Friday, September 19, 2014

Drew EGC Report

Industry versus the Greens: Room for Compromise

For people in the oil and gas industry, it's the stuff of nightmares - usually: a face-to-face forum with environmental groups, who, it sometimes seems, are opposed to pretty much everything.

But such bad dreams have been put to bed for unconventional gas explorer Falcon Oil & Gas, or at least for their subsidiary in Hungary, TXM Kft. (at least for now).

According to the recommendations of a study initiated by the company, Falcon/TXM, with the help of Hungary's Center for Fair Political Analysis, organized a forum this week in the Hungarian capital, Budapest, which assembled several green groups for a roundtable discussion and debate entitled Shale Gas Production in Hungary: the Prospects and Risks. (Local press were also invited.)

The environmental groups, among them a local Greenpeace representative, were allotted time to present their stances/questions/concerns on shale gas.

Later on, Gábor Bada, Exploration Manager of TMX, outlined the company's plans for the exploration and production of shale in Hungary's Algyő formation.

Last but not least, green groups posed their questions and concerns about shale gas extraction to Mr. Bada and Dr. György Szabó, Director and Managing Director of TXM.

The session began with comments from Alexa Botár, Climate Program Director, Hungarian Association of Environmentalists, who began by saying that shale gas resource estimates were typically overblown.

"In general, the amount of shale gas that can be economically produced is usually one-tenth of the estimated resource. Obviously, in Hungary there's no exact, independent resource estimate and it would be necessary to have a more precise portrait," said Ms. Botár.

She showed those in attendance a graph of how quickly natural gas production drastically decreased for shale gas wells, explaining that this mandated the constant drilling of new wells, which in turn required constant capital expenditures. But she said this not necessarily result in a huge creation of jobs as unconventional E&P needed specialized workers.

She added, "Not only is it much more expensive to drill wells in Europe, but because of the geology it can cost 2-3 times as much as in the US."

Greenpeace's Gergely Simon, Regional Chemical Expert, expressed numerous concerns about the potential risks of the hydraulic fracturing process, among them aquifer contamination and seismic activity. He said he was curious how TXM/Falcon could mitigate such risks in Hungary's shale-rich Makó trough, as he said he had not heard good answers to such questions.

Of fracking, he said, "When this technology is allowed it involves pumping tons of chemical components underground. We've heard, at numerous roundtable discussions, that Falcon only intends to pump water underground, or if they use any chemicals then the smallest necessary amount, which shouldn't cause any problems."

Mr. Simon mentioned possible components of hydraulic fracturing fluid, like acid or biocides and said that many times fracking fluid could contain carcinogens or elements that could be harmful to the human nervous system.

Then, TXM/Falcon Exploration Director, Gábor Bada, provided an overview of shale gas E&P and Falcon's plans in Hungary, including a potential 160 drilling sites spaced 2km apart, 4-8 wells with 1-2 horizontal drillings and a potential 1-6 hydraulic fracturing operations. 

He admitted that there were numerous question marks regarding the environmental, legal/regulatory and political aspects of the technologies used in extraction.

Mr. Bada showed a table of the various risks involved, each receiving a classification depending on the level of risk. He admitted, "When one looks at the table, it's immediately obvious that many of the highest risks involve water: the use of chemicals, what happens to the water in the subsurface, what chemicals come back with the produced water, and if they come back how it needs to be treated, etc. Across the globe, this is one of the key concerns."

He showed a diagram depicting how hydraulic fracturing would only take place roughly 2.5km below aquifers in Hungary and spoke of the multiple layers of casing used in the construction of wells.

Mr. Bada also made a very resolute statement about mitigating any possible risks of water contamination: "TXM has taken things a step further and, although we are completely convinced that drinking water aquifers would be absolutely safe in accordance with the opinions of engineering experts, have decided that we won't be using any chemical hydraulic fracturing fluid or any proppant in the development of the Algyő formation.

"We hope we won't need to frack," he continued, "as we'd save a lot of money, but if we must we'll use clean water."

Hungary's energy security was also a question/concern given that Serbia's gas company NIS (whose major shareholder is Gazprom) is one of Falcon/TXM's partners in shale gas exploration in Hungary. Mr. Bada assuaged the concerns of some by offering that the Hungarian state earns about 15 euro cents for every 33 euro cents invested in shale gas production.

It turns out that, at least in this case, engagement between industry and environmental groups is an excellent strategy for potentially moving things forward for shale gas E&Ps.

Of her impression of the event, Ms. Botár commented: "We received clear answers to many of our questions, but there are still many questions to be grappled with."

Mr. Simon of Greenpeace added that TXM/Falcon's open and transparent approach of hosting a discussion with green groups offered a big contrast to other oil and gas operators in Hungary.

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