A new report by global consulting firm Accenture that looks at the efficient and innovative ways the United States has dealt with water use in shale gas drilling. Accenture offers the U.S. as a model template for other countries who may be considering how (and whether) to frack their own shale deposits.

1. Water and Shale Gas Development
Leveraging the US experience in new shale developments

2. Global development of shale gas resources has
the potential to expand significantly outside
the United States. However, there continue to
be environmental concerns, particularly with
respect to water use. As operators outside the
United States explore shale gas, there are many
lessons that can be taken from the United
States’ experience. This paper highlights areas
that operators of new shale developments
should consider. It also includes an analysis
of considerations for Argentina, China, Poland
and South Africa focusing on water regulation,
water use and management, and water
movements during shale gas development.
1

3. Contents
1 Introduction 4
Overview of shale gas life cycle activities 8
1.1 Shale resources outside the United States 9
In Focus: Shale developments in Argentina, China, Poland and South Africa 12
2 Water regulation 18
2.1 Regulatory history and the current landscape 19
2.2 Federal efforts to support regulatory consistency 21
2.3 Key trends 22
In Focus: Water regulation in Argentina, China, Poland and South Africa 23
3 Water management 26
3.1 Water use and production 27
Comparison: Managing produced water: unconventional vs. conventional 30
3.2 Water management options 31
Primer: Water treatment technologies 33
3.3 Key trends 34
In Focus: Water use/management in Argentina, China, Poland and South Africa 35
4 Water movements 42
4.1 Shale gas development life cycle: logistics requirements 43
4.2 Significance of water transportation 45
4.3 Rising to the water transportation challenge 45
4.4 Key trends 46
In Focus: Water movements in Argentina, China, Poland and South Africa 47
Concept Overview: Basin-wide water logistics management model 49
5 Lessons learned for new shale developments 52
In Focus: Implications for Argentina, China, Poland and South Africa 57
6 Implications for operators 60
Overview of the challenges in the shale gas lifecycle 63
2

4. 3

5. 1
Introduction
Natural gas production in the United States has grown significantly
in recent years as improvements in horizontal drilling and hydraulic
fracturing technologies have made it commercially viable to recover
gas trapped in tight formations, such as shale and coal. The United
States is now the number one natural gas producer in the world
and, together with Canada, accounts for more than 25 percent of
global natural gas production.1 Shale gas will play an ever-increasing
role in this resource base and is projected to increase to 49 percent
of total US gas production by 2035, up from 23 percent in 2010,
highlighting the significance of shale gas in the US energy mix in
the future. Lower and less volatile prices for natural gas in the past
two years reflect these new realities, with benefits for American
consumers and the nation’s competitive and strategic interests,
including the revitalization of several domestic industries.2
4

6. In its “2012 Annual Energy Outlook,” the
U.S. Energy Information Administration
(74.7 trillion cubic feet), and Barnett
(43.4 trillion cubic feet). Activity in
Water regulation
(EIA) referred to the “enormous new plays has increased shale gas This rapid expansion in shale gas
potential” of shale gas, and according production in the United States from production has given rise to concerns
to the Institute for Energy Research, 11 billion cubic meters (bcm) in 2000 around the impact of operations in
the United States has enough natural to 140 bcm in 2010.4 Such production areas such as water, road, air quality,
gas to meet domestic electricity potential has the ability to change the seismic and greenhouse gas emissions
demand for 575 years at current fuel nature of the North American energy (GHG). The process of hydraulic
demand for generation levels—enough mix and according to the National fracturing (fracking) in a shale gas well
natural gas to fuel homes heated Petroleum Council 2011 study, “Prudent requires significant volumes of water
by natural gas in the United States Development: Realizing the Potential and causes additional greenhouse gas
for 857 years and more natural gas of North America’s Abundant Natural emissions compared to conventional
than Russia, Iran, Qatar, Saudi Arabia Gas and Oil Resources,” the natural gas wells. There is already significant
and Turkmenistan combined.3 gas resource base could support supply resistance to shale gas development
for five or more decades at current or due to these water and emission
As Figure 1 illustrates, US shale gas greatly expanded levels of use.5 concerns in many parts of the United
reserves are vast and broadly dispersed; States and Western Europe, with France
the EIA estimates that the lower 48 and Bulgaria imposing nationwide
states have a total of 482 trillion cubic moratoriums on shale gas production
feet of technically recoverable shale through fracking. The regulation of
gas resources with the largest portions shale gas is an evolving landscape
in the Northeast (63 percent), Gulf as the industry has developed so
Coast (13 percent), and Southwest rapidly that it has often outpaced
regions (10 percent), respectively. The the availability of information for
largest shale gas plays are the Marcellus regulators to develop specific guidance.
(141 trillion cubic feet), Haynesville
Figure 1. US lower 48 states shale gas plays.
Niobrara*
Montana
Thrust Bakken***
Belt Heath**
Cody Williston
Basin
Big Hom Powder River Gammon
Hilliard Basin Basin
Baxter Mowry Appalachian
Mancos Michigan
Basin
Greater Green Basin Antrim
Park Niobrara*
River Basin
Basin Forest Devonian (Ohio)
City Basin
Uinta Basin Illinois Marcellus
Manning Basin Utica
Canyon Piceance Denver
San Joaquin Mancos Excello- New
Basin Basin
Basin Hermosa Mulky Cherokee Platform Albany
Monterey- Paradox Basin Pierre
Temblor Lewis Woodford
San Juan Raton Anadarko Fayetteville
Basin Basin Chattanooga
Basin Ard
Monterey mo Arkoma Basin Black Warrior
Palo Duro Bend re Bas Basin Conasauga
Santa Maria in
Basin Valley & Ridge
Ventura, Avalon- Floyd-Neal Province
Los Angeles Bone Spring Permian Barnett TX-LA-MS
Basins Basin Ft. Worth Salt Basin
Barnett- Marfa Basin Tuscaloosa
Woodford Basin
Eagle Haynesville-
Bossier Shale plays Basins
Ford
Pearsall Current plays * Mixed shale &
Western Prospective plays chalk play
Gulf ** Mixed shale &
Stacked plays Iimestone play
Shallowest/youngest *** Mixed shale &
Intermediate depth/age tight dolostone-
Deepest/oldest siltstone-sandstone
Source: Shale Gas and Oil Plays, Lower 48 States, U.S. Energy Information Administration, www.eia.gov.
5

