Acorn Notes

Issue No. 15, January 2013

The State of Shale Play in 2013:
Environmental, Social and Regulatory Challenges

By: Mary Beth Snodgrass

Shale play activities are met by host communities with sentiments that range from open hostility to vocal appreciation for the economic and employment benefits. Increased understanding of the technical risks of extracting shale oil and gas is leading to the innovation of new methods and technologies, but management of non-technical risks often continues to fall short. Success of shale projects increasingly depends on whether local communities accept shale activities as key contributors to economic growth and development or oppose shale activities, due to apprehension over potential adverse, long-term impacts. Emerging from the confusion and hostility over the unconventional oil and natural gas industry’s non-technical challenges, research and recommended practices are beginning to emerge, and industry can anticipate that such practices will be driving regulatory requirements as well as investor and community expectations. Understanding and applying these requirements and emerging practices will move the industry away from short-term boom and bust cycles towards more sustainable project development, capable of entering new markets with less developed regulatory frameworks and more vulnerable populations.

The Challenge
While production from shale reservoirs presents prospective benefits of energy independence and cleaner air quality, it can also pose significant and costly environmental, health and social challenges. Our clients that operate shale plays in North America and worldwide consistently cite these non-technical challenges:

  • “Show-stopping” non-technical risks, shutting-down operations or preventing entry
  • Evolving and uncertain regulatory environments
  • Negative media attention and proliferation of social media campaigns
  • Positively engaging and informing community stakeholders
  • Leaving a positive legacy in host communities
  • Shale Development Potential and Perceived Impacts

Social and environmental performance
Research on the long-term socio-economic, public health and environmental impacts from shale development activities is relatively nascent. The lack of peer-reviewed, scientific evidence evaluating perceived impacts and worst-case scenarios slows the development of regulations and good industry practices and provides fertile ground for widely varying and hotly contested perceptions and opinions. Recent and on-going research is focusing on:

  • Drinking water resources and wastewater management (U.S. EPA, forthcoming 20141)
  • Health hazards due to air emissions and chemical exposure (University of Colorado, Colorado School of Public Health, 20112, European Commission’s Directorate of the Environment, 20123, and Colburn, 20114)
  • Greenhouse gas (GHG) emissions and climate change (UK Environment Agency, forthcoming, and European Commission, 20125)
  • Induced seismicity (UK’s Royal Society and Royal Academy of Engineering, June 20126, and the U.S.’ National Academies, 20127)

Findings from such research are generating recommendations applicable to government and industry, such as:

  • Use of best available technologies to reduce harmful emissions
  • Use of environmental, social and health baseline sampling
  • Public disclosure and regulatory submission of environmental and health monitoring results
  • Use of independent monitoring observers
  • Establishment of community advisory groups for engagement on grievances and community investment8
  • Higher fines for industry infractions9
  • Comprehensive, regulatory-driven impact and risk assessments10
  • Inclusion of risk assessments in impact assessment processes11

Impacts of Shale Activities

Communities
To alleviate community concerns and opposition, research findings, coupled with industry lessons learned, will be critical components of highly effective social performance programs. Drawing from the examples of unconventional oil and gas activities in Canada12, examples of emerging social performance practices include:

  • Voluntary disclosure of chemicals, with over 450 companies participating13
  • Hiring community liaison representatives and developing community advisory groups14
  • Involving communities, particularly vulnerable, disadvantaged or Indigenous communities, in (i) water quality monitoring15, design of permitting consultation process and (iii) future shale development decisions16
  • Developing community capacity for environmental management and monitoring17
  • Supply chain and workforce capacity building and training18
  • Collaborating with industry peers and forming coalitions, such as Horn River Basin Producers Group (HRBPG) in British Columbia

Investors
Increasingly, operators are seeking to improve community impact and relations management due to pressure from investors. In 2012, the Interfaith Center on Corporate Responsibility (ICCR), an international alliance of concerned investors, initiated shareholder resolutions with 181 companies. Of these companies, 14% are in the extractive industry, and resolutions concerning community impacts from hydraulic fracturing activities were issued to 50% of those extractive companies19. Beyond shale, a group of 49 ethically responsible investment funds, which collectively control $2 trillion in assets, issued a statement in October 2012 to oil sands companies operating in Alberta. Concerned about the social and environmental performance, investors are calling for companies to increase the pace at which they respond to these impacts and risks, set specific performance targets and engage in more meaningful ways with stakeholders20.

