Fracking blockages

A recent note from Citi gives a good round-up of the barriers to expanded gas and oil fracking in Australia as presented at recent conference.

Investor “ESG” Perspectives
We have focused this note on issues relevant to clients (fund managers and superannuation funds) who are looking at the unconventional gas industry from an “ESG” (Environmental, Social and Governance) perspective.

In Australia, various investor collaborations are underway, considering their approach to the unconventional gas industry from an ESG risk perspective. Some investor ESG-related considerations include:

The potential for project delays or higher costs due to environmental / social issues;

  • Whether investee companies are broadly adopting “best practice’ or whether companies might strengthen their approach to managing “ESG” issues;
  • Whether investee companies might incur a longer term liability to “clean up” environmental impacts, including on aquifers;
  • The role of gas in a transition to a carbon constrained world, including the lifecycle emissions performance of CSG/LNG, including consideration of fugitive methane emissions.

In addition, some investors with an “ethical” mandate take an “ethical” approach to their deliberations of these issues.

Our Key Takeaways
Coexistence – CSG and Agriculture
In general, the agricultural industry representatives who presented appeared to accept that coexistence was inevitable, so the focus should be on best practice and minimising impacts. However, they acknowledged that some of their members strongly oppose the CSG industry.

A wide range of well recognized issues was raised. These included water concerns, reduced landowner autonomy over their land and farming activities, fragmentation, and introduction of weeds. Some landowners feared lower property values as a result of CSG, though others pointed to very limited transactional or valuation data on this.

A speaker noted the need to ensure appropriate company-landowner interactions despite the pressure to achieve construction and production time frames, and avoid instances of “rogue activity” by some liaison staff.

In discussion, some landowners present, who had signed land access agreements, commented that they had little choice but to sign, since the court would only arbitrate terms of access, not whether access should be provided or not. Clearly some landowners are happy and others less so.

Water Remains a Key Concern
Water appeared to be the major concern expressed – both contamination and drawdown.

Agricultural representatives noted that water contamination is very difficult or impossible to “make good” after the event, so concerns remain. Speakers indicated a need for greater comfort that aquifer contamination would not occur. Several speakers suggested that contamination risk would be avoided by well integrity measures, and avoiding surface spills. Mobilization of contaminants from coal seams into aquifers was another expressed concern.

One speaker was most concerned about the potential for salt extracted from produced water to be stored in such a way that it might get back into groundwater. We suspect that the risk of broadscale aquifer contamination is low, but it seems that providing adequate comfort to agricultural communities remains a considerable challenge.

A question from the audience related to concern about make good provisions in Queensland, where the Underground Water Impact Report shows significant water drawdown in certain areas over project life (see Figure 1 and Figure 2). The landowner expressed concern that major impacts on a QLD landowners’ bores may be decades away, after the end of project life, and queried where “make good” water would come from at that stage (assuming that treated produced water may be made available during the production phase of the project).

Capture

Uneven Playing Field / Information Asymmetry / Data Transparency / The “Truth” / Assessing Risk
There are a number of challenges for the industry in improving community acceptance and dispelling concerns.

The public debate tends to be confused. Fracking, for example, can refer to the technical operation conducted at the wellbore, but is now also more broadly used in public debate to refer to the entire unconventional gas industry’s operations. There is little conclusive evidence of contamination relating to fracking activities. Media and web searches tend to focus on stories that make sensational headlines. The most frequently quoted academic papers are not necessarily the most reliable, and may have been widely rebutted.

There is asymmetry in access to data, with companies often perceived as not being open and transparent with all data, though this may be improving. Improving data transparency may run counter to the petroleum industry’s broader culture.

Examples were given where data sought by researchers or requested by landowners was not readily accessible or provided. Speakers also observed that companies had better access to legal support than landowners when negotiating access agreements, further contributing to an uneven playing field.

It can be challenging to identify credible researchers who are accepted as being independent. Strong governance of research institutions is seen as critical if institutions are to be seen as credible and independent. It was suggested that research needs to actively look for impacts of CSG, and results should be assured (by a perceived credible independent assurer – which again can pose a challenge).