7. At present, the US shale gas industry
is regulated by a patchwork of existing
Water use and Regarding contamination incidents,
the MIT report stated that “with over
oil and gas regulations on drilling management 20,000 shale wells drilled in the last 10
and well site activities, combined years, the environmental record of shale
One of the most contentious and widely
with environmental regulations on gas development has for the most part
publicized issues in shale gas production
water and air management. This loose been a good one—but it is important
is water management. Shale gas
regulatory landscape is beginning to recognize the inherent risks and the
production is a highly water-intensive
to change with growing state and damage that can be caused by just
process, with a typical well requiring
federal attention. In 2010, the U.S. one poor operation…. In the studies
around 5 million gallons of water to drill
Environmental Protection Agency surveyed, no incidents are reported
and fracture, depending on the basin
(EPA) launched a four-year field study which conclusively demonstrate
and geological formation.8 The vast
on the impact of shale gas hydraulic contamination of shallow water zones
majority of this water is used during the
fracturing and, in 2011, the U.S. with fracture fluids.”9
fracturing process, with large volumes
Department of Energy received a report
of water pumped into the well with sand In areas with deep unconventional
by the Secretary of Energy Advisory
and chemicals to facilitate the extraction formations, such as the Marcellus
Board (SEAB) for shale gas providing
of the gas; the remainder is used in areas in Appalachia, the shale gas
recommendations on how to reduce
the drilling stage, with water being the under development is separated from
the environmental impact and improve
major component of the drilling fluids. freshwater aquifers by thousands of
the safety of shale gas production. In
Relatively small amounts of water are feet and multiple confining layers. To
addition to these reports, numerous
also used for dust suppression on site, reach these deep formations where the
smaller studies continue to provide
and for the cleaning and flushing of fracturing of rock occurs, drilling goes
information to support improvements
drilling equipment. Although increasing through the shallower areas, with the
in regulation and leading practice.
volumes of water are being recycled and drilling equipment and production pipe
In 2010, New York issued a temporary reused, freshwater is still required in high sealed off using casing and cementing
moratorium on additional shale gas quantities for the drilling operations as techniques. A new voluntary chemical
development to allow the state’s brackish water is more likely to damage registry (FracFocus) for disclosing
Department of Environmental the equipment and result in formation fracturing fluid additives was launched
Conservation (DEC) to finish its damage that reduces the chance of a in the spring of 2011 by the Ground
Supplemental Generic Environmental successful well. The need for freshwater Water Protection Council (GWPC) and
Impact Statement (SGEIS) on issues is a growing issue, especially in water- the Interstate Oil and Gas Compact
surrounding natural gas drilling. scarce regions and in areas with high Commission (IOGCC). Texas operators
New York published a Revised Draft cumulative demand for water, leading are required by law to use FracFocus.
SGEIS on September 28, 2011, which to pressure on sources and competition The IOGCC, comprised of 30 member
was open for public comment until for water withdrawal permits. The states in the United States, reported
January 2012.6 There has been no pressure to increase efficiencies is high in 2009 that there have been no cases
further movement from the DEC on the as industry demand for water grows with where hydraulic fracturing has been
moratorium. In June 2011, Maryland the development of more wells. verified to have contaminated water.
Governor Martin O’Malley issued an A key objective of the EPA’s ongoing
Water contamination is another
order calling for a three-year study of study is to better understand the
aspect of shale gas production that
the economic and environmental effects full life-cycle relationship between
has generated significant resistance
of drilling the Marcellus Shale before hydraulic fracturing and drinking
to current shale production processes.
permits to drill can be issued. And in water and groundwater resources.10
According to the Massachusetts
August 2011, New Jersey Governor
Institute of Technology (MIT) 2011 Gas The movement and disposal of produced
Chris Christie placed a one-year
report, which reviewed three studies water from fractured wells is also a
moratorium on hydraulic fracturing so
of publicly reported incidents related part of the debate on the environmental
that the Department of Environmental
to gas well drilling, there were only 43 impact of shale gas production.
Protection “can further evaluate the
“widely reported” water contamination After fracturing, each well returns a
potential environmental impacts of
incidents related to gas well drilling percentage of the injected fracture
this practice in New Jersey, as well
in the past decade (to 2010) during fluid volume over its lifetime; this water
as evaluate the findings of ongoing
which time, there were about 20,000 is heavily polluted, creating a risk of
federal studies.”7 (Note, however, that
shale gas wells drilled with almost all groundwater contamination upon its
no hydraulic fracturing operations were
of them being hydraulically fractured. return to the surface if not correctly
taking place in New Jersey when the
Of these, 48 percent of the incidents contained and treated. Concerns around
moratorium was issued.) Several other
involved groundwater contamination such risks have led to the moratorium
states, however—including Wyoming,
by natural gas or drilling fluids; 33 on shale gas development in New
Pennsylvania, Arkansas, Colorado,
percent involved on-site surface spills; York’s Marcellus Shale. In addition to
Louisiana and Texas—have passed new
10 percent involved water withdrawal the nature of the produced water, the
legislation or regulations in response
and air quality issues, and blowouts; and, growing volumes of wastewater are
to the increased activity associated
the remaining 9 percent involved off-site increasing demand for efficiencies
with natural gas development.
disposal issues (see Figure 2). in water treatment technologies to
improve water reuse and
6

