale gas. They, as well as US and European energy firms with substantial operations in Canada, could access CETA’s investor rules to file compensation claims similar to Lone Pine’s NAFTA case.
The mere possibility of a lawsuit based on investor–state arbitration can be enough to deter strong public health and environmental protection. Where fracking is concerned, it is unacceptable that the public should bear all the risks of extraction and the resulting environmental damage, as well then running the risk of having to pay compensation to energy firms for the right of communities to say no to fracking.
This situation brings new urgency to the need to exclude the investor–state dispute settlement provisions from CETA, and to rely on Canadian and European courts to settle disputes between foreign investors and host states.
- 1.For more general information about fracking see Transnational Institute (2013): Old Story, New Threat. Fracking and the global land grab, February.
- 2.See, for example: Corporate Europe Observatory (2012): Foot on the gas. Lobbyists push for unregulated shale gas, November.
- 3.See Lone Pine’s Notice of Intent to Submit a Claim to Arbitration Under Chapter Eleven of the North American Free Trade Agreement, 8 November 2012.
- 4.Quoted in: Gray, Jeff (2012): Quebec’s St. Lawrence fracking ban challenged under NAFTA, in: The Globe and Mail, 22 November.
- 5.In a similar case, Germany is currently being sued by Vattenfall because, after the Fukushima nuclear disaster in 2011, the German government decided to phase out nuclear energy. Vattenfall is seeking €3.7 billion (US$ 4.8 billion) for lost profits.
- 6.According to a leaked version of the consolidated investment chapter in the CETA from 7 February 2013.
- 7.Public Citizen (2012): Memorandum. “Fair and Equitable Treatment” and Investors’ Reasonable Expectations: Rulings in U.S. FTAs & BITs Demonstrate FET Definition Must be Narrowed, September 5.
- 8.Note that even Canada’s more cautious approach has proven futile in practice, where arbitration panels have ignored the common international law definition and used decisions of past tribunals instead, which will inevitably create pressure for increasingly pro-investor decisions. See, Porterfield, Matthew C. (2013): A Distinction Without a Difference? The Interpretation of Fair and Equitable Treatment Under Customary International Law by Investment Tribunals, in: Investment Treaty News, March 22.
- 9.European Parliament resolution of 8 June 2011 on EU-Canada trade relations.
- 10.A Trade SIA Relating to the Negotiation of a Comprehensive Economic and Trade Agreement (CETA) Between the EU and Canada, Trade 10/ B3/B06, June 2011, p. 19.
This article is a good indication of where our Government stands on Fracking
The Minister for Energy and Natural Resources Pat Rabbitte called the advent of unconventional gas a “game changer” which must be considered here when he spoke on fracking at an information session at the Royal Academy in Dublin last week. His comments have been welcomed by Tamboran Resources but refuted by local anti fracking group Good Energies Alliance Ireland.
The Minister said “I believe that there is considerable genuine concern about the potential environmental and health considerations related to this activity and that the nature of the debate so far has tended to exacerbate these concerns,” he explained that “decisions taken must be based on transparent assessments of solid evidence. We need to study more of the science and less of the propaganda – on both sides of the argument.”
“The advent of unconventional oil and gas has been a ‘game-changer’ on the US energy market with global repercussions. As the EU is likely to remain a “higher” energy cost region in the future, it is unavoidable that we consider the impacts that unconventional oil and gas production will have on security of supply, energy prices and competitiveness,” he stated.
He said in Ireland we import all our oil and more than 90% of our gas and are vulnerable to interruptions in supplies, “The shale revolution is indeed a game-changer the effects of which must be considered on this side of the Atlantic.”
Speaking about the EPA study he said it will be 2014 before we have the geological and ground water data, impacts and mitigating measures and regulatory issues to inform the policy options here.
He noted that “our shared goal is to maximise the benefits to Ireland from our indigenous oil and gas resources. But we need to ensure that both exploration and production – conventional or unconventional, on land or at sea – are conducted safely and on an environmentally sound basis.”
This week, as President of the EU Council, Pat Rabbitte will host an informal meeting of the EU’s Energy Ministers in Dublin. The meeting will include an initial discussion on unconventional gas and oil.