Risk must be assessed based on likelihood and significance. Significant risks then need to be avoided. But risks can tend to be over-emphasized, generating an emotional response. What level of confidence is required? One speaker commented that industry tends to dismiss concerns first, and then may investigate the facts afterwards, which can engender suspicion. Companies may claim “no impact” without monitoring and providing data to substantiate that assertion. Examples were given. A speaker suggested radon should be investigated, with elevated levels reportedly observed near Tara in QLD.

Comments

  1. What is mostly being overlooked in this coal seam extraction debate is what happens when the draw down of the gas falls.

    The only method to extract, de-adsorb, more gas from the coal is to lower the water pressure head on the coal.
    You do that by pumping out more and more water.

    A major unknown about this whole gas project is the volume of gas available and its rate of draw down, as benchmark testing of the drawdown rate has not been widely carried out. It is likely this whole gas thing could fall over in the first year after the wells are tapped.
    It is planned to drill up to 40,000 wells to extract the gas. As the general water table is lowered from the pumping out of water to extract the gas, no one knows what will occur.

    If the gas price keeps falling this whole project could be the whitest of white elephants, causing extreme long term damage to the rural environment.

    It is best to shut it down now.

    WW

  2. http://www.adelaidereview.com.au/features/article/navigating-our-ancient-underground-labyrinth

    A four-year study of the western margin of the Great Artesian Basin (GAB) has shown the basin to be a much more complex system than previously thought.
    . . .
    One of the largest groundwater reservoirs in the world, the (GAB) lies beneath 22 percent of the Australian landmass, from Queensland’s wet/dry tropics, to the arid areas of SA’s Lake Eyre region. It underlies not only much of the Lake Eyre surface catchments, but most of the Queensland portion of the Murray-Darling Basin and a large part of the plains country of northern New South Wales.

    The project has revealed that the only modern source of groundwater recharge (inflow) on the western margin occurs beneath specific ephemeral rivers, primarily the Finke and Plenty as a result of monsoonal flow events. But the recharge these rivers yield is insignificant and effectively zero for management purposes. Similarly overland flow sourced recharge in the region has been effectively zero since the last wet phase around 6000 years ago. However, groundwater still discharges via slow upward movement of water through the numerous iconic mound springs in the region. The groundwater system is not in a steady state as previously thought, as the discharge is significantly greater than the recharge and the aquifer water pressure is undergoing a natural long term decline.
    . . .
    A fascinating feature of the spring waters is the presence of primordial Helium 3, indicating a linkage between the Earth’s mantle and the surface. Indeed the mound springs are associated with a zone of weakness in the Earth’s crust that has been present for the last 800 million years since the break-up of the super continent Rodinia. This finding indicates a significant vertical water source in the GAB in addition to the eastern and western horizontal flows previously known. 

    Associate Professor Andrew Love and collaborators from the University of Bern and Argonne National Laboratories have been trailing a new technique to determine groundwater ages. The method involves the measurement of naturally occurring Krypton 81, a noble gas radioisotope with a half-life of 230,000 years making it an ideal tracer for dating large groundwater systems such as the GAB.  In the western margin of the GAB, groundwater ranging in age from modern water up to 500,000-year-old groundwater has been found to occur from the springs, which convert to groundwater flow rates from west to east in the range of 0.25 to 0.5 m/year.

    Referring to a new groundwater model of the basin, Associate Professor Andrew Love estimates under current climatic conditions, it would take in the order of 50,000 years for the basin to establish a new water balance, where recharge equalled discharge, albeit at a lower water level than the level resulting from the legacy of the wetter Holocene era (not accounting for human extraction via bores).
     
    It is clear that the basin water store is a legacy of a wetter era. Maintaining water security for the region, including mound spring flow for the foreseeable future, will require management interventions tailored to the labyrinth of vertical and horizontal geology, groundwater levels and pressure of each sub aquifer.

    “a significant vertical water source”
    “a linkage between the Earth’s mantle and the surface”

    Our knowledge of what happens deep underground is one of the last frontiers that we know almost nothing about.