8. recycling. Innovative water management can represent up to 80 percent of Operational performance
solutions are required to address the logistics activity. Research into water- Better monitoring and planning
long-term sustainability of water use in free fracking, on-site treatment and capabilities will reduce bottlenecks
shale gas production. disposal and assessment of alternative and smooth delivery into a site (e.g.,
modes of transport are all being managed slot windows, dynamic
Water movements pursued, but are currently unable to
generate significant impact. Within the
re-routing to avoid congestion).
Availability of accurate operational data
The volume of equipment, materials boundaries of current capabilities, the can allow operators to identify issues
and water required to support shale adoption and integration of logistics and enable continuous improvement
gas operations presents a significant leading practice provide the most in both drilling and transportation.
logistics challenge. Given the remote straightforward, technology-ready Logistics costs can be reduced through
nature of most locations and the approach to reducing transport cost efficiency gains (e.g., reduction of
frequent operations movements across and regulatory and HSSE exposure. waiting time) and automated processes
highly dispersed and numerous well site can reduce administrative costs. Past
locations, flexibility is required in the Improvements in water movements
implementations have shown that
transport model making road transport also have an impact on other aspects
consistent adoption of logistics leading
the logistics model of choice for most of shale operations, specifically HSSE
practices can deliver up to 45 percent
environments. While pipeline and rail exposure, operational performance
reduction in transport costs.
movements can be effective for long- and compliance.
distance or point-to-point movements, Compliance
the final distribution to and from the HSSE exposure
The use of a water inventory monitoring
well pad is almost exclusively managed Improved transport planning processes
tool can support water management
via road transport. Road transport and systems can reduce the number
regulatory compliance through visibility
volumes and types vary significantly of truck moves, while telematics
of water draw, usage and movements.
depending on the operational phase of systems can provide real-time visibility
Automated end-to-end processes and
the project, with the majority of demand of truck movements and driver
systems enable accurate and rapid
during the fracking and completion performance, supporting reduction
data capture, storage and reporting.
phases, which can account for 60–85 in wait times, less congestion and
A cross-operator, basin-wide solution
percent of total transport volumes. better driver HSSE compliance.
would also confirm consistent basin-
Some large operations are required to
wide reporting standards across
source, plan and manage up to 300
multiple sites and operators.
truck movements per day within a
single basin, which is the equivalent of
a pan-regional transport operation in
many other sectors. This concentration
creates significant challenges, with
on-site congestion causing issues to the Figure 2. Chart of water contamination incidents related to gas well drilling.
operations teams and local residents,
and leading to significant cost exposure
to an already marginal cost operation.
9%
The high volume and intensity of
road transport associated with shale 10%
gas production present some unique
challenges for operators. A shortage
of transport operators with sufficient 48%
knowledge, difficulties in tracking and
optimizing delivery schedules, reducing Groundwater contamination
33%
burden on strained road infrastructure, On-site surface spills
and a lack of standardized reporting
Water withdrawal and air quality issues,
and regulatory data can all lead to and blowouts
high costs, Health Safety Security Off-site disposal issues
Environment (HSSE) exposure, and
regulatory compliance issues. With
up to 30 percent of completion costs
Source: Massachusetts Institute of Technology 2011 Gas Report.
related to transportation, operators
are exploring different options to
reduce transport activity, with a
key focus on water hauling, which
7

9. Overview of shale gas life cycle activities
Civil/site prep Completion/fracking
Forest clearing, excavation, building As drilling is completed, multiple
of access routes, constructing and layers of metal casing and cement are
installing wells pads and preparing placed around the wellbore. After the
site for drilling activities. well is completed, a fluid composed of
water, sand and chemicals is injected
Drilling under high pressure to crack the shale,
increasing the permeability of the rock
Natural gas will not readily flow to and easing the flow of natural gas.
vertical wells because of the low
permeability of shales. This can be
overcome by drilling horizontal wells
Flowback
where the drill bit is steered from A portion of the fracturing fluid will
its downward trajectory to follow a return through the well to the surface
horizontal trajectory for one to two due to the subsurface pressures. The
kilometers, thereby exposing the volume of fluid will steadily reduce and
wellbore to as much of the reservoir be replaced by natural gas production.
as possible.
Production
The fissures created in the fracking
process are held open by the sand
particles so that natural gas from within
the shale can flow up through the
well. Once released through the well,
the natural gas is captured, stored and
transported away for processing.
Figure 3. Shale gas lifecycle.
Civil/site prep Drilling Completion/ Flowback Production
Build access Drill vertical and fracking Capture, store Capture, store
roads, construct horizontal wells Complete wells and treat and transport gas
and install well with steel and returned fracking
pads, prepare site cement casings fluids
for drilling Release gas
through
hydro-fracking
Decommission
Typical
60 days 15-60 days 15-30 days 20 days 5–40 years
timelines
Source: Accenture 2012.
8