Tamboran Resources, the company seeking to develop shale gas in North Leitrim welcomed the above comments. A spokesperson for Tamboran told the paper, “Energy costs are hurting households and businesses. Shale gas is one of the few game changers that can truly address these rising costs. The Minister’s reference to the impact of shale gas in the US, where it has resulted in a major boost in competitiveness and energy self-sufficiency, are noteworthy, particularly how shale gas is giving an advantage to America over Europe. The debate in Ireland about shale gas will continue, but we are now starting to see serious consideration of the issues based on science and economics.” The company said they are looking forward to the completion of the EPA study.
Ballinaglera’s Aedin McLoughlin of Good Energies Alliance Ireland said, “The EPA study, as described appears to be an exercise designed to pave the way for fracking.” She said the Minister’s speech “confirms that, despite 1,300 submissions being made to the EPA, the majority of which demanded a study of the health impacts of fracking, Minister Rabbitte confirmed that the study is confined to identifying “best practice in respect of environmental protection for the use of hydraulic fracturing techniques”.
She said it is “extremely disturbing that no health study is mentioned despite the clear wishes of the people.” Disputing that the shale revolution is a “game-changer,” GEAI said “Shale gas does not change the game of burning fossil fuels; it is not clean energy, despite the propaganda of the oil/gas industry; it is not a sustainable source of energy, disappearing once the gas is extracted; the gas produced would belong to the industry, not to the people, and would be sold on the international market at market price. Fracking will not bring cheap gas to Ireland, nor will it make us energy-secure.”
No Fracking Ireland called on the EU Ministers meeting in Dublin Castle this week to join with campaigners to work towards imposing an EU wide ban on hydraulic fracturing. In a statement the anti fracking group called on them to make it clear “that the citizens of the EU will not accept a technocratic imposition of extreme energy policies on the continent.”
A recent survey conducted by Eurobarometer at the request of the European Commission has shown that less than one in ten EU citizens think that unconventional fossil fuel extraction should be prioritised by the EU. Seven out of ten citizens, think that the EU should be prioritising the development of renewable fuels.
The group stated “Thousands in Ireland have already signed petitions calling for a ban on the process and campaigns are growing all over Europe against the development of such an industry. Moves to impose such an industry on the citizens of Europe in an anti-democratic manner by the EU Commission and by national governments will only serve to fuel the rapid development of the anti-fracking movement.”
Scientists: There is no such thing as “safe fracking”
by Amy Mall
National Resources Defense Council
There are a few new reports from Europe on fracking that provide a lot of valuable information:
A joint report from Germany’s Federal Environment Agency and Federal Ministry for the Environment, Nature Conservation and Nuclear Safety was released in September. Among the conclusions about the environmental impacts of fracking:
Fracking technology can lead to groundwater contamination.
There are current gaps in knowledge about environmental risks.
Germany should use a step-by-step approach on the use of fracking.
There should be tight restrictions and a ban in areas that provide drinking water and spa regions.
Experts advise against large-scale fracking.
An environmental impact assessment should be conducted for every fracking project.
Also in Germany, Exxon-Mobil funded a panel of independent experts to conduct a Hydrofracking Risk Assessment (the lengthy executive summary is available in English). Yes, you heard me correctly: while Exxon-Mobil financed the study, the company had no say in the content of the report or the selection of scientists and none of the scientists involved in the study had ever worked for the oil and gas industry prior to this project. Can anyone imagine ExxonMobil funding a similar project in the U.S.? The panel of experts was monitored by about 50 stakeholder groups. Among the conclusions about the environmental impacts of fracking:
Hydrofracking entails serious risks as well as minor risks.
Hydrofracking-induced incidents can do substantial harm to water resources.
The greenhouse-gas footprint of shale gas is between 30 to 183 percent greater than that of conventional natural gas.
Some of the chemicals currently used in fracking should be replaced due to environmental risks.
Fracking should be banned in certain areas such as areas with severe tectonic risk, areas with pressurized artesian/confined deep aquifers and continuous pathways, and Germany’s Zone I and Zone II drinking water protection areas and thermal spring conservation areas (which may be the same as the spa regions mentioned above). [In Germany, Zone I is 10 meters from a water well and Zone II is the distance from which it would take contaminated groundwater 50 days to reach a water well.]
Before fracking is allowed in broad areas, a new legal framework is needed as well as additional scientific knowledge.
For now, the only fracking that should be allowed is exploratory wells and single model demonstration projects—under extensive safety conditions—designed to define and optimize the state of the art, gain a greater understanding of the impacts of fracking, and test practices. Such efforts should only occur along with extensive in-depth dialogue with stakeholders and new statutory and planning structures.
