Shale – a disaster waiting to happen?

Spearheading M&A in the energy sector

It would seem there are those on both sides of the aisle willing to vehemently present their argument for or against the emergence of shale, which is already making major ripples in the energy industry.

Houston-based PLS, Inc recently released figures showing M&A activity in the upstream oil and gas industry set records in 2011 for both the number of deals and their value.

A total of $86 billion was exchanged in 369 deals, and shale gas added more than a helping hand to this figure.

President Ronyld W. Wise said: "Industry appetite for oil-rich resource plays, particularly the North Dakota Bakken shale, Texas Eagle Ford shale and Ohio Utica shale, drove deal activity in the unconventional sector to a record $62 billion.

"We expect continued strong activity in oil and liquids-rich resource plays in 2012."

Six of the deals in 2011 made the list of top ten unconventional deals since 2006, with BHP Billiton's acquisition of PetroHawk Energy soaring in third place.

The figures suggest the energy industry is certainly banking on shale for growth, but outside the industry reports of the possible environmental damage called by the hydraulic fracturing necessary to extract shale gas are all too frequent.

The key issue many of these come back to is the impact on ground water supplies.

Shale drilling and water pollution

In Pennsylvania, home to the Marcellus shale play, the United States Environmental Protection Agency recently announced it was undertaking water sampling at 60 homes in the Carter Road/Meshoppen Creek Road area of Dimock.

The agency said the tests to determine if water supplies have been contaminated by harmful substances follows on from a review of data provided by residents Cabot Oil and Gas, and the Pennsylvania Department of Environmental Protection.

Produced water is the major byproduct of oil and gas extraction, with as many as 60 million barrels being produced each year, although the majority is safely disposed of or injected into formations to maintain pressure.

Strict regulations already govern its disposal and the challenge of disposing of fracking fluids is not as great as disposing from the salty water produced by conventional wells, although environmental campaigners seize the issue as a key argument against shale drilling.

With such high levels of produced water being extracted annually already, the industry maintains the disposal issues for shale gas are little different to those the conventional sector already deals with, Reuters reported.

Shale on the world stage

Looking beyond the boundaries of the United States, it is clear to see similar arguments popping up in countries across the globe, with differing impacts on the industry.

In the UK, the British Geological Survey (BGS) recently concluded shale gas drilling will cause little damage to the environment if properly controlled and is unlikely to lead to dangerous earthquakes, comparing the possibility of seismic activity to that presented by coal mining, which was once prevalent in the UK.

The BGS also recently undertook a project to establish a baseline level of methane across the UK before much shale development takes place, to establish exactly what the impact is in the future and a measurement on which to base future decisions on.

Former Soviet block countries, including Poland, are also looking to shale gas to reduce their Russian gas imports, but sentiment clearly varies even among these nations.

Bulgaria recently cancelled a drilling permit provided for Chevron, citing environmental concerns as the government seeks a nationwide ban on fracking, following in the footsteps of France.

Initial estimates suggested Novi Pazar contains between 300 billion and 1 trillion cubic metres of shale gas.

Economy and Energy Minister Traicho Traikov said: "The idea is that they can still have the right to test for oil and gas, but without using the controversial technology hydraulic fracturing."

As for the United States, it appears to be keen to share its experiences with others looking to explore their resources. US Deputy Energy Secretary Daniel Poneman said the country will share the findings of its report into how to reduce the environmental impact with South Africa, estimated to hold one of the greatest global resources.

The report claims that without action to reduce the impact in the US, serious damage to environment and a loss of public confidence could disrupt development. And with as many as 100,000 wells planned for the next several years the debate about money, the environment and energy dependence will rumble on.

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