10. 1.1
cubic feet for the United States and detailed shale gas resource assessments
the other 32 countries assessed. To by the countries themselves, with many
put this shale gas resource estimate of these assessments being assisted by
in context, the world’s technically a number of US federal agencies under
Shale resources recoverable gas resources are roughly
16,000 trillion cubic feet, largely
the auspices of the Global Shale Gas
Initiative (GSGI) that was launched in
outside the excluding shale gas.11 Thus, adding
the identified shale gas resources to
April 2010.
United States other gas resources increases total
world technically recoverable gas
At a country level, there are two country
groupings that emerge where shale gas
Although estimates are likely to change resources by more than 40 percent development appears most attractive.
over time as additional information to 22,600 trillion cubic feet.12 The first group consists of countries
becomes available, the international that are currently highly dependent
shale gas resource base is currently The estimates of technically recoverable upon natural gas imports, have at least
considered to be significant. The initial shale gas resources for the 32 countries some gas production infrastructure, and
estimate of technically recoverable outside the United States represent their estimated shale gas resources are
shale gas resources in the 32 countries a moderately conservative “risked” substantial relative to their current gas
examined in the EIA’s “World Shale resource for the basins reviewed. Given consumption. For these countries, shale
Gas Resources” study is 5,760 trillion the relatively sparse data currently gas development could significantly
cubic feet (see Figure 4). Adding the US available and the differences in alter their future gas balance, which
estimate of the shale gas technically approaches employed to determine the may motivate development. Examples
recoverable resources of 862 trillion resources, these estimates are quite of countries in this group include
cubic feet results in a total shale uncertain. At the current time, there Chile, France, Morocco, Poland, South
resource base estimate of 6,622 trillion are efforts under way to develop more Africa, Turkey and Ukraine. In addition,
Figure 4. Map of 48 major shale gas basins in 32 countries.
Legend
Assessed Basins with Resource Estimate
Assessed Basins without Resource Estimate
Countries within Scope of EIA Report
Countries outside Scope of EIA Report
Source: “World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States,”
U.S. Energy Information Administration, 2011, www.cia.gov.
9

11. South Africa’s shale gas resource
endowment is interesting as it may
Argentina’s biggest energy company,
YPF, has found unconventional shale oil
China – Sichuan and
be attractive to use this natural gas and natural gas in Mendoza province, Tarim Basin
as a feedstock to its existing gas-to- confirming the extension of the massive
In 2011, the EIA estimated that
liquids (GTL), coal-to-liquids (CTL) Vaca Muerta area. YPF said exploration
China had 1,275 trillion cubic feet
plants and combined cycle gas turbine at the Payun Oeste and Valle del Rio
of technically recoverable shale
(CCGT) currently running on diesel. Grande blocks pointed to an estimated
gas. Since then a geological survey
one billion barrels of oil equivalent
The second group consists of those led by China Ministry of Land and
(boe) in unconventional oil and gas in
countries where the shale gas resource Resources (MLR) confirmed a total of
Mendoza. Energy resources and reserves
estimate is large (e.g., above 200 trillion 882 trillion cubic feet of technically
in the province, which border the Andes
cubic feet) and there already exists recoverable shale gas, excluding Tibet.
mountain range in western Argentina,
a significant natural gas production The Sichuan Basin, located in south-
currently stand at 685 million boe.
infrastructure for internal use or for central China, covers a large 211,000
export. In addition to the United States, km2 and accounts for 40 percent of
notable examples of this group include Canada – Horn River the country’s shale resources.13
Algeria, Argentina, Australia, Brazil, Shale Basin China hopes to produce between 60
Canada, China, Libya and Mexico.
British Columbia’s Horn River Shale billion and 100 billion cubic meters a
Existing infrastructure would aid in
Formation is the largest shale gas year by 2020—an objective that some
the timely conversion of the resource
field in Canada and part of Canadian analysts are skeptical can be achieved.
into production, but could also lead
deposits that amount to as much Royal Dutch Shell has recently signed
to competition with other natural gas
as 250 trillion cubic feet of natural the first production-sharing contract to
supply sources. For an individual country
gas. Since 2008, a total of nine explore, develop and produce shale gas
the situation could be more complex.
companies has ventured into the Horn in China, a move that fits in with China’s
Outside the United States there River market, including ExxonMobil, overall strategy to bring technical
are certain shale plays that could Apache, Devon Energy and Encana. and operational know-how to the
change the energy security of the development of its untapped reserves
countries in which they are located. While large-scale commercial of the unconventional fuel. CNOOC
These include the following: production of shale gas has not yet been Ltd., China’s biggest offshore energy
achieved in Canada, many companies producer, plans to develop new fields,
are now exploring for and developing acquire overseas assets and develop
Argentina – The Neuquén shale gas resources in Alberta, British unconventional resources such as shale
Basin Columbia, Quebec and New Brunswick.
Development of shale gas, and other
gas to meet output targets. The country
is “determined” to learn shale-gas
According to the EIA, Argentina has unconventional resources, will help technology from its partners and deploy
774 trillion cubic feet of technically confirm supplies of natural gas it in China, holder of the world’s largest
recoverable shale gas, making it the are available to the growing North deposits of the fuel, Chairman Wang
world’s third‐largest player in the shale American natural gas market for many Yilin has stated.14
game behind the United States and decades. Encana, Canada’s largest
China. Located on Argentina’s border
with Chile, the 137,000 km² Neuquén
natural gas producer and one of the
biggest in North America, is looking
Poland – Baltic-Podlasie-
Basin is the South American nation’s for a single partner for a package of Lublin Basins
largest source of hydrocarbons, holding assets that could include positions in
35 percent of the country’s oil reserves The EIA has assessed that Eastern
the Collingwood Shale, the Tuscaloosa
and 47 percent of its gas reserves. Europe may hold as much as 250 trillion
Marine Shale, the Mississippi Lime
Within the basin, the Vaca Muerta Shale cubic feet of shale gas, with Poland’s
and the Eaglebine Shale in the United
formation may hold as much as 240 Silurian Shale plays boasting 187 trillion
States. All have natural gas liquids or oil
trillion cubic feet of exploitable gas. cubic feet of that total. The Russia
potential and are in the early stages of
ExxonMobil has recently entered into Federation currently supplies 25 percent
exploration and development.
an agreement with Americas Petrogas of Europe’s natural gas, and Poland’s
for the Exploration and Production potential shale resources could reduce
(E&P) farm‐out of 163,500 gross acres Europe’s dependence on natural gas
of its Neuquén-based Los Toldos blocks. imports. Whether these reserves will
This area is also being explored and be developed is still to be seen, but the
developed by Shell, Apache, EOG, Total 38-million-strong Slavic nation will have
and Wintershall, among others. a strong claim to energy independence
as its projected reserves equate to 300
years of domestic consumption.
10