Potential Health Effects of Marcellus Shale Activities

Regulators
Evolving and uncertain regulatory environments prove difficult to navigate and complicate efforts to create internal company standards and processes. In the U.S. and UK, recent and forthcoming environmental laws and regulations include:21

  • U.S. EPA is to propose (i) a rule for wastewater discharge standards in 2014, based on outcomes of the drinking water study22, and finalize the (ii) permitting requirements proposed for diesel-fueled hydraulic fracturing23. In 2012, it finalized (iii) the rule for air standards24.
  • U.S. Bureau of Land Management is proposing regulation of hydraulic fracturing on public and Native American land25, which would require disclosure of chemicals
  • UK’s Office of Unconventional Gas and Oil (formed December 2012) is likely to propose Environmental Risk Assessment (ERA) and affected community participation requirements26

Regulators around the world are looking to the U.S. and Canadian experience as they develop their frameworks. While it commissioned research on impacts and risks in 2011 and 2012, the European Union (EU) will continue to evaluate the adequacy of the existing environmental regulatory framework in 201327. For countries such as Poland, eager to tap into its shale reserves and achieve energy independence, complex EU-wide regulatory oversight will be delayed or not materialize28. In 2012, Poland issued a new tax regulatory framework, increasing government royalties yet remaining attractive to investors; its relatively high distribution of royalty fees to municipal governments and local communities is considered a positive aspect of the new tax regulations that should provide an enabling environment for companies seeking to create shared value and develop prospects sustainably29.

Although Latin American regulatory frameworks remain particularly uncertain, investors and operators are showing significant interest in the region. Government expropriation of oil and gas assets (Grupo Repsol in Argentina, 2012, and Exxon Mobil and Conoco Philips in Venezuela, 2007)30 and fiscal feasibility have made some operators wary and more likely to "wait and see" how policy environments develop. Efforts by some countries to attract investors are gaining notice. Colombia, for example, has reduced government royalties, and, to ensure sustainability and proper oversight, the Colombian Ministry of Environment and Sustainable Development is exploring environmental performance and licensing requirements for shale operations.

Acorn International Experience

Our services
Acorn International delivers environmental and social risk management consulting services to international industry and investors. We do so through a distinctive process of partnering with, directing and building capacity of local expert teams in more than 70 countries worldwide to promote local content and world-class quality assurance. Our Local Content and Global Assurance model is supported by deep expertise in onshore and offshore exploration and production projects worldwide.

Acorn International provides strategic social and environmental performance planning and implementation services to support shale operators in their community engagement and development efforts. Among other services, we deliver:

  • Environmental, social and health risk assessments
  • Environmental, social, and health baseline studies, impact assessments (EIA/SIA/ESIA/ESHIA) and management planning
  • Stakeholder mapping, planning and engagement
  • Community investment analysis, planning and implementation management/monitoring
  • Independent monitoring and review of environmental, social and health performance 
  • Development of management system standards, guidelines and tools
  • Training and capacity assessments related to non-technical risk
  • Capacity building for local contractors and host-country regulators on non-technical risk
  • Stakeholder engagement workshop and meeting facilitation

Our value proposition
Acorn International helps globally operating, unconventional oil and gas exploration and production companies meet stakeholder expectations while preserving business value. Specifically, we can help your company identify and evaluate good industry practices and pending regulations in countries by analyzing the latest shale research findings, identifying trends in policymaking, developing industry case studies and making recommendations tailored to your operations. We can also help your company identify and analyze key community stakeholders, issues, risks and impacts and then plan engagement and community investment strategies that create shared value for your company and the communities where you operate.

