European Viewpoint: Gaining a Perspective on Shale Gas in California and Colorado

One of the biggest differences cited for why shale gas is successful in America, and may be less so in Europe, is ownership of mineral rights. The story goes something like this: the landowner in the US gives permission for the gas company to come in and set up their rig and frack for gas. Thus the noise, possible environmental pollution and everything else that comes with drilling a hole in the ground, is compensated financially to the landowner. In Europe, on the other hand, the state owns the minerial rights, thus setting up a battle between the central government and the local landowners – who do not benefit.

However, as I found out last week, Colorado, which is experiencing a high level of hydraulic fracturing in gas wells, has a similar set up to Europe. First, I have to stop and tell how I found out and give credit where it is due. For one week in I was priviledged enough to go on a study tour sponsored by the Emerging Leaders in Environment and Energy (ELEEP), under the umbrella of the Atlantic Council and the Ecologic Institute . The EU and the Bosch Foundation provide the funding for the group (see my blog post describing the group and outcome). The focus of the trip was on energy in general, including renewables and shale gas. In this summary are my impressions centered on what I learned about issues surrounding shale gas and the fracking technology in Colorado and California.

The meetings we had in Colorado and California with selected local politicians, legislative staff, industry representatives (including gas) and other representatives provide an important background to the shale gas debate. Here, I will summarize the visit for a more direct impression and understanding. So while I’m fairly certain the information is correct, I also acknowledge there are exceptions or others would take a different point of view. This is also partly down to scheduling conflicts and last minute changes to our travel itinerary. Overall, a more comparative study would rely on a more diverse and selective sampling group. Nonetheless, I think impressions are important to discuss and there does emerge common suggestions based on the experiences between the two states.

Colorado, this mineral is not in your land:

Property rights in Colorado, are different from the general understanding of how they operate in the US – at least from a European perspective, which I hold. In the US subsurface mineral rights are generally held by the landowner (or are assumed to be). In Colorado, the minerial and water rights were seperated and sold off long ago. Roughly around the beginning of the twentieth century. The stipulation in this is that the landowner (surface owner) must give access to the mineral right holder to access (drill) those minerals underneath the property.

Ownership of the mineral rights is an important component as it seperates the direct benefit, that is perceived to incentivize shale gas extraction. The current rules in Colorado leave very little restrictions on set backs and locations where gas and oil rigs cannot be set up. While in Colorado we met with a range of people, including former Colorado politicians, Paul Weissman, previously of the Colorado Senate and House; Tisha Conoly Schuller, President, of the Colorado Oil and Gas Association; and Jill Cooper of the oil and gas company, EnCana. Tremendous support was given by Michael Whiting a Archuleta County Commissioner. Together these individuals and others helped us understand some (but not all) dynamics in the state.

Before shale gas exploration took off in the state, there was a bill passed that laid out best neighborly practices. This describes how landowners and oil and gas companies should work together. Nonetheless, controversy still exists, as one person we met with liked to say, “medical marijuana disperenceries must be 1,000 feet from schools, but there is no restrictions like this for oil and gas platforms.”

Rolled into this ‘go-where-you-like’ approach that is tilted in the gas and oil industry favor, is also state politics. With environmentalists and agricultural interests aligning in strange ways against the oil and gas industry. The regulator for the oil and gas industry is perceived to be favorable towards the industry. So how does this play out in the local support or opposition to the industry? Without being in Colorado longer and talking to more people it is somewhat hard to responsibly gauge; however, it does appear the local opposition is strong and united and there have been enough instances of environmental pollution to serve as a foundation for opponents to cite. For example, as I was told last year there were 500 reported incidences of spills but only 4 penalties were levied. Thus a perception exists that enforcement and oversight of the industry is weak.

Weaknesses in oversight and enforcement issues were not disputed by industry representatives that we spoke to. However, they acknowledged that there are responsible operators, and it is only some operators that may not be as rigorous. Nonetheless, effective state regulatory oversight was welcomed as acceptable to conduct business. Michigan’s law on monitoring of hydraulic fracking was cited as a good model – where daily site visits were done. Overall, it is clear that more effective oversight would help assure communities with limited experience and force improvement by companies not operating to high standards.