The European Commission’s Environment Directorate-General also issued a comprehensive report (almost 300 pages) in September. It is a very thorough description of the fracking process, many of the best practices available to reduce risks, and European rules. Among its findings and recommendations regarding environmental impacts:
There is a high risk of surface and groundwater contamination at various stages of the well-pad construction, hydraulic fracturing and gas production processes, and well abandonment, and cumulative developments could further increase this risk.
Air emissions from numerous well developments in a local area or wider region could have a potentially significant effect on air quality including ozone levels.
There is a significant risk of impacts due to the amount of land used in shale gas extraction and it may not be possible fully to restore sites in sensitive areas following well completion or abandonment.
There are gaps or inadequacies in EU legislation that could lead to risks to the environment or human health not being sufficiently addressed.
Robust regulatory regimes are required to mitigate risks.
Australia’s movement against Coal Seam Gas (fracking) continues to set an inspiring example for environmentalists around the world. This article is from the front page of the Illawarra Mercury, October 21, 2012. The Stop CSG video was posted on the newspaper’s website.(See below)
3000 CSG PROTESTERS SPELL IT OUT
by Glen Humphries
They sat down on the grass at Bulli Showground yesterday to form a human sign that read ‘‘Protect H2O, stop CSG!’’
Stop CSG Illawarra organiser Jess Moore said the protest was sparked by Premier O’Farrell’s backflip on a pre-election promise that, if he were elected, he would ensure that mining would not occur in any catchment area.
‘‘No ifs. No buts. A guarantee,’’ he said at the time.
Since then, Ms Moore said, the government has allowed companies like Apex Energy and Magnum Energy (previously known as Ormil Energy) to drill exploratory boreholes close to the water catchment area, around Darkes Forest and Maddens Plains.
“These are areas so protected that if I walked into them I could be fined up to $44,000, and we have 11 exploration coal seam gas wells approved in that area.
“And we know that the company has a plan for 150 to 200 wells across our drinking water catchment.”
Ms Moore said the group wanted a “commonsense, science-first approach” to coal seam gas.
“It’s absurd in 2012 that we have to take this kind of action to get our government to protect our drinking water,” she said.
It’s the second human sign organised to protest against CSG exploration.
The first was on Austinmer Beach last year.
Included among the protesters was the Duffus family from Tarrawanna, who formed part of the exclamation mark in the human sign.
Father Chris Duffus said they has come because their children, Ella, 9, and Wil, 7, were interested.
Tamboran Resources and Enegi Oil apply for Fracking Exploration Licences
Two companies have applied for exploration licences which could lead to the controversial process of fracking.
The initial onshore licences which only allowed for initial studies were granted two years ago and will expire tomorrow. Both companies had to apply for an exploration licence to continue their operations.
Exploration licences involve commitments to drill an exploration well, or wells.
A separate drilling permit is required before drilling is allowed.
In advance of any drilling, an Environmental Impact Assessment (EIA) would have to be conducted and that EIA would include a public consultation phase.
In addition, the Environmental Protection Agency (EPA) is carrying out its own study into fracking and it may be years before commercial drilling is allowed to take place, if at all.
Nevertheless, both companies have expressed satisfaction at the findings of their initial studies of both areas.
Tamboran estimates that 4.4 trillion cubic feet of gas could be under the ground in an area centred on south Fermanagh and north Leitrim, although independent estimates suggest the figure is closer to 3.2 trillion cubic feet of gas.
Enegi Oil says its initial findings suggest there may be between 1.49 trillion cubic feet and 3.86 trillion cubic feet of natural gas.
As the founder of a microbrewery, Gov. John Hickenlooper (D-CO) is among our nation’s top experts on quirky libations. Which is why it wasn’t surprising to find him telling a U.S. Senate committee that he drank a glass of fracking fluid produced by Halliburton:
“You can drink it. We did drink it around the table, almost ritual-like in a funny way,” he told the Senate Committee on Energy and Natural Resources. “It was a demonstration…they’ve invested millions of dollars in what is a benign fluid in every sense.”
Move over bacon-infused bourbon! Some elements of the fluid remain secret, but with the help of Halliburton’s public disclosures, you can recreate The Hickenlooper for whomever you’re fracking this Valentine’s Day:
* Add 9 parts water to a shaker.
