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Tuesday, May 29, 2012

To get to a golden age of gas, follow the golden rules.

The International Energy Agency has issued a new report: Golden Rules for a Golden Age of Gas. In it, IEA projects that the world’s demand for natural gas could rise more than 50% by 2035 – reaching as much as 25% of the global energy mix, surpassing coal as the world’s second largest energy source after oil.

IEA says that for shale gas and other natural gas resources to attain those levels, they must be developed in an environmentally acceptable way. It is urging that government regulators, the industry, and stakeholders adopt a set of "golden rules" that take into account a range of social and environmental considerations.

IEA summed up the situation well in its press release:

“The technology and the know-how already exist for unconventional gas to be produced in an environmentally acceptable way,” said IEA Executive Director Maria van der Hoeven. “But if the social and environmental impacts are not addressed properly, there is a very real possibility that public opposition to drilling for shale gas and other types of unconventional gas will halt the unconventional gas revolution in its tracks. The industry must win public confidence by demonstrating exemplary performance; governments must ensure that appropriate policies and regulatory regimes are in place.”

“If this new industry is to prosper, it needs to earn and maintain its social license to operate,” said IEA Chief Economist Fatih Birol, the report’s chief author. “This comes with a financial cost, but in our estimation the additional costs are likely to be limited.” Applying the Golden Rules could increase the cost of a typical shale-gas well by around 7%, but, for a larger development project with multiple wells, investment in measures to reduce environmental impacts may in many cases be offset by lower operating costs.

The Golden Rules contain no surprises; indeed, they repeat what I and other industry observers and investors have long been calling for. They stress the responsibility of government to impose and enforce strict regulations, and the industry to employ the “highest possible standards” of performance.  IEA calls on operators to go beyond minimally satisfying legal requirements in demonstrating their commitment to local development and environmental protection.  

The Golden Rules call for transparency, measuring and monitoring of environmental impacts, and engagement with local communities; careful choice of drilling sites and robust well standards to prevent any leaks from wells into nearby aquifers; rigorous assessment, tracking, and monitoring of water requirements and of waste water; measures to target zero venting and minimal flaring of gas; improved project planning; attention to cumulative impacts; minimizing the use of chemical additives and promoting the development and use of more environmentally benign alternatives; and consistently high and continuously improving environmental performance.

IEA’s Golden Rules present a responsible, achievable course for getting unconventional shale gas right.  But following these rules and allowing natural gas to become the world’s second largest energy source is not a cure-all.  IEA points out that "greater reliance on gas alone" could not achieve the international goal of limiting the global average temperature increase to 2 degrees Celsius above pre-industrial levels. As we are heading to 11-degrees of warming, we must take much more aggressive measures.

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