12. Several companies including ExxonMobil
and Chevron have begun to drill test
Other regions
wells and more than 100 companies India’s Oil and Natural Gas Corp (ONGC)
rushed to grab a share of Poland’s gas and US oil company ConocoPhillips have
concessions. Some of those early tests signed an agreement to explore and
produced decent flows, but others develop shale gas assets and look for
showed quite different results from opportunities in deepwater exploration.
wells drilled into US shale deposits. The agreement is for sharing technical
ExxonMobil said its two test wells did knowledge on shale gas explorations,
not justify commercial production. but ONGC and ConocoPhillips could
ExxonMobil said in January 2012 that also jointly bid for shale gas assets
two exploratory wells failed to flow overseas. India may still launch the first
enough gas to make development shale gas licensing round by the end
profitable. In June 2012, ExxonMobil of 2013 even though the government
announced it would end its search for pushed back plans to unveil a policy
shale gas in Poland.15 Flow rates at on exploration of unconventional
sites drilled by 3Legs Resources Plc. and gas resources trapped in rocks.
BNK Petroleum Inc. were not as high as
similar wells in the United States.
South Africa – The Karoo
Supergroup
Known by paleontologists as one of the
world’s most fertile hunting grounds for
fossil remains, the Karoo Supergroup
(KSG) might also be one of the most
plentiful sources of shale gas in the
world. The KSG is constituted mainly of
shales and sandstones and spans across
88,000 km², underlying more than
two-thirds of the entire area of South
Africa and containing an estimated
485 trillion cubic feet of technically
recoverable gas. Shale gas could reduce
the country’s dependence on coal to
fuel 85 percent of its energy needs.
11

13. In Focus
Shale developments in Argentina, China, Poland and
South Africa
A key objective of this report is to
highlight the trends and lessons learned
Argentina in 2011 due to decreasing exploration
activities in the past decade.17
from shale development in the United Argentina is the largest natural gas Meanwhile, the demand for natural gas
States that can be applied to shale producer in South America with 1,416 in Argentina has increased in recent
developments in other geographies. To billion cubic feet (bcf) annual output in years in line with economic growth,
emphasize this point, we will present 2010.16 Natural gas prices in Argentina and the country has had to rely on gas
four case studies in this report of four were kept low by the government imports from neighboring Bolivia and
very different shale developments: since the economic crisis in 2002. Liquefied Natural Gas (LNG) shipments.
Argentina, China, Poland and South As a result natural gas production Shale gas has brought new hope for
Africa. The following is a detailed dropped almost 15 percent from its addressing energy demands. Based
description of these shale developments. peak of 1,628 bcf and natural gas on an EIA estimation, Argentina has
tested reserves dropped 50 percent 774 trillion cubic feet of technically
to only 13.4 trillion cubic feet recoverable shale gas, which is almost
60 times that of its current tested
natural gas reserves.18 To encourage
Figure 5. Neuquén Basin Shale Gas Prospective Area and Basemap. domestic natural gas exploration
and production, the Argentinian
government introduced its “Gas
Legend Plus” program in 2008 to allow new
Neuquén Basin discovered unconventional gas to be
Thrust Fault sold at a higher price based on cost
City
Water
and reasonable profit.19 This incentive
program allows approved companies to
Cu
charge up to $5/thousand cubic feet
yo
(mcf) for their natural gas production.
Ba
sin
The Neuquén Basin covers the Neuquén
province and parts of Mendoza, Rio
Negro and La Pampa provinces in
central-west of Argentina, holding 407
lt
trillion cubic feet of the country’s 774
Agrid Fold & Thrust Be
trillion cubic feet estimated resources.
Andes Mountains
This basin largely overlaps with existing
natural gas production regions. The
Neuquén province alone currently
produces almost half of the nation’s
conventional gas.20 The geological
formation of the Neuquén Basin is very
Productive Area similar to major US shales with the
Extensional Structures average depth of the 204 trillion cubic
feet of recoverable shale gas in the Vaca
Muerta formation within the Neuquén
Basin at 2,400 meters. Geological
features and existing local natural gas
Colorado Basin
Neuquén
Huincul Arch / n infrastructure make future development
Dorsal de Neuque
in the Neuquén Basin very promising.
h
Nort onian
Other basins including the San Jorge
g Basin and the Austral Magallanes Basin
Pata f have 95 trillion cubic feet and 172
i
Mass trillion cubic feet reserves, respectively.
Source: “World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States,”
U.S. Energy Information Administration, 2011, www.eia.gov.
12

14. Many shale operators have started
exploration activities in Argentina.
China Data from a recent Ministry of Land and
Resources (MLR)-led geological survey
Apache partnered with YPF, previously The recent success of shale gas shows China has 882 trillion cubic
controlled by Repsol, but was development in the United States, as feet of technically recoverable shale
renationalized in April 2012 by the well as a domestic push to reshape the gas resources, a lower figure than the
Argentinian government, to explore energy structure to reduce dependence EIA’s estimate. Figure 6 illustrates shale
unconventional resources including on coal, has put shale gas under the gas distribution in China. The Sichuan
shale gas in the Neuquén and Austral spotlight in China. In December 2011, Basin in the Upper Yangzi region and
Basins. Apache has been awarded the China State Council approved shale southwest China (a region covering
1.6 million gross acres (3,642 km2) gas as a new type of natural resource Sichuan, Chongqing, Yunnan, Guizhou
in the Neuquén Basin for shale gas that will be managed separately from and Guangxi provinces) has 10 trillion
development and the company drilled conventional gas.23 In March 2012, cubic meters (350 trillion cubic feet) of
the first horizontal multi-fracture shale the National Development and Reform shale gas, which equates to 40 percent
gas well in South America in 2011.21 In Commission (NDRC) issued its Shale Gas of total national reserves. Unlike US
May 2011, one of Apache’s horizontal Development Plan (2011–2015)24 that formations, where most shale seams
wells in the Neuquén Basin tested at sets clear targets for the industry by are at depths of less than 3,000 meters
a rate of 7 million cubic feet (mmcf)/ 2015 and 2020. However, the shale gas (with the exception of the Haynesville
day. Canadian firm America Petrogas industry in China remains at an early Shale), the shale-bearing layers in many
joined with ExxonMobil to explore 660 stage with most activity in exploration Chinese formations are between 3,000
km2 of blocks in the Neuquén Basin. and drilling of test wells. to 5,000 meters deep. Therefore, US
The company drilled a test well together shale gas development models cannot
with ExxonMobil and the result is be simply replicated in China and the
under evaluation.22 With undergoing complex geological conditions will
exploration activities, EIA’s original increase the cost of drilling wells.
estimation on Argentina’s shale gas
potential is waiting to be confirmed
with new data from the operators.
Figure 6. Shale gas distribution in China.
Northwest zone
15%
North and
Northeast zone
26%
Upper Yangzi &
Southwest zone Lower Yangzi &
40% Southeast zone
Sichuan
Chongqing 19%
Guizhou
Yunnan
Guangxi
Source: China Ministry of Land and Resources, People’s Republic of China, www.mlr.gov.cn.
13