* Add Tributyl tetradecyl phosphonium chloride at a concentration of 0.3 gal/1000 gal. According to Halliburton, this substance “May cause eye and skin burns. May cause respiratory irritation. May be harmful if swallowed. May be harmful if inhaled.” That may be why there’s currently a fracking moratorium in New York State, but that’s what makes this a prohibition cocktail.
* Add 1 part sand. Halliburton recommends “premium white” sand, but you can go mid-shelf if you’re on a budget.
* Shake well and serve!
On the 20th of April 2010, the Deepwater Horizon oil rig blew out in the Gulf of Mexico, killing eleven men instantly, then destroying 600 miles of coastline. On 9 September 2010, a natural gas pipeline exploded in San Bruno, California, burning eight to death, one of several recent pipeline explosions in the USA. In 1992, in Chicago, a gas pipe leaked and 18 houses exploded, incinerating three people.
What do these deaths have to do with plans for “fracking” for natural gas in Ireland?
Everything. It was my job to investigate these three explosions, the Deepwater Horizon and California explosions as a reporter for the UK Channel 4’s Dispatches, the earliest as a US government investigator. In all three cases, the deaths were preceded by the same reassurances about the safety of drilling and piping that I read now in the debate about fracking in Ireland.
First, the Deepwater Horizon. Eleven men died when the ‘mud’ – drilling cement meant to cap the wellhead – failed and methane gas blew out the top of the pipes and exploded. The Shannon Basin is not the Gulf of Mexico, but your safety will be just as dependent on Halliburton’s mud.
Can we trust Halliburton’s reassurances? The owners of the Deepwater Horizon have told a US court that they’ve discovered that Halliburton hid critical information that the well cement could fail. Halliburton denies the cover-up. But cover-up or not, the cement failed as it has several times recently in the US in wells drilled for fracking. In all cases, including the contamination of water supplies in Pennsylvania (where some residents could set their tap water alight with a match), drilling was preceded by mollifying studies indicating that all was safe. But they failed to see all the looming dangers.
In Ireland, you haven’t even done the studies. The University of Aberdeen study for the Irish Environmental Protection Agency has been played as some kind of endorsement for charging ahead with fracking in Ireland – but this is not the case if you actually read the study. The University study is, in fact, a long series of warnings that proposed drilling methods, the local geology and the potential impacts on water quality all require studies not even begun. It also points to the necessity of creating a regulatory system not now in place which can cope with watching thousands of explosive, toxic well-sites.
The Shannon river basin is a truly eyebrow-raising place to blindly drill thousands of wells. It’s located in proximity to one of Irelands few major aquifers (your drinking water supply) and the drilling will be relatively shallow. Where I live in the State of New York, the government, though a major booster of fracking, has banned the fracking of shallow shale deposits and banned the process from all locations near our aquifers. The US experience is not comforting.
Horizontal fracking (as proposed for Irish deposits) requires explosive charges to be fired along miles of pipe underground (and under houses and water supplies) followed by the pumping of fluids at high pressure through these pipes. The result has been man-made earthquakes. Buildings don’t fall down, but cracks bring hydrocarbon poisons into the aquifers. In the vast uninhabited wastes of the American Dakotas, we simply abandon water systems. Where in Ireland can you do that?
And then there are the pipelines. The fracked gas doesn’t get to market by carrier pigeon. Ireland has had virtually no discussion of the difficulties, danger and cost of running hundreds, and ultimately, thousands of miles of gathering pipes. I’ve been investigating the horror of pipeline explosions for three decades now and the problem is exponentially worsened by the new web of lines created by fracking. Highly explosive transport systems require an elaborate system of on-site government regulation which Ireland does not have and cannot now afford. And it’s simply too easy for the PIGs to cheat.
A PIG is a Pipeline Inspection Gauge, a robot that looks like a mechanical porker with wire whiskers that crawls through pipes hunting for corrosion, cracks, leaks and trouble. When the PIG ’squeals’, the pipes must be dug up and replaced. And that’s frightfully expensive.
It especially frightens the executives who have to pay for pipe replacement. So, what I’ve found and reported is that the providers of software and its users are aware that the PIGs’ diagnostic computer code, which converts the squeals of the PIG into warnings, has flaws which understate dangers. And the results have been horribly predictable: Despite the reassuring noises from the PIGs, pipes have leaked, polluted, exploded and killed.