There was a great reluctance by oil and gas representatives to allow federal regulatory oversight of the industry. It was perceived that state regulators, with experienced geologists, were the most knowledgeable and best positioned to oversee the industry, rather than the EPA stepping in with federal regulations. Limited knowledge of both the local geology and drilling practices were seen as important areas where federal authorities were lacking – in comparison to state agencies. Although interestingly, it was perceived by a company representative that surface water and air quality could be regulated by federal standards, while sub-surface water and drilling techniques are overseen by state authorities. This is an important distinction to consider for further research in this area.

All together, the issue of shale gas – emerging as a societal/environmental issue was unexpected. The industry continues to state the historical safety record while pointing to a hysterical level of concern over an established technology operated by responsible companies. Groups opposed to fracking cite environmental concerns and the lack of transparency in operations and available information; these issues are combined with a perceived level of lax oversight resulting in strong distrust of operators and government agencies. As one participant noted, Colorado’s long history of mining fuels the environmental movement in the state, because of the environmental degradation, while also serving as a base for further mineral extraction.

California, what’s really the cause of earthquakes?

Echoing some of the same themes from Colorado, California appears to playing catch up with the necessary regulatory environment. Unlike Colorado, the state is behind in either voluntary or required chemical disclosure, water monitoring and advanced notice of planned drilling activity. The history of fracking technology is now being revisited. While it has been used since the 1950s, there is a perception that past side effects were unknown outside the oil and gas industry. Induced earthquakes and ground water pollution are now viewed as suspect, since the public was not aware, nor was there targeted regulation on the books. It is perceived that there is a large increase in drilling activity and now fracking technology is more widely deployed than in the past. From the stated numbers, there is an increase, although marginally higher than in the past. The lack of regulatory response, which rested on technical safety assurances, resulted in personnel being replaced. As in Colorado, the growth in public interests was not reflected through action by the state’s regulatory mechanisms. In the shale gas debate regulators (at all levels) ignore the public opinion at their own peril.

California is addressing the rise in shale gas wells through a legislative and regulatory manner. Recently, the regulatory board overseeing the industry has seen members replaced with new members willing to investigate and if necessary act. Previous board members downplayed the need for regulatory oversight of the ‘established’ technology. In addition, there have been an additional 30 new people hired to help oversee the sector. Staffing for regulatory oversight is paid by a fee on oil and gas (this is a regulatory best practice). Different proposals are now being floated that would increase regulatory oversight.

Conclusion: Failure of industry and regulators to engage stakeholders

It is important to view my report as limited in covering the full debate in each state. Politics, regulations and energy policy is always complex and infused with subtleties. However, the wide-spread and strong opposition to shale gas techniques are common in their concern over pollution and opaque operations. Therefore, for me, the argument returns to how the oil and gas industry and the technology are regulated. And maybe I should go further and also put the responsibility at the oil and gas industry’s feet and say their actions and practices also have fed the social concern.

The extractive industry has a history of being confronted by social and well organized NGO protest and reluctant government action. The ramping up of fracking technology, mishaps and media reports of environmental degradation have fueled the opposition to shale gas. The industry emerges as a classic business case study for an industry falling off the rails of corporate social responsibility (CSR). The rise of fracking as an important social issue was not on the industry’s radar. There may be no rainforests cut or child labor practices, but with wide spread use of fracking a Bhopal size plum of ground water pollution is perceived to exist: the industry can no longer deny the need for effective government regulation to both tone-down public outrage, as well as to ensure all industry players are drilling to the highest standards. However, the public is equally contradictory with an expectation of cheap energy supplied by fossil fuels.

Opposition to this (or any) technology stems from some social concerns that is rooted in events or practices that people experience or see. The practices adopted by the industry – whether tightly regulated or not – influences how the technology can be deployed. Social concern cannot be ignored, but also the insatiable thirst for fossil fuels means fracking technologies are not disappearing. Striking the right balance, with the right techniques, will take engagement by all stakeholders, industry, local and national governments, citizens and environmental NGOs. To this end, in the near future, shale gas will continue to fuel economic growth and public outrage.

Michael LaBelle is an assistant professor at the Central European University Business School and in the CEU Department of Environmental Sciences and Policy. He teaches courses on sustainability in business and on energy policy. He conducts research on how institutions and organizations foster change to contribute to a low carbon future.