15. The shale gas industry has, for the China CBM has proposed to start The average depth of shale formations
first time, been put in a strategically exploring three regions in Shanxi in Poland is from 2,500 to 3,800 meters,
important position in the government’s province.26 In the first round of national which is up to twice as deep as the
12th five-year energy plan (2011–2015). shale gas exploration rights auctions, average depth of 2,000 meters observed
In addition, the Shale Gas Development organized by the MLR, Sinopec and in the Marcellus Shale.29 30 Variations
Plan (2011–2015) states that by 2015, Henan Coal Bed Methane Co won the have been observed among different
the government aims to complete an bid. A second round of auctions is due basins, with 1,000–4,500 meters depth
investigation on shale gas reserves and to start in late 2012. for the Baltic Basin, 1,000–3,500 meters
their national distribution. The plan also depth for the Lublin Basin, and 4,000–
estimates annual production reaching International oil majors are actively 5,000 meters depth for the Podlasie
6.5 billion cubic meters (230 billion partnering with NOCs to enter China’s Basin (near Warsaw). These geological
cubic feet) and confirmed technically shale gas market. CNPC and Statoil characteristics could likely result in
recoverable reserves reaching 600 began test drilling in China in early higher drilling costs, linked to higher
billion cubic meters (21 trillion 2011. Sinopec has teamed with BP to demands on water in the drilling stages.
cubic feet) by 2015. With almost no explore shale gas in Guizhou in 2010,
commercial production today, reaching joined forces with ExxonMobil to Shale gas activities in Poland started
such targets will require significant conduct geological research in Sichuan, in 2007; by September 2011, a total of
investment at each stage of the value and is also working with Chevron in 101 shale gas exploration authorizations
chain in the next couple of years, as Guizhou to carry out risk assessments. had been granted and another 26
well as technology development and Shell is the most active international oil applications were being processed.31
collaboration between national oil company (IOC) in China, and has already International oil majors have entered
companies (NOCs) and experienced shale signed the first production-sharing the Polish market in the form of joint
gas operators from other countries. contract with CNPC to explore, develop ventures. 3Legs Resources formed
and produce shale gas. a joint venture with ConocoPhillips
NOCs and state-owned entities have to evaluate shale gas potential in
been the first to be allowed to explore
and develop shale gas resources in
Poland the Baltic Basin and drilled the first
exploration well in Poland. PKN and
China. So far most activities are in Poland has the most significant shale PGNiG are the most active Polish
exploration, with only very limited gas potential in Europe. Poland’s operators. As of August 2011, based
commercial production. The three major shale gas resources are located in on square kilometers covered, the top
NOCs (CNPC, Sinopec and CNOOC), the Baltic-Podlasie-Lublin Basins (see 10 concession holders in Poland were:
Yangchang Petroleum Group, and China Figure 7), creating a strip across the (1) San Leon Energy with 14 licenses
United Coalbed Methane Co (China country from northwest to southeast. covering 11,520 km2, (2) ExxonMobil, (3)
CBM) are actively involved in shale gas The EIA estimates 187 trillion cubic PKN Orlen, (4) Chevron, (5) Marathon
exploration. By the end of 2011, CNPC feet of technically recoverable shale Oil & Gas, (6) BNK Petroleum, (7)
had drilled 11 test wells in southern gas resources in the Baltic-Lublin- 3Legs Resources, (8) Nexen, (9)
Sichuan and northern Yunnan, four of Podlasie Basins of Poland; of those, ConocoPhillips and (10) Petrolivest.32
which had exhibited industrial-level 120 trillion cubic feet are in the
gas flow. Sinopec has its exploration Baltic Basin.27 A report released in
activities mainly in Guizhou, Anhui March 2012 by the Polish Geological
Sichuan and Chongqing. In Chongqing, Institute was able to confirm 67 trillion
Sinopec has shale gas production in cubic feet of technical recoverable
Liangping County with an estimated shale gas resources in these three
annual output 300–500 million cubic basins after a 16-month research
meters (10–18 billion cubic feet).25 project with external support from
Yanchang Group is very active in its the U.S. Geological Survey.28
traditional territory of Shannxi province
and has successfully fracked the first
horizontal well in China.
14