For more information, please contact:
Andrew Buchman, Mary Beth Snodgrass or Samina Jain

+1.832.900.3997 or info@acornintl.net

_______________________________

1 U.S. Environmental Protection Agency (EPA), “EPA's Study of Hydraulic Fracturing and Its Potential Impact on Drinking Water Resources,” 2012, http://www.epa.gov/hfstudy/
2 McKenzie LM, et al, Human health risk assessment of air emissions from development of unconventional natural gas resources, Science of the Total Environment (2012), http://cogcc.state.co.us/library/setbackstakeholdergroup/Presentations/doi:10.1016/j.scitotenv.2012.02.018
3 European Commission (EC), “Environment and Energy, Studies and Guidelines,” http://ec.europa.eu/environment/integration/energy/studies_en.htm
4 Theo Colborn, Carol Kwiatkowski, Kim Schultz and Mary Bachran, “Natural Gas Operations from a Public Health Perspective,” 2011, Human and Ecological Risk Assessment: An International Journal, 17:5, 1039-1056, http://dx.doi.org/10.1080/_10807039.2011.605662
5 European Commission, Climate impact of potential shale gas production in the EU, Final Report, Issue 2, July 2012, http://ec.europa.eu/clima/policies/eccp/docs/120815_final_report_en.pdf  
6 Royal Society and the Royal Academy of Engineering, Shale gas extraction in the UK: A review of hydraulic fracturing,  June 2012, http://royalsociety.org/uploadedFiles/Royal_Society_Content /policy/projects/shale-gas/2012-06-28-Shale-gas.pdf
7 The National Academies, Induced Seismicity Potential in Energy Technologies, 2012, http://www.nap.edu/catalog.php?record_id=13355
8 Garfield County, Battlement Mesa, Health Impact Assessment (HIA), 2011, http://www.garfield-county.com/public-health/documents/8_HIA_2nd_draft_findings-recommendations.pdf
9 “Shale gas industry hit with higher fines, royalties,” CBC News, New Brunswick, May 17, 2012, http://www.cbc.ca/news/canada/new-brunswick/story/2012/05/17/nb-shale-gas-regulations.html
10 (1) Office of the Chief Medical Officer of Health (OCMOH), New Brunswick Department of Health, Chief Medical Officer of Health’s Recommendations Concerning Shale Gas Development in New Brunswick,  September 2012: 6-7, http://www2.gnb.ca/content/dam/gnb/Departments/h-s/pdf/en/HealthyEnvironments/Recommendations _ShaleGasDevelopment.pdf (2) Royal Society and the Royal Academy of Engineering, 2012: 51.
11 McKenzie LM, et al, 2012.
12 Canadian Association of Petroleum Producers, “Collaboration - Horn River Basin Producers Group,” http://www.capp.ca/ENERGYSUPPLY/INNOVATIONSTORIES/RELATIONSHIPSPARTNERS/Pages/Collaboration-HornRiverProducersGroup.aspx#1hnQHcl3PG2l
13 FracFocus, “Participating Companies,” http://fracfocus.org/links (accessed January 4, 2013).
14 (1) Associated Press, “Gas drilling companies work on community relations,” Shale Reporter,  December 29, 2012, http://www.shalereporter.com/industry/article_fbb4d4cc-51b9-11e2-909f-001a4bcf6878.html and (2) Enbridge Northern Gateway Pipelines, Community Advisory Boards: Fact Sheet, http://www.northerngateway.ca/assets/pdf /Public%20Consultation/NGP-FS-04-002_Community%20Advisory%20Boards.pdf  
15 Dave Murray P.Eng. (Kerr Wood Leidal), Carlos Salas P. Geo. (Geoscience British Columbia), “Developing a Water Monitoring Network in the Horn River Basin,” September 2012, https://nr.civicweb.net/Documents/DocumentDisplay.aspx?Id=60306  
16 Government of British Columbia, Ministry of Aboriginal Relations and Reconciliation, “Economic Benefits and Oil and Gas Consultation Agreements,” June 13, 2012, http://www2.news.gov.bc.ca/news_releases_2009-2013/2012ARR0012-000851.htm  
17 Murray and Salas, 2012.
18 Canadian Association of Petroleum Producers.
19 Acorn International analysis of data from this source: Interfaith Center on Corporate Responsibility (ICCR), “2012 Shareholder Resolutions / Environmental Performance by Sector,”  http://www.iccr.org/shareholder/trucost/index.php 
20 Bob Weber, “Ethical investors say oilsands industry must cut environmental risks,” The Canadian Press, October 21, 2012, http://o.canada.com/2012/10/21/ethical-investors-say-oilsands-industry-must-cut-environmental-risks/
21 Jennifer Smokelin & David Wagner, “U.S. Shale Gas in 2012: Top 10 Environmental Legal Issues to Watch,” Environmental Law Resource, February 16, 2012, http://rigzone.com/news/article.asp?a_id=115205
22 Ibid.
23 U.S. EPA, Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels – Draft: Underground Injection Control Program Guidance #84, May 2012, http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/upload/hfdieselfuelsguidance.pdf24 “Oil and Natural Gas Sector: New Source Performance Standards and National Emissions Standards for Hazardous Air Pollutants Reviews; Final Rule,” CFR Parts 60 and 63, August 16, 2012, http://www.gpo.gov/fdsys/pkg/FR-2012-08-16/pdf/2012-16806.pdf
25 Department of the Interior, Bureau of Land Management, “Oil and Gas; Well Stimulation, Including Hydraulic Fracturing, on Federal and Indian Lands,”  43 CFR Part 3160, http://www.doi.gov/news/pressreleases/loader.cfm?csModule=security/getfile&pageid=293916
26 Royal Society and the Royal Academy of Engineering, 2012: 52.
27 European Commission, “Environmental Aspects on Unconventional Fossil Fuels,” http://ec.europa.eu/environment/integration/energy/unconventional_en.htm
28 Marynia Kruk, “Polish Cabinet Reaches Shale Gas Compromise,” The Wall Street Journal, October 22, 2012, http://blogs.wsj.com/emergingeurope/2012/10/22/polish-cabinet-reaches-shale-gas-compromise/
29 Ibid.
30 Trefis Team, “Argentina Seizes Repsol's Assets In Worrying Signal To Exploration Firms, Forbes, May 18, 2012,  http://www.forbes.com/sites/greatspeculations/2012/05/18/argentina-seizes-repsols-assets-in-worrying-signal-to-exploration-firms/

