IEA: The Costs of Implementing (or not) "Golden Rules"

Earlier this week, the International Energy Agency (IEA) issued a special report stating that the exploration of shale gas and other types of unconventional gas, could herald a "golden age of gas”

However, in “Golden Rules for a Golden Era of Gas,” the agency cautioned that the "gas revolution" would have difficulty evolving if environmental impact and public concerns are not properly addressed.

That themed was echoed by Tim Gould, Senior Analyst at the IEA, who spoke at the annual AGH Oil and Gas conference in Krakow.

“If the social and environmental impacts are not addressed, we see the possibility that public opinion will stop unconventional gas developments” warned Gould.

He explained that building a special, high-level platform on the key policy and regulatory issues on unconventional gas development was an answer to the call from the leaders of G8 countries.

In presenting the key points of the World Energy Outlook document to an audience that included that senior executives of companies active in developing Poland’s shale gas resources, the IEA representative said that the "golden rules" should become a base for the international policy and regulations concerning unconventional gas.

First golden rule is to measure, disclose and engages, as Gould said “the public does not have reliable and complete information.”

“Disclosure is gradually becoming the norm, but it is a slow process" he noted, commenting further that all of key environmental parameters should be measured before and after the explorartory and development efforts.

"Watch where you drill" is the second golden principle, Gould continued. Its about making a “sensitive choice where to drill is essential, and not only from the economic point of view."   

The next principle: isolate well and prevent leaks. “It’s clear that (…) complete isolation is what regulations should be aimed at.”  Gould warned that weaker performers could set a negative public perception of the whole industry.

Additional key elements that Gould highlighted were: to eliminate venting, the minimizing of flaring, and treatment of water responsibly.

“Be ready to think big,” said the IEA analyst, noting that production may become a large scale activity and that industry need to be ready to build pipelines for water instead of transporting it by roads, for example.

The IEA estimates that applying recommended measures could raise costs by 7% for a typical shale gas well. Gould noted, that some measures would be cost reducing.

“In many cases, additional expenditures will be offset by lower operating costs, like centralizing water treatment.”

The agency also warns governments not to create overly detailed regulation and to restrain from directing companies on how objectives are to be met.

Addressing the opportunity in Poland, Gould indicated that the country was forecast to produce 35 bcm per year in 2035, according to the best scenario. However, he commented that the real challenge in Poland and in Europe was vast numbers of wells required to be drilled.

"Golden rules application is a necessary condition to have a social license to operate, paving the way for the golden age of gas. Without attention to these issues, we don’t believe industry will get acceptance from the society,”  Gould reminded his audience.

Should industry and government satisfactorly address the issues brought forth in its report, the IEA estimates that between 2010 and 2035 global gas supply will increase by 55%, with unconventional sources accounting for two thirds of that growth, generated primarily in China and Australia. The United States will remain shale gas superpower, producing 50% of world unconventional gas in 2035.