16. With authorizations received, current transforming the coal-based electricity
industry activities have moved onto generation sector. A consortium formed
drilling of testing wells. 22 exploration with state-owned power utilities
wells were started in 2011 and 13 wells companies and PGNiG will co-finance
were completed by February 2012. 14 and co-develop shale exploration along
new exploration wells were planned the Baltic coast. Utilities will finance
for late 2012 and as many as 123 wells exploration activities in exchange
are planned by 2017.33 So far, state- for future gas supplies in off-take
owned PGNiG, 3Legs Resources, BNK, agreements.35 Poland’s Treasury Minister
Talisman Energy, Marathon Oil and said the country may be producing one
ExxonMobil have all completed their billion cubic meters (35 billion cubic
first batch test wells. ExxonMobil, BNK feet) of shale gas per year by 2014.36
and 3Legs released rather disappointing
results, stating that the gas flows in
their testing wells are lower than similar
prospects in US shale and commercial
production cannot be justified.34
Despite this negative news, the Polish
government strongly believes shale
gas would help to reduce the nation’s
energy dependency on Russia and cut
greenhouse gas (GHG) emissions through
Figure 7. Map of Poland’s shale gas basin.
Kaliningrad
Gdansk
Baltic Basin
Szczecin
Mazury - Belarus High
Bydgoszcz Bialystok
Berlin
Poznan
Warsaw Podlasie Basin
Brest
Lodz
Lublin
Legend Czestochowa Lublin Basin
Trans-European Fault Zone
Faults
National Capitals Katowice
Major Cities Krakow
Ostrava
Poland Shale Basins
Prospectivity
Non-Prospective
Prospective
Source: World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, U.S.
Energy Information Administration, 2011, www.eia.gov.
15

17. South Africa Shale.40 However, the Karoo Basin
contains significant areas of volcanic
South African regulations, TCPs allow
no more than desktop research; with
South African electricity generation intrusions that impact the quality further applications required to obtain
is currently heavily coal-based. The of the shale gas resources, limit the authorization for physical exploration
Department of Energy intends to use of seismic imaging and increase activities. However, the application
have 9 percent of energy from open the risk of shale gas exploration. to convert these TCPs into physical
cycle gas turbines by 2030 and shale exploration licenses was suspended
gas could help to reach this target.37 A number of companies have started over a year to allow the government to
According to the EIA, South Africa has pursuing shale gas development in the conduct policy and technical reviews
an estimated 485 trillion cubic feet Karoo Basin by obtaining Technical before final decisions.42 On September
of technically recoverable shale gas Cooperation Permits (TCPs) from the 7, 2012, the South Africa government
located in the Karoo Basin (see map, South Africa Petroleum Agency (see accepted the recommendations from
Figure 8). Of this, 298 trillion cubic map, Figure 8). Shell is the biggest the Department of Mineral Resources
feet is believed to be in the Whitehill TCP holder with 185,000 square (DMR) and finally lifted the moratorium
Shale.38 The real volume of shale gas kilometers of land in the Karoo Basin. on shale gas exploration.43
reserves is still waiting to be confirmed Falcon Oil and Gas has 30,000 square
through physical exploration activities. kilometers of TCPs. Sasol, Chesapeake
and Statoil have formed a joint venture
Unlike Poland and China, where shale and together hold 88,000 square
gas formation are buried deeper kilometers of TCPs, but in December
than the United States, the average 2011, Sasol decided to put its Karoo
depth of shale gas in South Africa shale gas plan on hold.41 Anglo Coal
is 2,500 meters (8,000 feet),39 and Australian Sunset Energy also
which is quite similar to the Barnett have their own TCPs. According to
Figure 8. Map of operators’ TCP coverage in the Karoo Basin.
Botswana Pretoria
Mbabane
Johannesburg
Swaziland
Namibia
South Africa
Maseru
Sasol/Statoil/ Lesotho
Chesapeake Durban
Anglo
Coal
Shell
Ecca Group
Sunset Karoo Basin
Energy
Falcon Oil and Gas Operator
Anglo Coal
East London Falcon Oil and Gas
Port Elizabeth Sasol/Statoil/Chesapeake
Cape Town Shell
Sunset Energy
City
Source: “World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States,” U.S. Energy Information Administration, 2011,
www.eia.gov.
16

18. 17

19. 2
Water regulation
The topic of shale gas regulation is dominated by hydraulic
fracturing, the key feature of shale gas that separates it
from well-regulated conventional gas production. However,
existing regulations to protect water resources during oil and
gas development are also affected by the greater intensity of
water, energy and infrastructure used in shale gas operations.
This consequence is driving significant uncertainty in the US
regulatory landscape, which is still adapting to the new industry.
The speed of industry growth has outpaced the availability of
rigorous data on its potential impact, which has hindered the
ability of government to adequately assess and regulate operations.
This situation has led to a patchwork regulatory landscape and
to a moratorium on shale gas development in New York State,
France and Bulgaria. To resolve this issue, there has been renewed
focus by the US federal government on establishing better
understanding of the potential impacts of shale gas development,
to most effectively regulate this critical new energy resource.
18

