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GasMart 2011: Shale Gas 'Under Siege,' Says Former Regulator

The shale natural gas industry is "under siege" by some critics and without the public's support, access to the massive reserves also could be diminished, an industry executive said Wednesday.

Business, academic and industry experts came together on Wednesday at GasMart 2011 in Chicago to discuss whether natural gas will become the bridge fuel to a more secure energy future.

Alcoa Inc.'s Dave Ciarlone, who manages Global Energy Services for the leading aluminum producer, moderated a diverse panel on the opening day. Sharing the panel were CenterPoint Energy Services' Dick Snyder, division vice president of Business Development; Schlumberger's Jeff Spath, vice president of industry affairs; Terry Engelder, professor of geosciences at Pennsylvania State University; and Financial Dynamics' Chris Tucker, a senior vice president.

John Hanger, the former secretary of the Pennsylvania Department of Environmental Protection (DEP), today is special counsel for Eckert Seamans. He also shared the panel, telling the audience that the gas industry needed to "protect the brand identity" that gas is a cleaner fuel and important for a sustainable future.

"There has to be truth behind the brand," Hanger said. "It is under siege to say the very least."

Hanger helmed DEP as the Marcellus Shale began to emerge as one of the greatest of the big shale plays. He helped to steer through more stringent drilling regulations, with industry support. And he continues to believe that developing shale gas means a lot to Pennsylvania's future and to the country. But the industry faces hurdles, he said.

The impact on water from drilling wastewater on streams, private water wells and withdrawals "is the No. 1 issue whether it's real or not," Hanger said. "When there are operational problems and accidents, the media is all over it...

"I've told people time and time again that drilling is an industrial process. Even when it is done excellently, it's not perfect."

In the Marcellus Shale the public is particularly concerned about truck traffic and its impacts, said Hanger. The public also strongly favors taxing gas producers for production in the massive shale, with roughly 70% in support, he said.

In addition, properly enforcing regulations -- with industry's support -- "is critical to maintaining public support." The Pennsylvania DEP issued 1,200 violations during 2010. Because the "credibility of regulations and regulators is greatly under siege...I think it's absolutely vital that regulators are independent of all involved...not be a friend or foe to anybody..."

Another concern about Marcellus drillers: gas migration, which is "a real issue...that can be managed by preventing conditions and the circumstances leading to the migration," said Hanger.

For many, there is "no clear benefit for public health in the minds of the public from gas production." The coal industry has managed to convince some that coal is "cleaner" than natural gas but "90% of the toxic pollution from power plants is from coal-fired power plants. Natural gas is the solution, not part of the problem," said Hanger.

"I clearly remember how a promising energy technology, the nuclear industry, lost the confidence of the public and billions of dollars that had been invested were abandoned," Ciarlone said. "It's been 30 years since Three Mile Island, and nuclear is just gaining traction again...

"I'm more concerned, with each adverse study about shale and public reaction...there's just too many times and then you become sort of tone deaf. It's self defeating...Without significant changes, shale gas, like nuclear power, could be more remembered for promises made than hopes realized."

The panel was asked whether it had been a mistake for shale operators to not disclose the chemicals used in hydraulic fracturing sooner than they did.

"I understand the reasons the chemicals weren't disclosed...the importance of laws to protect intellectual property," said Hanger. "However, in this circumstance the failure to disclose fed tremendous public concern..." The industry has "to talk to those in the middle. Not just the choir, the 'drill, baby, drill' folks, or those impervious to discussion. The big group is in the middle..."

Going forward, an "important effort" has to be made to "undo the damage," he said. The Pennsylvania DEP put up on its website a list of chemicals in 2008, which was updated in 2010. "It helps to some extent," but the debate is in a "different place" now and the industry "still faces significant issues."

"We probably didn't do ourselves any good by reluctantly admitting to the chemicals" used in hydraulic fracturing, said Schlumberger's Spath. Once asked, the top service providers "released a chemical list of ingredients, not the formula. But we could have done it much earlier in hindsight, and not delay" when asked by the Environmental Protection Agency to disclose the chemicals used (seeShale Daily Nov. 16, 2010;Nov. 10, 2010).

Ciarlone doesn't think the shale gas industry has "reached a point of no return, like Three Mile Island...It was devastating not only because of the severity of what happened, but because the impact reinforced the public's worst fears before the industry had built a foundation of trust."

The shale gas industry, he said, "seems to be where nuclear was in 1978...and there are still opportunities to make changes to gain the public's trust. For shale gas to continue to grow as envisioned, the industry needs to make changes."

The natural gas industry's shale developments have "the potential to fuel a renaissance in the United States," Ciarlone told the audience. "It's easy for end-users to seek stable prices and predictability for the future, but there also is a growing manufacturing sector created by the middle class...that has created tens of thousands of jobs in the energy sector..."

Better "engagement" with the public is key, he told the audience. "People can have their own set of facts," and when the industry representatives meet with the public, he said the discussions need to be rational, not emotional. "Durable agreements are built upon trust, not data."

Embracing "reasonable regulation" also is important, said the Alcoa executive. The "first step is to openly acknowledge the hazards and reasonable fears" and welcome public input. In addition, the industry must continue to "adopt, promote and share" best practices.

"As an end-user, we can't afford to wait," he said. "Every day we must choose to be transparent and accountable."

Tucker, who also is spokesman for the national shale gas education initiative known as Energy In Depth, said criticism of operations within the Marcellus Shale has shifted since drilling ramped up considerably in 2008. "Local concerns" such as noise, dust and trucks accounted for 90% of the complaints then while 10% were "ideological concerns" such as water, air and chemical contamination concerns.

Today around 35% of the complaints center are local concerns; 65% are ideological, Tucker said.

Energy In Depth distributes fact sheets, provides an up-to-date library and "holds the opposition to account" by giving interviews that offer the other side of the story. But it's a constant battle, said Tucker.

"It takes six seconds for a complaint versus 16 minutes to refute," he said. "They deal in bumper stickers, we have to explain..."

Tucker was asked if the problems that have occurred in the gas patch were the result of poor technology or the poor use of technology.

"The vast majority" of the accidents that have occurred in shale operations "are human error," he said. "Humans continue to do the job for us..." and the "general public is a new audience...It's not just Wall Street, it's not just regulators..."

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