Shale gas development: Water remains key to untapped potential

US lessons for new operators in global shale gas developments

Governments and operators should learn from the world's leading natural gas player, said Accenture in its latest report.

Shale gas is projected to increase to half of total gas production in the United States, the foremost gas producer with more than a quarter of global exports.

Elsewhere, governments seek to tap large reserves to reduce dependency on gas imports and in China, home to the world's largest fuel deposits, operations are already underway.

Royal Dutch Shell agreed to explore, develop and produce shale gas in China, and CNOOC, China's biggest offshore energy producer, plans to develop unconventional resources to meet output targets.

Poland has as many as 123 testing wells planned by 2017. The country has the largest shale potential in Europe and the government believes it will alter its energy mix.

South Africa has commenced upstream projects to shift away from coal, and players including Shell, Total and ExxonMobil have actively sought Argentina, the number three behind China and US.

But regulation and water management remains challenging. Shale fracking is highly water-intensive and generates more emissions than conventional gas.

Governments have failed to catch up with the speed of growth, and only just begun to explore shale fracking regulations. The current regulatory framework is a patchwork landscape that does not cover unique water challenges.

Water management is one of the most contentious debates. Large volumes of freshwater are needed to fracture wells, and increasingly there is a growing need for water in dry regions and areas with high demand.

China is facing a serious water crisis--resources are scare and unevenly distributed. The country had faced severe drought in areas with large shale reserves and ministry data showed that 39 million people and livestock in these areas could not access drinkable water.

Shale gas development competes with agriculture for water in Argentina, and with less than half the world's average rainfall, the arid climate in South Africa causes shortage.

The experience is, however, different in Poland. With sufficient rain and local regulations that prevent exploitation, water resources are not likely to be affected by shale gas operations. That said, the country lacks treatment facilities and is not spared from water pollution.

While water pollution is causing public concerns, the Massachusetts Institute of Technology (MIT) has found no conclusive evidence of contamination in its review of publicly reported incidents.

"The environmental record of shale gas development has for the most part been a good one," MIT said in its 2011 Gas report. But it warned that one poor fracking operation may cause damage and any inherent risks must be addressed.

Accenture has put forth key trends in water regulation and management in its latest report,Water and Shale Gas Development: Leveraging the US Experience in New Shale Developments. The report drew key lessons from the US' experience in shale and urged governments and operators to leverage on it.

Growing standardisation and laws to increase transparency may set the new operating climate, and there may be increased emphasis on waste streams treatment and restrictions to water access.

Competition for freshwater resources will make water reuse more attractive and the price of natural gas will continue to drive investments and options in managing water.

Emerging markets can tap on large volumes of US data and engage operators to implement feasible regulations and reduce cost of compliance.

"Successful oil and gas operators will be those that understand the local water challenges, leverage the learnings from the US plays and develop the right water sourcing, use/reuse, treatment, disposal and supply chain strategy," said Melissa Stark, Managing Director and Clean Energy Lead for Accenture's Energy industry group.

"One key opportunity for new geographies where infrastructure is a challenge is to explore sharing the development of infrastructure, water treatment facilities and the development of the local supply market."

Regulatory agencies must collaborate and balance national governance with regulations in specific areas, and increasing efficiencies and water management options will be advantageous in a stricter regulatory climate.

The commercial viability of shale gas reserves depends on current concerns and while US development models cannot be simply replicated, the lessons serve to highlight potential pitfalls as governments explore this critical new resource.