20. 2.1 State regulations
The current regulatory landscape
is comprised of an overlapping
collection of federal, state and local Regulation of oil and gas production
regulations and permitting systems, has traditionally occurred primarily at
Regulatory history implemented by oil and gas, natural
resources and environmental agencies.
the state level. This level of regulation
is also the case for shale gas, with
and the current A mapping of current federal and state
regulation is shown in Figure 9. These
most shale gas-producing states
issuing more rigorous standards that
landscape regulations cover different aspects of
the development and production of a
take primacy over federal regulations,
as well as additional regulations
Hydraulic fracturing of gas wells shale gas well, with the intention that that control areas not covered at
began in 1949; however, it remained they combine to manage any potential the federal level, such as hydraulic
largely unregulated until significant impact on the surrounding environment fracturing. Within states, regulation
unconventional gas production began and water supplies. These combinations is carried out by a range of agencies.
around the millennium with the of regulations have long served to Energy or natural resource-focused
commercial development of coal- regulate oil and gas development in departments generally set requirements
bed methane. As production grew, numerous states; however, the new for site permits, drilling, completion
media reports and public complaints process of hydraulic fracturing is and extraction, while environmental
of drinking water contamination something that has not previously or water departments regulate water,
raised concerns, leading the EPA to been managed by these regulations. emissions and waste management.
commission a study into the risks of Therefore, the related intensity in
hydraulic fracturing to drinking water. terms of water, emissions and site The specific regulations vary
In 2004, this study found that hydraulic activity mean existing regulations are considerably among states, such as
fracturing of coal-bed methane being reassessed for their suitability different depths for well casing, levels
posed minimal threat to underground for this new production method. of disclosure on drilling and fracturing
sources of drinking water, which was fluids, or requirements for water
a significant finding in support of the storage. The majority of states in shale
industry. In 2005, following the EPA
Federal regulations gas-producing regions now have varying
report, the federal Energy Policy Act With its exemption from the SDWA, hydraulic fracturing regulations on
granted hydraulic fracturing a specific hydraulic fracturing is not directly their books, specifically for disclosure
exemption from the Safe Drinking regulated by federal standards. However, of fracking fluids, proper casing of
Water Act (SDWA), which regulates all a number of federal laws still direct wells to prevent aquifer contamination
underground injection. oil and gas development, including and management of wastewater from
shale gas.44 These regulations affect flowback and produced water. Disposal
Since the Energy Policy Act passed in water management and disposal, as of wastewater by underground injection
2005, shale gas production in the United well as air quality and activities on has emerged as a point of concern for
States has grown significantly, from less federal land. The Clean Water Act state regulators due to large inter-state
than one trillion cubic feet in 2005 to is focused on surface waters and flows of wastewater to states with
over three trillion cubic feet in 2009. regulates disposal of wastewater and suitable geology for Class II disposal
Such rapid growth, along with continued also includes authorizing the National wells and reports of earthquakes near
reports of environmental effects, has Pollutant Discharge Elimination some well sites. States such as Arkansas
led to renewed calls for change in the System (NPDES) permit program, as and Ohio have placed local moratoriums
regulatory landscape, particularly for well as requiring tracking of any toxic on disposal wells in locations where
the federal government to provide chemicals used in fracturing fluids. increased seismic activity has been
increased regulation or guidance. This recorded and Ohio is developing rigorous
pressure led to the introduction to Outside water use, the Hazardous new standards for disposal wells.45
congress of the FRAC Act in 2009, Materials Transport Act and Oil Pollution
which sought to repeal the 2005 SDWA Act both regulate ground pollution
exemption and require disclosure of risks relating to spills of materials or
components used in all fracturing fluids. hydrocarbons into the water table.
The bill was sent to committee but
was not passed to congress for vote. In
the absence of new federal regulation,
states have continued to use existing oil
and gas and environmental regulations
to manage shale gas development, as
well as introducing individual state
regulations for hydraulic fracturing.
19

21. Figure 9. Federal and state regulation mapped to the shale gas lifecycle.
Civil/site prep Drilling Completion/ Flowback Production
Build access roads, Drill vertical and fracking Capture, store and Capture, store and
construct and install horizontal wells Complete wells with treat returned transport gas
well pads, prepare site steel and cement fracking fluids
for drilling casings
Release gas through
hydro-fracking
Typical
timelines 60 days 15-60 days 15-30 days 20 days
• The National Environmental Policy Act (NEPA) • The U.S. Department • The Clean Water Act (CWA) regulates surface
requires that exploration and production on of Interior Bureau discharge of produced water and storm water
federal lands be thoroughly analyzed for of Land Management through the National Pollutant Discharge
environmental impacts. (BLM) is responsible Elimination System (NPDES) permitting
for issuing fracking process.
• Under the Clean Air Act, National permits on federal
emission standards for hazardous air pollutants lands. • The CWA sets wastewater standards for
(NESHAP) are used to limit toxic pollutants. industry, and water quality standards for
Federal regulatory impact
• Hazardous chemicals contaminates in the surface water.
• Under the Clean Air Act, Engine NESHAP rules must be recorded on
regulate newly refurbished engines including material safety data • The Oil Pollution Act (OPA) enforces spill
monitoring and reporting requirements. sheets and reported prevention requirements and reporting
in the event of a operations.
• The US Environmental Protection Agency (EPA)
has proposed new performance standards for crisis as part of the • The EPA has proposed that drillers use “green
toxic air emissions for oil and natural gas Emergency Planning completion” techniques to reduce emissions of
production. and Community volatile organic compounds from wells.
Right to Know Act. Green completions are required in Colorado
• The US EPA administers most of the federal laws. and Wyoming.
• Hazardous Materials
Transportation Act • Comprehensive Environmental Response,
regulates the Compensation and Liability Act (CERLA)
transport of enables the federal government to respond to
hazardous materials. releases of hazardous substances that threaten
human health or the environment.
• States are able to implement federal regulations. • Transportation of • The Safe Drinking Water Act (SDWA) excludes
water, sand and fracking from its Underground Injection Control
• All states require a permit to drill and operate additives are (UIC) program. Instead, the EPA and states
a well. regulated under implement the UIC program to protect
• All states have regulations regarding drilling, state regulations. groundwater resources. Forty states have primacy
abandonment and plugging of wells. for this with the EPA implementing the
• Disclosure of program directly in New York and Pennsylvania.
• States regulate the effective casing and chemicals used in
fracking is regulated • Groundwater is often protected under State
State regulatory impact
cementing of wells.
at a state level, but Pollutant Discharge Elimination System
regulations differ in (SPDES) permits rather than just discharges
strength. Wyoming, to surface water, as with the NPDES permits.
Texas and Arkansas
require disclosure of • In addition to state regulations, the Delaware
all chemicals, River Basin Commission and Susquehanna
Pennsylvania and River Basin Commission impose water quantity
Michigan only laws.
require disclosure • States regulate hazardous wastes and
deemed hazardous, implement waste management procedures that
Louisiana and are exempt from the federal Resource
Colorado are Conservation and Recovery Act.
expected to
implement disclosure
regulations soon.
20