 

Acorn International Notes

Acorn Notes is a series of periodic papers to share ideas regarding EHSS and sustainability management for international industry.

Issue 21 - March 2014: Above-ground Facilities and Stakeholder Engagement: Deploying the 'CAC'
Issue 20 - March 2014: A Starting Point for Shared Equity
Issue 19 - March 2014: What It Takes to Run a Great Consulting Firm
Issue 18 - February 2014: Considering Human Rights - Trends and Lessons in Oil and Gas Impact Assessments
Issue 17 - June 2013: Managing Environmental Health in International Development Projects
Issue 16 - January 2013: Integrating Environmental and Social Performance throughout the Project Lifecycle
Issue 15 - January 2013: The State of Shale Play in 2013
Issue 14 - August 2012: Building Environmental and Social Governance in Host Countries
Issue 13 - May 2012: Human Rights and Business: A New Era
Issue 12 - February 2012: Extractive Industries Confront Pressure for Greater Transparency
Issue 11 - January 2012: Key Updates to the IFC Sustainability Policy and Performance Standards
Issue 10 - June 2011: Oil & Gas and NGOs: New Rules of Engagement?
Issue 9 - February 2010: Annual Study of Sustainable Development Priorities
Issue 8 - January 2009: Annual Study of Sustainable Development Priorities
Issue 7 - May 2008: Top Ten Lessons Learned About Health Impact Assessment
Issue 6 - January 2008: Annual Study of Sustainable Development Priorities
Issue 5 - September 2007: Results of web forum with our International Partners
Issue 4 - January 2007: Annual Study of Sustainable Development Priorities
Issue 3 - May 2006: Suggestions and tips for safe international travel
Issue 2 - January 2006: Annual Study of Sustainable Development Priorities
Issue 1 - November 2005: The Top 10 "unspoken" criteria for determining the success of EIAs

 

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Phone: 832-900-3997
Email: info@acornintl.net