Last Friday I was in Washington, DC for the presentation of the International Energy Agency’s latest report on natural gas, “Golden Rules for A Golden Age of Gas.” It is a follow-up to last year’s IEA scenario describing the enormous gas potential now being unlocked by new combinations of technology. According to IEA’s chief economist, Fatih Birol, who was the lead speaker at the event at the Carnegie Endowment for International Peace, the new report addresses the key uncertainty in delivering on that potential, including the potential of new gas supplies to “fracture established balances in the world energy system.” In IEA’s view the resources and technologies are in place, but environmental and social challenges represent serious potential roadblocks; overcoming those obstacles calls for a new set of principles along the lines of the ones included in the report. Fundamentally, as Dr. Birol put it, the industry must focus on its “social license to operate”, if it is to develop the massive global resources of shale and other unconventional gas to the extent now being envisioned. I believe many in the industry would agree that that license can’t be taken for granted.
The report spells out seven principles that IEA sees as prerequisites for securing the necessary concurrence from governments and publics. While several of them merely enunciate common sense, others will likely be controversial on one side or the other–if not in theory then in their implementation. IEA’s description of these principles can be found in the report’s executive summary. I would paraphrase them as:
1. Operate with transparency
2. Choose appropriate sites
3. Contain potential contaminants
4. Be vigilant with water!
5. Control emissions
6. Recognize scale
7. Regulate carefully
None of these is likely to startle my regular readers, since I’ve been writing about shale gas extraction and its potential economic, environmental and geopolitical consequences for several years. The aspect of these principles that got my attention during Friday’s presentation concerned IEA’s admonition to “Be ready to think big.” Dr. Birol cited statistics indicating that there are currently around 100,000 unconventional wells in the US today–a figure that might include unconventional oil wells. Supplying the levels of shale gas forecasted by IEA and other agencies would require on the order of one million wells. That compares to a total US well population of roughly a half-million. Drilling on that scale requires that we get it right, because if we don’t, even small consequences could compound. However, Dr. Birol also made it very clear that in the view of the IEA, the industry is entirely capable of getting it right.
The findings of this report–at least the high-level findings–have been widely embraced across the environmental and business spectrum. Among groups embracing the report are the American Petroleum Institute and the Investor Environmental Health Network, while EPA Assistant Administrator Gina McCarthy, who was also on Friday’s panel, seemed to place her agency’s regulatory approach to shale gas in the context of IEA’s principles. The harshest criticism I’ve seen so far is that while it acknowledges the industry’s work on best practices, it fails to recognize that much of this is already standard practice, at least in the US. Along those lines, API and the American Natural Gas Alliance (ANGA) are jointly issuing a new report on methane emissions from hydraulically fractured (“fracked”) gas wells today.
IEA’s report and the early reactions to it clearly illustrate that despite the many thousands of unconventional gas wells that have already been drilled, and the dramatic impact of shale gas on both natural prices and gas-dependent industries, we are still in the early days of a possible global energy revolution. The extent of that revolution hasn’t yet been determined, and it will be shaped as much by the reactions of numerous stakeholders as by the investment plans of producers. Whether you see that as a good or bad thing, it’s an indisputable feature of the world in which we now live. However, I don’t think it’s appropriate to view IEA’s seven principles exclusively as a set of rules to be imposed on a reluctant industry; they’re as much about getting the rest of society comfortable with an energy resource that could provide enormous economic and environmental benefits, globally, particularly with regard to greenhouse gas emissions. Although Dr. Birol emphasized that unleashing all this shale gas won’t be sufficient to solve the climate problem, he also demonstrated that without it, our chances of reining in emissions look even worse, because the main trade-off globally is not gas vs. renewables, but gas vs. coal. Getting this right is crucial for many reasons, and the IEA’s report looks like a helpful contribution to the dialogue that must take place.