The Energy Revolution? A shale gas drill rig for fracking. Photo by Justin Woolford via Flickr.

In 2000, shale gas – natural gas siphoned from shale rock formations thousands of feet beneath the earth’s surface – accounted for 1% of the total U.S. supply of natural gas. By 2011, that number had risen to 25%. At the current growth rate, it will account for 50% of the U.S. supply by 2030. According to the U.S. Department of Energy’s estimates for 2011, the country now has enough accessible natural gas (2,552 trillion cubic feet or ‘Tcf’) to last more than a century at current rates of consumption (roughly 22.8 Tcf per year). In short, the Shale Gas Revolution has arrived in America, for better or for worse. Shale gas has quickly become the most significant new development in the global energy and power industries since Saudi Arabia first began to recover and market its massive crude oil reserves more than half a century ago.

Energy industry geologists have long known about the massive gas reserves in U.S shale rock. But until the 1990s, when Texas oil and gas wildcatter, George Mitchell, began to tap the Barnett Shale using the innovative techniques of horizontal drilling and “hydro-fracturing” – setting off a depth charge in a gas well to blast cracks into the shale rock, then pumping in “fracking fluids” at high pressure to widen the cracks and thereby siphon out the trapped gas – no one expected shale gas to be economically recoverable. Now that horizontal drilling and “hydrofracking” have become standard industry practices, America has taken a giant leap toward becoming the Saudi Arabia of natural gas. The implications are profound. Massive domestic natural gas reserves could reduce U.S. dependence on foreign energy, decrease U.S. carbon emissions (because burning natural gas produces about fifty percent less CO₂ than burning oil or coal), and create long-term, non-outsourceable jobs in the United States.

The Fracking Problem

At the same time, while the economic and geopolitical upside to the shale boom is enormous, the downsides for the environment and for the future of renewable energy might be even greater. On the environmental side, horizontal drilling and hydrofracking may pose significant threats to watersheds around the four major shale plays in the United States: the Bakken play in Montana and North Dakota; the Barnett and Haynesville plays in Texas; and the king of them all, the massive Marcellus play from Pennsylvania and New York all the way down the Appalachian into Virginia and West Virginia. If these threats can be corroborated by current and pending environmental investigations, the risk to potable groundwater in the densely populated North-eastern United States alone could be high enough to derail the shale revolution before it even fully begins. Perhaps even more ominously, given the global climate-change crisis, a prolonged shale boom will almost certainly bankrupt many renewable energy companies over the next decade, as power plants switch from cheap coal to cheap gas rather than to expensive renewable energy sources.

Water, on three separate levels, is the key environmental issue at stake in the shale boom: first, shale gas extraction is a water-intensive process, with each new shale well typically requiring up to five million gallons of water to be effective; second, horizontal drilling and hydrofracking increase the risk of contaminating potable groundwater with fracking fluid chemicals and radioactive subterranean elements, which naturally occur thousands of feet underground; third, in the United States, toxic and in many cases radioactive wastewater from shale wells is frequently sent to municipal water treatment plants ill-equipped to screen for dangerous chemicals and properly sanitize the waste liquid. This untreated wastewater is then dumped into major rivers, thereby eventually contaminating aquifers in key watersheds. Each of these three water issues is further complicated by loopholes in the current federal and state regulatory frameworks regarding shale gas extraction. The U.S. oil and gas industries are largely exempt from some of the most important federal and state environmental laws, thanks to what has come to be called the “Halliburton Loophole”. This loophole is in fact a series of exemptions from federal regulatory requirements given to the energy industry during the Bush-Cheney Administration in 2005.

A Quiet Water Crisis

Among the Halliburton Loophole’s most indefensible provisions is its removal of the Environmental Protection Agency’s legal right to regulate hydrofracking through the Safe Water Drinking Act. In essence, this loophole enables oil and gas companies to use any chemicals they would like for their fracking fluid, without public disclosure or federal oversight, and to dispose of said fluids when, where and how they see fit. Thus far, the major oil and gas companies involved in the shale boom have taken advantage of these privileges to ignore local safety requirements. Bryan Walsh of Time Magazine, for example, has reported that in 2010 alone, over 62% of all hydrofracked wells inspected by the Pennsylvania Department of Environmental Protection in the Marcellus Shale – home to the largest shale gas reserves in the world – had failed to abide the state’s basic safety standards. As shale gas extraction increases to national and indeed global scale, this rate of environmental and regulatory failures would prove disastrous for both the oil and gas industry and the local populations whose drinking water could become permanently jeopardized. While the EPA is planning to release new standards in the next few months to shrink these loopholes, many provisions will likely remain intact unless more drastic federal and state action is taken.