Is there a safe way to frack? Probably: but not profitably; and certainly not within the geology of a little emerald isle. I am weary of appearing at scenes of death and destruction when cement fails, pipes crack and tremors spew poisons only to hear a gas or oil company executive’s PR flack issue an apology. I doubt those apologies will sound better in Gaelic.
Re-prints permitted with credit to the author.
Greg Palast is the author of Vultures’ Picnic (Penguin 2011), which centers on his investigation of BP, bribery and corruption in the oil industry. Palast, whose reports are seen on BBC-TV and Britain’s Channel 4.
A year and a half ago Cuadrilla Resources, a company created by private equity to exploit the decline in easy to extract fossil fuels, began fracking the first ever shale gas well in Britain. Unfortunately for them, during these first fracks, a rather inconvenient event happened. Two of the frack stages cause a number of small, but not inconsequential, earthquakes. For those worried about the safety of these new extreme energy extraction techniques, the fact that these earthquakes buckled the well casing with unknown consequences for the integrity of the well were worrying. For the company and the government though, the main issue was the PR nightmare that ensued. A gentlemen’s agreement was quickly reached that Cuadrilla would refrain from fracking until this PR problem could be fixed. Numerous reports, endorsements from tame institutions, and oodles of spin later this PR problem has allegedly been solved.
This week saw the long expected announcement that the government will allow Cudrilla and other fracking companies to continue with attempts to exploitation of unconventional gas. The solution has been to integrate fracking into government energy policy, explicitly a new “Dash for Gas” which will involve the building of over 40 new gas-fired power stations. With North Sea gas in terminal decline, imports stalled due to completion with Asia and consumption being squeezed by rising prices, an energy plan involving burning loads more gas might seem to somewhat disconnected from reality. However there is method in their madness. The option of sensible energy conservation and localisation would not be profitable for transnational corporations. On the other hand the predictable energy shortages and price spikes can could be extremely lucrative.
The impact of a mad scramble to exploit unconventional gas would not be equally felt either. The fundamental difference with unconventional gas is that it is trapped in impermeable rock and cannot flow cannot easily flow so wells need to be drilled at regular intervals to access it. In order to supply just the proposed 40 new power stations it would be necessary to drill in excess of 50,000 wells, covering an area of over 7,000 square miles (at a density of 8 wells per square mile). Add in the thousand of miles of pipelines, compressor stations and associated infrastructure that would be needed and you get some idea of the scale of the issue. With the evidence from the US and Australia of destruction of water supplies, air quality, ecosystems, and people’s health mounting by the day, local people are justifiably scared.
On a global scale, we might just be able to get away with burning perhaps a quarter of known conventional fossil fuels and still have a (mostly) liveable planet. Any exploitation of unconventional fossil fuels would put us on a path to truly catastrophic climate change. Worse still fracking may just a gateway drug. The government is already selling licences for Underground Coal Gasification (UCG), literally setting fire to coal underground to extract energy. This planned close to major cities including London, Swansea, Liverpool, Newcastle and Edinburgh. In the next year the main battles are likely to be in Scotland and Lancashire, but many other areas of the country are threatened. Dart Energy has submitted a planning application for 14 sites, with 22 wells and 20 km of pipelines near Airth and Cuadrilla Resources want to restart fracking in Lancashire. The government also has plans to sell off half the country to fracking companies in the next year.
All this may be sounding very bleak but there some glimmers of hope. Over a year ago a report was produced that was supposed to smooth the way to a swift resumption of fracking. Unfortunately the morning that the report was released Cuadrilla’s drilling rig in Lancashire was stormed and occupied for over 11 hours, while further protests took place outside the conference. Less than a month later the rig was occupied again for another day. Meanwhile a string of public meetings and local organising was building a network of local community groups that continues to grow. Cuadrilla was planning to have fracked up to a dozen test wells and be pushing towards full scale production by now. Instead an alliance of local communities and environmental activists has managed to help delay the introduction of shale gas extraction for over a year and cost Cuadrilla millions.
If that all sounds a bit familiar, it should do. It is the basic story of the roads protests of the 1990s, where a variety of people from all walks of life were united by a common sense of injustice. We all know how well that worked out for the people who want to build a load of shit in other people’s communities. Now our countryside is under even greater threat, while the global implications have become apocalyptic. Across the globe the movement against extreme energy is gaining momentum. The fight for a future we can live in has just begun. For a round up of anti-fracking activity worldwide you could do worse than this occasionally amusing report by mercenary company Control Risks.