Even without the adverse impacts of the shale boom, renewable energy companies have recently been struggling to turn a profit all around the globe; 2011, in particular, was a very bad year for the biggest firms in the industry. Leading solar companies First Solar and Sun Power Corporation saw their stocks fall by more than 70% and 50% respectively. Denmark’s Vestas and Spain’s Gamesa Corporación, global leaders in wind energy technology, did not fare much better, posting losses of over 60% and 40% on the year, respectively. The short-term horizon looks just as bleak. Barack Obama’s stimulus package – officially, the “American Recovery and Reinvestment Act of 2009” – included over US$70 billion (£44.2 billion) in subsidies and tax credits for the renewable energy and clean tech industries, many of which have already expired or will likely do so in the coming months. Given the current sovereign debt and unemployment problems in the States, Congress will be loath to pass new subsidies and tax credits once the stimulus provisions expire. Across the pond in Germany, the European leader in renewable energy, many key subsidies for the solar, wind and geothermal industries are also set to expire in 2012. The same patterns are emerging all around the world. In the aftermath of the Great Recession of 2009, the governments of many OECD countries are simply too handcuffed by ballooning federal deficits and unemployment rates to open the coffers for the risky, cost-inefficient, subsidy-dependent renewable energy industries.

Not to be Renewed

In the midst of this gloom and doom, the shale gas revolution will only make things worse for renewable energy companies, at least in the short term. As natural gas has suddenly become a cheaper and cleaner alternative to coal and oil in the past few years, both state oil and gas companies, such as the Saudi Arabian Oil Co., the National Iranian Oil Co., Brazil’s Petrobras, and China’s CNOOC and Petrochina, as well as giant multinationals such as ExxonMobil, Chevron and BP have already begun preparing for the shift from Big Oil to Big Gas. As the largest energy companies in the world have invested in the new shale gas bonanza, the biggest utilities companies have likewise replaced oil and especially coal contracts with natural gas contracts instead of renewable energy contracts, much to the dismay and financial ruin of many solar, wind and geothermal companies staking their business models on utility-scale deals.

The shale boom continues to rage in the United States, has already spread abroad to many nations, notably including neighbouring Canada, and has begun to stir excitement in Gazprom-dependent Europe (especially in Poland, whose shale gas reserves are thought to be the largest on the continent). In the mean time, the United States must take rapid and definitive action on many fronts to ensure that the historic shale gas revolution does not turn into an environmental, economic and geopolitical catastrophe.

The Bottom Line

First, Congress must fully close the aforementioned loophole to increase the transparency of the environmental impacts of shale gas extraction and production. In particular, Congress must pass new legislation demanding that energy companies disclose the identity of each chemical used in their fracking fluid and submit their wells and wastewater management facilities to EPA scrutiny. This legislation should also demand maximum recycling of flowback fracking fluid to minimize the amount of wastewater pumped into underground storage tanks or shipped to ill-equipped municipal treatment plants. Once the Halliburton Loophole is closed, a new EPA department should be created specifically for the regulation of energy companies’ wastewater management.

Second, shale gas drilling must not be resumed in the New York watershed, which supplies drinking water to more than eight million New York City residents, until the regulatory framework has been repaired and the energy industry subjected to federal investigation and analysis.

Third, once these proper regulations are in place, the United States should rapidly develop a strong Liquefied Natural Gas (LNG) export industry. A boom in LNG – gas cooled to a liquid state suitable for safe long-distance transportation – would help to globalise the gas industry the way the oil industry is already globalised, and thus reduce inefficiencies and regional chokeholds such as Gazprom’s on Europe and the former Soviet satellite countries.

Fourth, in light of the third proposal, the Unites States and its allies must begin to set up a defence framework for the potential collapse of the world’s most powerful petro-states in the coming decades, including Russia and the member-states of OPEC, especially Iran and Saudi Arabia. As these petro-states lose their disproportionate leverage over the rest of the world’s economies, their own non-diversified economies will be in grave danger of extreme instability if not outright collapse. The United States must thus be prepared to confront the prospect of failed petro-states with suddenly vulnerable nuclear stockpiles (e.g. Russia).

Finally and most importantly, despite the recent, massive revisions to estimates of U.S. shale gas reserves, natural gas must still be viewed only as a middle stage for the ultimate transition (probably a multi-decade process) from fossil fuels to clean and renewable energy sources such as wind, solar, geothermal and second-generation biofuels. To this end, the U.S. federal and state governments should pass long-term emissions reduction legislation (like in Germany and Britain) to ensure that the United States does not merely shift from Big Oil to Big Gas over the next half-century. On the contrary, it must use its massive domestic shale gas reserves to reduce coal-based electricity production in the transition period from a Fossil Fuel Economy to a Renewable Energy Economy. In this vein, natural gas can be an important baseline power source to supplement wind and solar energy, which can only generate a steady flow of electricity when the wind is blowing or the sun is shining, respectively. The Shale Gas Revolution may or may not be here to stay, but so long as shale gas is booming, America must act quickly to avert disastrous consequences.